UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               -------------------
                                    Form 10-K

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

                 For the Fiscal Year Ended December 31, 1999 or

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

              For the Transition Period from ________ to ________.

                         Commission file number: 0-26620

                                   ACCOM, INC.

             (Exact name of Registrant as specified in its charter)

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

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

       Registrant's telephone number, including area code: (650) 328-3818
                       ----------------------------------

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

           Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, $0.001 par value per share
                       ----------------------------------

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  than the
Registrant was required to file such reports).  and (2) has been subject to such
filing requirements for the past 90 days. YES 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 $ 8,493,309 as of March 15, 2000, 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 10,133,538  shares of  Registrant's  Common Stock issued and
outstanding as of March 15, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Information  required  under  Part III will be filed not later than 120
days after the end of the fiscal  year  covered by this Form 10-K as part of the
Registrant's Proxy Statement for its annual meeting of stockholders.

         "Accom," "Abekas," "Axial,"  "DveousFX,"  "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.  This Report also includes  trademarks  of companies  other than Accom,
Inc.  Unless the context  indicates  otherwise,  reference in this Report to the
"Company" and "Accom" refers to Accom, Inc. and its consolidated subsidiaries.


<PAGE>

                                     PART I

Item 1.  Business

         The company  desires to take advantage of the "safe harbor"  provisions
of the  Private  Securities  Litigation  Reform Act of 1995.  Specifically,  the
Company  wishes to alert  readers  that the  factors  set forth in the  sections
entitled  "Manufacturing and 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, Inc. ("Accom" or the "Company")  designs,  manufactures,  sells,
and supports a complete line of digital video signal  processing,  editing,  and
disk  recording  tools,   primarily  for  the   professional,   worldwide  video
post-production  and  live  broadcasting,  and  computer  video  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  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 and digital
video servers 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>
    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 using compressed
                                                            video
  ------------------------------------------------------------------------------------------------------------------
       AFFINITY(TM)                                         Integrated non-linear editing work station for long and
                                                            short  form  programs  and  commercials  using multiple
                                                            streams of uncompressed video
  ------------------------------------------------------------------------------------------------------------------
    Video Digital Disk Recorders
  ------------------------------------------------------------------------------------------------------------------
       APR(TM)/Attache                                      On-line post-production editing and effects and on-air
                                                            playback of graphics for broadcast
  ------------------------------------------------------------------------------------------------------------------
       WSD(R)2Xtreme                                        Desktop computer graphics and animation production
  ------------------------------------------------------------------------------------------------------------------
       Axess(TM)                                            Creation and broadcast distribution of news graphics
                                                            and short video segments
  ------------------------------------------------------------------------------------------------------------------
       Abekas(R)6000                                        Multi-user digital video server for broadcast
                                                            applications
  ------------------------------------------------------------------------------------------------------------------
</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 the  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  included  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.

          On  January  21,  2000,  Accom and  certain of its  subsidiaries  sold
substantially  all of their  respective  assets related to the ELSET virtual set
product line ("ELSET") to IMadGINE Video Systems Marketing, B.V. ("IMadGINE"), a
Dutch  company that is a wholly  owned  subsidiary  of Orad Hi-Tec  Systems Ltd.
("Orad"),  an Israeli corporation.  IMadGINE also purchased the stock of Accom's
subsidiary,  Accom Poland Sp. z o.o., a Polish corporation ("Accom Poland"). The
Company and its subsidiaries also sold to IMadGINE certain intellectual property
related to the ELSET  business.  ELSET  products  consist  of  virtual  sets for
high-end video content  creation in real time.  The Company's  first shipment of
ELSET virtual set tools occurred in March 1996 with the final shipment occurring
in  December  1999.  With  the  sale of ELSET to  IMadGINE,  Accom  reduced  its
headcount of full-time employees by 13. The positions  eliminated consisted of 9
software  engineers and 1 administrative  aide in the employment of Accom Poland
and 3 marketing and sales  employees  operating out of the Company's main office
in Menlo Park, California.


                                       3

<PAGE>

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.

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  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 post-production and distribution segments
of marketplace.

         With the sale of the ELSET  virtual set product line in January 2000 to
IMadGINE, Accom greatly reduced its presence in the production market place. The
production  market  place is  characterized  by  product  offerings  used in the
creation  of  video  content.   Accom  anticipates  that  its  emphasis  in  the
foreseeable  future  will  be on the  post-production  and  distribution  market
places.

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 half a million  dollars  due to the cost and
variety of equipment  required,  and professional  post-production  services can
cost in excess of $750 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


                                       4

<PAGE>

in an uncompressed  format. An editor using a compression-based  off-line system
must  decompress  the video,  add effects and graphics and then  recompress  the
video. This adds complexity to the editing process and often further compromises
the video  fidelity  of the final  content.  Moreover,  these  off-line  systems
typically provide the user with a single video stream,  which does not allow the
simultaneous manipulation of multiple streams of video elements in real time.

         To   improve   productivity   and   creative   flexibility,    high-end
professionals  increasingly  require on-line  editing systems with  simultaneous
random access to multiple video streams and video of 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  stand-alone  still  image disk  storage
devices and analog tape-based systems when broadcasting commercials and programs
such as news,  sports  and  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  shared  content  and
distributing  it over  multiple  channels.  Quick  access by  multiple  users to
content is critical to effective and economical news,  sports and  entertainment
broadcasting.   Networked  digital  video  disk  recorders  and  servers  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 and repurpose the content
they create and distribute.

The Accom Approach

         The Company believes that  traditional  video systems do not adequately
meet the emerging  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 digital environments.


                                       5

<PAGE>

         Accom's systems offer the following benefits:

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

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

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

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

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

         The Company  offers a range of products to the high-end  segment of the
video  post-production  and  distribution  markets.  The  Company's  current key
products are:

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;

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

o     Multi-channel digital video servers for broadcast applications.

Accom Strategy

         Accom's  goal  is to  be a  leading  supplier  of  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
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 in order 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 nine product lines that address the needs
of  the  post-production   and  distribution  market  segments.   The  Company's
non-linear  editing  systems,  on-line  editing  control  systems,  digital disk
recorders and signal processing equipment are used primarily in post-production.
Digital news  graphics and clip servers and  multi-channel  servers  address the
needs of the video distribution segment.
<TABLE>
         The following  table  summarizes the Company's key market  segments and
products:
<CAPTION>
  -----------------------------------------------------------------------------------------------------------------
                     MARKETS / Product                                       Primary Applications
  -----------------------------------------------------------------------------------------------------------------
  POST-PRODUCTION:
  -----------------------------------------------------------------------------------------------------------------
<S>                                                         <C>
    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 using
                                                            compressed video
  -----------------------------------------------------------------------------------------------------------------
       AFFINTY(TM)                                          Integrated non-linear workstation for long and short
                                                            form programs and commercials using multiple streams
                                                            of uncompressed video
  -----------------------------------------------------------------------------------------------------------------
   Video Digital Disk Recorders

  -----------------------------------------------------------------------------------------------------------------
       APR(TM)/Attache                                      On-line post-production editing and effects and
                                                            on-air playback of graphics for broadcast
  -----------------------------------------------------------------------------------------------------------------
       WSD(R)2Xtreme                                        Desktop computer graphics and animation production
  -----------------------------------------------------------------------------------------------------------------
  DISTRIBUTION:
  -----------------------------------------------------------------------------------------------------------------
    Digital Signal Processors
  -----------------------------------------------------------------------------------------------------------------
       Dveous(TM)and Brutus                                 Digital Video Effects systems for news and sports
  -----------------------------------------------------------------------------------------------------------------
       Axess(TM)                                            Creation and broadcast distribution of news graphics
                                                            and short video segments
  -----------------------------------------------------------------------------------------------------------------
       Abekas(R)6000                                        Multi-user digital video server for broadcast
                                                            applications
  -----------------------------------------------------------------------------------------------------------------
</TABLE>
         The following  table  summarizes the Company's net sales, in thousands,
for the twelve months ended December 31, 1999, by market segment:

                                            For The Twelve Months Ended
                                                December 31, 1999
                                                -----------------
                Market                      Amount              Percent
                ------                      ------              -------
         Production                        $  3,840              11.7%
         Post-Production                     15,879              48.2%
         Distribution                         8,813              26.7%
         Other                                4,437              13.4%
                                      -----------------------------------------
                                           $ 32,969             100.0%
                                      =========================================


                                       7

<PAGE>

         With the sale of ELSET  virtual set product line to IMadGINE in January
2000, the Company no longer  participates in the production market segment.  The
sales for the production  segment for the twelve months ended December 31, 1999,
included sales of virtual set software and support and the WSD(R)2Xtreme.

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 a digital disk recorder like the APR(TM)
Attache or the WSD(R) 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 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 Editors

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

         On-Line  Editors

         The Company's  Axial(R) line of digital  on-line video editing  systems
consists of various  models of the Axial(R)  3000.  Key upgrade  options for the
Axial(R) 3000 are 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


                                       8

<PAGE>

edit  decision  lists  from  off-line  editing  systems  for quick  assembly  of
full-quality  video  content.  The Axial(R) 3000 is 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 family of digital nonlinear editing workstations offers a
complete  range of solutions for simple to complex  applications.  In 1999,  the
Company introduced its next generation of non-linear editing products called the
AFFINITY(TM).  In addition,  the Company's  non-linear  product line consists of
four   products,    MicroSphere(R),    VideoSphere(R),    StrataSphere(R)    and
DigiSphere(R).  The key features of the higher-end AFFINITY(TM),  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.

         AFFINITY(TM)  is a real time editing  system  offering  five streams of
uncompressed  and compressed  video.  Key features  include a frame-based 3D DVE
with advanced real time effects based on the Abekas Dveous  technology  and full
motion  alpha keys.  There is full  support for  three-point  and  drag-and-drop
editing,  new project  oriented  interface  with search and sort  capability and
stackable  video clips,  instant cut away shots and quick  version  comparisons.
AFFINITY(TM)  utilizes third party disk arrays from Medea Corporation,  offering
the best price performance in terms of storage capacity,  access speed and price
to end users.  There were no sales of  AFFINITY(TM)  in 1999.  Initial  sales of
AFFINITY(TM) occurred in February, 2000.

         MicroSphere(R) offers dual stream, real time 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,  real time 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  array  of  individual  disks  ("RAID").
Applications  of the APR(TM) include


                                       9

<PAGE>

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 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.

Computer Graphics and Animation Digital Disk Recorder

         The  Company's  WSD  digital  disk  recorder is  primarily  used in the
production  and   post-production  of  computer  graphics  and  animation.   The
WSD(R)2Xtreme,  the fourth  generation  WSD(R) product,  is a D1 quality digital
video disk  recorder and video  subsystem  that enables users to record and play
back digital video images in real time and rapidly transfer digital video images
to and from computer  workstations.  The  WSD(R)2Xtreme  enables more  efficient
creation of 2D and 3D graphics and  animation by providing a bridge  between the
computer  workstation  and video tape  recorders  and other video  devices.  The
WSD(R)2Xtreme's  digital random access  recording and playback  features improve
the  quality  of  desktop  graphics  production  by  eliminating  the  speed and
maintenance  problems  associated  with analog  video tape  recorders.  With the
WSD(R)2Xtreme,  frames  can be played  back in real time so the user can see the
end result in full motion on a video  monitor.  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
Silicon Graphics, Windows-NT(TM) and Apple Macintosh computer platforms.

Digital News Graphics and Clip Servers-Axess(TM)

         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 a 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 to
70,000  still images or from 17 minutes to over 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.

Multi-Channel Digital Video Server-Abekas(R) 6000

         The  new Abekas(R)  6000 is a disk-based,  broadcast  quality,  digital
video server in a compact, single-chassis design. With user-selectable bit rates
using DVCPRO compression,  the Abekas(R) 6000 provides the user with the ability
to select the compression  level  appropriate to his needs.  The system is fully
DTV ready,  accepting  and


                                       10

<PAGE>

supplying digital video, key, and digital audio signals. It supports either two,
four, six, or eight independently  controlled digital video channels, with up to
four tracks (two stereo pairs) of digital audio per video channel when operating
at either the DVCPRO or DVCPRO-50  compression  level. With enough disk capacity
to provide  dozens of hours of local storage  capacity,  the  Abekas(R)  6000 is
ideal for use in news  editing and play out,  program  cache and play out,  spot
cache and play out, and program materials distribution.

Customers and Applications

         The primary end users of the  Company's  products are  post-production,
broadcast and cable companies and studios.  No customer  accounted for more than
10% of total  revenues  in the  twelve  months  ended  December  31,  1999.  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.

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 twelve months ended December 31, 1999, the three months
ended December 31, 1998 and the twelve months ended September 30, 1998 and 1997,
the Company generated 35%, 45%, 45% and 42%, respectively, of its net sales from
customers in markets outside of the United States.  The Company has one employee
based in the United Kingdom to manage and support the Company's  distributors in
Europe,  Africa and the 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
both its Menlo Park and Grass Valley facilities.

         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 and its video and computer  graphics digital disk recorders.  The
Company's  engineering  staff  consists of software and hardware  engineers  and
other support


                                       11

<PAGE>

personnel.  As of  February  29,  2000,  the  Company  employed 31 people in its
research and development  organization,  of which approximately 13 professionals
were focused on software  development.  During the twelve months ended  December
31, 1999,  the three months ended December 31, 1998, and the twelve months ended
September 30, 1998 and 1997,  the Company's  research and  development  expenses
were  approximately $7.3 million,  $1.2 million,  $3.3 million and $3.3 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.

Competition

         The video 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  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 competed  primarily with a
limited number of  comparably-sized  companies as well as larger vendors such as
Sony Corporation,  The Grass Valley Group,  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


                                       12

<PAGE>

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 competition from these larger vendors.

         The  multi-channel  digital  video server and digital news graphics and
clip server market segment is an emerging market segment.  The Company currently
competes with established  video companies such as Quantel Ltd. (a subsidiary of
Carlton  Communications  plc), Leitch Technology  Corporation,  The Grass Valley
Group 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  Abekas(R)  6000 and
Axess(TM). In addition, the Company expects that existing vendors and new market
entrants  will develop  products  that will compete  directly with the Abekas(R)
6000 and Axess(TM) and that competition will increase  significantly as the rate
of  conversion  from analog  tape-based  systems to digital  disk-based  systems
increases.  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.

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

Proprietary Rights and Licenses

Proprietary Rights

         The Company's  success and ability to compete is dependent in part upon
its proprietary technology. The Company relies on a combination of patent, trade
secret,   copyright  and  trademark  law,  nondisclosure  agreements  and  other
intellectual property methods to protect its technology.  The Company's products
are  generally  sold  pursuant to purchase and license  agreements  that contain
terms and conditions restricting unauthorized disclosure or reverse-compiling of
the proprietary  software  embodied in the products.  The Company owns 37 United
States patents, 17 foreign patents and has applications pending for five 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 36 registered trademarks in the United States,
39  registered  foreign  trademarks  and has four pending  United States and two
pending 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


                                       13

<PAGE>

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.

Employees

         On  February  29,  2000,  the  Company  had  109  full-time  employees,
including 31 in research and development,  39 in marketing,  sales and technical
support, 25 in manufacturing and 14 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--General."   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
depends in part upon whether certain of the two companies'  business  operations
and their  product  offerings  can be  integrated  in an efficient and effective
manner. 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.  In
addition,  if benefits resulting from product  development that was under way at
Scitex Digital Video at the time of the Acquisition are not fully realized,  the
resulting   shortfall  in  revenues   anticipated   from  these  products  under
development  may have an adverse  effect on the Company's  results of operations
and financial  condition.  Additionally,  the  estimates  used by the Company in
valuing  the  in-process  research  and  development  acquired  were  based upon
assumptions  the Company  believed  to be  reasonable  but which are  inherently
uncertain and unpredictable.  The Company's assumptions may have been incomplete
or  inaccurate.   No  assurance  can  be  given  that  unanticipated  events  or
circumstances  will  not  occur.  Accordingly,  actual  results  may  vary  from
projected  results.  Any such  variance  may result in an adverse  effect on the
financial condition and results of the Company.


                                       14

<PAGE>

         Potential Fluctuations in Operating Results. The Company incurred a net
loss of $2.6  million for the twelve  months ended  December  31, 1999.  For the
three-month  Transition  Period ending December 31, 1998, the Company incurred a
net loss of $3.9  million.  The Company also incurred net losses of $2.9 million
and $4.5 million,  respectively,  in the twelve months ended  September 30, 1998
and 1997.  There can be no assurance  that the Company will be  profitable  on a
quarterly  or annual  basis in the future.  The  Company's  quarterly  operating
results  in the past have  fluctuated  and may  fluctuate  significantly  in the
future  depending  on such  factors as the timing and  shipment  of  significant
orders, new product introductions and changes in pricing policies by the Company
and its  competitors,  the timing and market  acceptance  of the  Company's  new
products  and  product  enhancements,  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 take 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 first 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.

         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.

         Dependence  on  AFFINITY(TM)  Sales.  The  Company  anticipates  that a
significant  proportion  of its sales in 2000  will come from  sales of its new,
non-linear editing product,  AFFINITY(TM).  AFFINITY(TM) was introduced in 1999.
Initial shipments  occurred in February 2000. As a new product with no record of
prior sales, there can be no assurance that sales of AFFINITY(TM) will reach the
levels anticipated by the Company.  To the extent that sales of AFFINITY(TM) are
less than planned,  there could be an adverse effect on the Company's  business,
financial condition, and results of operations.


                                       15

<PAGE>

         Credit Line  Financing.  In February 2000, the Company  entered into an
agreement with The Provident Bank ("Provident") for a $2,000,000  revolving line
of credit  ("line").  Borrowings  are limited to a maximum of  $1,500,000  until
March 31, 2000. Removal of the borrowing limit is dependent on meeting a certain
financial  covenant.  The  Company  anticipates  that the line will be needed to
provide operating cash for the day-to-day operations of the Company in 2000. The
amount of borrowing allowed under the line is dependent on the level of eligible
accounts  receivable.  In addition,  the Company must fulfill certain  financial
performance covenants set by Provident. To the extent that the level of eligible
accounts receivable is not sufficient or the Company fails to meet the financial
performance  covenants,  the  Company's  ability  to  borrow  funds  to  finance
operations  will be negatively  impacted.  In the event the Company is unable to
borrow funds,  the Company will  reevaluate its operating  plans and believes it
will have the  ability to delay or reduce  expenditures  so as to not breach its
loan covenants or require  additional  resources in order to continue as a going
concern at least through December 31, 2000.

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

         The  introduction  of  new  products  or  product   enhancements   with
reliability,  quality or compatibility problems can result in reduced or delayed
sales,  delays in  collecting  accounts  receivable  or  additional  service and
warranty costs.  In the past, the Company has delivered  certain new products to
customers   prematurely,   and,  as  a  result,  such  products  have  contained
performance  deficiencies.   For  example,  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, may contain errors
that may be detected at any point in the product's life cycle,  including  after
product  introduction.  For example, the Company has from time to time needed to
update the  software  for its  products  to address  performance  problems.  The
Company expects the software  content of its products to increase in the future.
There can be no  assurance  that the  Company  will not  experience  delays  and
software  or  hardware  related  technical  problems  in its  current and future
efforts  to  develop  products  and  product  enhancements.  Any such  delays or
problems  could  have a  material  adverse  effect  on the  Company's  business,
financial condition and results of operations.

         Dependence on Key  Personnel.  The Company's  success  depends in large
part  on the  continued  service  of its key  technical  and  senior  management
personnel and on its ability to attract,  motivate and retain  highly  qualified
employees.  None of the Company's key technical and senior management  personnel
is bound by an  employment  agreement  or an  agreement  not to compete with the
Company  following  termination of employment.  Competition for highly qualified
employees is intense, and the process of identifying and successfully recruiting
personnel with the combination of skills and attributes  required to execute the
Company's strategies is often lengthy.  Accordingly, the loss of the services of
key personnel could have a material  adverse effect upon the Company's  research
and development efforts and on its business,  financial condition and results of
operations.  There can be


                                       16

<PAGE>

no assurance  that the Company will be successful in retaining its key technical
and  management  personnel  and in  attracting  and  retaining  the personnel it
requires  for  continued  growth.  The  Company  has key person  life  insurance
covering certain of its management personnel.

         Management of Growth.  Although the Company  streamlined its operations
during fiscal 1997 and sold the ELSET virtual set business in January 2000,  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 twelve months ended December 31, 1999,
the  three-month  Transition  Period  ended  December 31, 1998 and in the twelve
months ended September 30, 1998 and 1997, international sales accounted for 35%,
45%, 45% and 42%,  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 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


                                       17

<PAGE>

SDV's  distributors.  Because the  Company  does not have a  historical  working
relationship with many of such distributors, there can be no assurance that such
distributors  will  continue to do business  with the Company.  A failure of the
Company's distributors to successfully market and support the Company's products
would  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

         Impact of Year 2000. In prior years,  the Company  discussed the nature
and progress of its plans to become Year 2000 ready.  In late 1999,  the Company
completed its remediation and testing of systems.  As a result of those planning
and implementation  efforts, the Company experienced no significant  disruptions
in  mission  critical  information  technology  and  non-information  technology
systems and believes those systems successfully  responded to the Year 2000 date
change.  The Company  incurred costs of  approximately  $200,000  during 1999 in
connection  with  remediating  its  systems.  The  Company  is not  aware of any
material problems resulting from Year 2000 issues, either with its products, its
internal  systems,  or the products and services of third  parties.  The Company
will continue to monitor its mission critical computer applications and those of
its  suppliers  and vendors  throughout  the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.

         Substantial  Control  by  Existing  Stockholders;   Effect  of  Certain
Anti-Takeover Provisions. As of March 15, 2000, the Company's executive officers
and directors,  and their affiliates,  beneficially owned approximately 53.0% of
the Company's  outstanding  Common Stock. As a result,  the Company's  executive
officers and directors and their affiliates will be able to exercise significant
influence  over the  Company  and its  business  and affairs as well as over the
election of directors,  regardless of how other  stockholders of the Company may
vote.  Furthermore,  acting together, such stockholders may be able to block any
change in control of the Company.

         In  addition,  a current  director  of the  Company  was  appointed  by
American Bankers Insurance Group, which owns 8% 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 has been and may continue to be subject to  significant  volatility,
particularly  on a quarterly  basis.  Any  shortfall in revenue or earnings from
levels  expected  by  securities  analysts,  investors  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


                                       18

<PAGE>

float") of the Company, as of March 15, 2000, was approximately $8,493,000 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  office is located in Menlo Park,  California,
and consists of  approximately  30,000 square feet under a lease that expires in
June 2005. In addition,  the Company has an office 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 twelve months ended December 31, 1999.

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

         None.

Executive Officers of the Company

<TABLE>
         The executive  officers of the Company,  and their ages as of March 30,
2000, are as follows:

<CAPTION>
Name                                     Age                            Position(s)
----                                     ---                            -----------
<S>                                       <C>    <C>
Junaid Sheikh....................         46     Chairman of the Board, President and Chief Executive
                                                 Officer
Phillip Bennett..................         46     Executive Vice President, Technology and Engineering
Donald K. McCauley...............         59     Senior Vice President, Finance, and Chief Financial
                                                 Officer
Ian Craven.......................         45     Senior Vice President, Engineering
William T. Ludwig................         52     Vice President, Sales
William Harris Rogers............         52     Vice President, Marketing
Donald W. Petersen...............         55     Vice President, Manufacturing
</TABLE>


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

         Phillip Bennett has served as Executive Vice President,  Technology and
Engineering,  since  December  1998.  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 has served as Senior Vice  President,  Finance,  and
Chief Financial  Officer since December 1998. Prior to joining the Company,  Mr.
McCauley  served as the Senior Vice  President  of Finance  and


                                       19

<PAGE>

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 has served as Vice President,  Sales,  since December
1998.  From July 1996 to December  1998,  Mr. Ludwig served as Vice President of
Sales for Americas/Far  East (AMFE) for Pinnacle  Systems.  From January 1996 to
July 1996, he was the Director of Sales for FAST Electronics. From 1985 to 1995,
he served in various sales capacities for Abekas Video Systems.

         William Harris Rogers has served as Vice  President,  Marketing,  since
December  1998.  From May 1998 to December  1998,  he served as Vice  President,
Sales and Marketing,  of the Company. 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.


                                       20

<PAGE>

                                     PART II

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

<TABLE>
         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.

<CAPTION>
                                                                                           High          Low

<S>                                                                                        <C>          <C>
        Fiscal Year ended September 30, 1997:
            First Quarter.............................................................     $2.63        $0.91
            Second Quarter............................................................     $2.00        $1.00
            Third Quarter.............................................................     $2.25        $1.00
            Fourth Quarter............................................................     $2.88        $1.56
        Fiscal Year ended September 30, 1998:
            First Quarter.............................................................     $2.63        $1.06
            Second Quarter............................................................     $1.44        $0.81
            Third Quarter.............................................................     $1.16        $0.50
            Fourth Quarter............................................................     $0.69        $0.22
        For the Three Months ended December 31, 1998..................................     $0.86        $0.19
        Fiscal Year  ended December 31, 1999:
            First Quarter.............................................................     $1.25        $0.66
            Second Quarter............................................................     $1.56        $0.81
            Third Quarter.............................................................     $0.97        $0.38
            Fourth Quarter............................................................     $1.00        $0.44
</TABLE>


         On March 15, 2000, the closing sale price of the Company's common stock
as reported on the OTC Bulletin Board was $ 2.25.

         The  Company  had 96  stockholders  of  record  as of March  15,  2000,
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.


                                       21

<PAGE>

Item 6.  Selected Consolidated Financial Data

<TABLE>
         The following table presents  selected  consolidated  financial data of
the  Company.  This  historical  data  should  be read in  conjunction  with the
attached  consolidated  Financial  Statements  and the related notes thereto and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" appearing in Item 7 of this Form 10-K.

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

                                                                                         Three Months Ended   Twelve Months Ended
Consolidated Statement of Operations Data:      Fiscal Year Ended September 30,              December 31,         December 31,
                                                -------------------------------              ------------         ------------
                                                1995        1996       1997     1998      1997        1998       1998       1999
                                              --------   --------    --------  --------  --------   --------   --------   -------
                                                                                        (Unaudited)           (Unaudited)
<S>                                           <C>         <C>        <C>        <C>       <C>       <C>         <C>       <C>
Net sales.................................... $21,312     $21,408    $17,627    $12,617   $4,133    $ 3,363     $11,847   $32,969
Gross profit.................................  11,175      10,398      6,593      6,439    2,387      1,389       5,441    17,401
Operating income (loss)...................... (10,792)     (1,621)    (4,657)    (3,042)      90     (3,882)     (7,014)   (2,169)
Net income (loss)............................ (10,840)       (916)    (4,490)    (2,881)     142     (3,896)     (6,919)   (2,595)
Basic net income (loss) per share(1).........   (2.47)      (0.14)     (0.68)     (0.43)    0.02      (0.52)      (1.00)    (0.26)
Diluted net income (loss) per shar(1)........   (2.47)      (0.14)     (0.68)     (0.43)    0.02      (0.52)      (1.00)    (0.26)
Shares used in computing:
  Basic net income (loss) per share(1).......   4,397       6,439      6,587      6,662    6,638      7,552       6,891    10,124
  Diluted net income (loss) per share(1).....   4,397       6,439      6,587      6,662    7,034      7,552       6,891    10,124



Balance Sheet Data:                                      As of September 30,             As of December 31,    As of December 31,
                                                         --------------------            -------------------   ------------------
                                                1995        1996       1997     1998      1997        1998       1998       1999
                                              --------   --------    --------  --------  --------   --------   --------   -------
                                                                                        (Unaudited)           (Unaudited)
  Working capital (deficit)...........        $12,220      11,171      7,550      4,633    7,492     (2,661)     (2,661)      200
  Total assets........................         19,712      17,279     11,545      8,093   12,447     17,213      17,213    12,035
  Long-term notes payable.............             83          24          -          -        -      1,165       1,165     3,261
  Total stockholders' equity..........        $13,679     $12,952    $ 8,566    $ 5,720   $8,734    $ 3,929     $ 3,929   $ 1,338


<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, 1999 and 1998 and
as of September 30, 1998 and 1997 and for the twelve  months ended  December 31,
1999 and 1998, the three months ended December 31, 1998 and 1997 and for the two
fiscal  years ended  September  30, 1998 and 1997,  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.


                                       22

<PAGE>

Overview

         Accom  designs,  manufactures,  sells,  and supports a complete line of
digital video signal processing,  editing,  and disk recording tools,  primarily
for  the   professional   worldwide  video   post-production   and  distribution
marketplaces.  The Company had previously offered products,  including the ELSET
Virtual Set, in the video and computer graphics production marketplace.

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

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

Post-Production:
  Editing:
      Digital Video Editors:
          Axial(R)3000 on-line editor
          Sphere(TM)non-linear editor
          AFFINITY(TM)
      Digital Disk Recorders:
          Work Station Disk ("WSD(R)") 2Xtreme(TM)Computer Graphics Digital Disk
          Recorder
          Accom Professional Recorder ("APR(TM)") Attache(TM)
      Digital Switcher:
          8150 switcher
Distribution:
  Axess(TM) Digital News Graphic and Clip Server
  Dveous(TM) and Brutus digital video effects systems
  Abekas(R) 6000
--------------------------------------------------------------------------------

         The Company's  revenues are currently  derived  primarily  from product
sales.  The Company  generally  recognizes  revenue  upon product  shipment.  If
obligations exist at the time of shipment, revenue recognition is deferred until
obligations are met. The Company's gross margin has historically fluctuated from
quarter to quarter and declined on an annual basis. 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.

         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 included 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."

          On  January  21,  2000,  Accom and  certain of its  subsidiaries  sold
substantially  all of their  respective  assets related to the ELSET virtual set
product  line  to  IMadGINE.  IMadGINE  also  purchased  the  stock  of  Accom's
subsidiary, Accom Poland. The Company and its subsidiaries also sold to IMadGINE
certain  intellectual  property  related to the ELSET  business.  ELSET products
consist of virtual sets for high-end  video content  creation in real time.  The
Company's first shipment of ELSET virtual set tools occurred in March 1996, with
the  final  shipment  occurring  in  December  1999.  With  the sale of ELSET to
IMadGINE,  Accom  reduced  its  headcount  of  full-time


                                       23

<PAGE>


employees by 13. The positions  eliminated consisted of 9 software engineers and
1  administrative  aide in the  employment  of Accom Poland and 3 marketing  and
sales employees operating out of the Menlo Park office.

Results of Operations

Twelve Months Ended December 31, 1999 vs. Twelve Months Ended December 31, 1998

<TABLE>
         The following table presents the Company's  Consolidated  Statements of
Operations  (dollar  amounts in thousands)  for the twelve months ended December
31, 1999 and 1998:

<CAPTION>
                                                                       For the Twelve Months Ended
                                                                               December 31,                   Increase (Decrease)
                                                                       --------------------------          ----------------------
                                                                         1999              1998             Amount         Percent
                                                                       --------          --------          --------         -----
                                                                                        (Unaudited)
<S>                                                                    <C>               <C>               <C>               <C>
Net sales                                                              $ 32,969          $ 11,847          $ 21,122          178.3%
Cost of sales                                                            15,568             6,406             9,162          143.0%
                                                                       --------          --------          --------          -----
Gross profit                                                             17,401             5,441            11,960          219.8%
                                                                       --------          --------          --------          -----
Operating expenses:
  Research and development                                                7,340             3,721             3,619           97.3%
  Marketing and sales                                                     9,158             4,916             4,242           86.3%
  General and administrative                                              3,072             1,623             1,449           89.3%
  Charge for acquired in-process technology                                --               2,195            (2,195)        (100.0)%
                                                                       --------          --------          --------          -----
  Total operating expenses                                               19,570            12,455             7,115           57.1%
                                                                       --------          --------          --------          -----
Operating loss                                                           (2,169)           (7,014)            4,845           69.1%
Interest and other income (expense), net                                   (414)              114              (528)        (463.2)%
                                                                       --------          --------          --------          -----
Loss before provision for income taxes                                   (2,583)           (6,900)            4,317           62.6%
Provision for income taxes                                                   12                19                (7)         (36.8)%
                                                                       --------          --------          --------          -----
Net loss                                                               $ (2,595)         $ (6,919)         $  4,324           62.5%
                                                                       ========          ========          ========          =====
</TABLE>

<TABLE>
         The following table presents the Company's  Consolidated  Statements of
Operations as a percentage of net sales for the twelve months ended December 31,
1999 and 1998:

<CAPTION>
                                                                                      For the Twelve Months
                                                                                       Ended December 31,
                                                                                      ----------------------  Increase
                                                                                       1999         1998     (Decrease)
                                                                                       ----         ----     ----------
                                                                                                (Unaudited)
<S>                                                                                   <C>          <C>         <C>
Net sales                                                                             100.0%       100.0%        -
Cost of sales                                                                          47.2%        54.1%      (6.9)%
                                                                                   -------------------------------------
Gross margin                                                                           52.8%        45.9%       6.9%
                                                                                   -------------------------------------
Operating expenses:
     Research and development                                                          22.3%        31.4%      (9.1)%
     Marketing and sales                                                               27.8%        41.5%     (13.7)%
     General and administrative                                                         9.3%        13.7%      (4.4)%
     Charge for acquired in-process technology                                            -         18.5%     (18.5)%
                                                                                   -------------------------------------
     Total operating expenses                                                          59.4%       105.1%     (45.7)%
                                                                                   -------------------------------------
Operating loss                                                                         (6.6)%      (59.2)%     52.6%
Interest and other income (loss), net                                                  (1.3)%        1.0%       2.3%
                                                                                   -------------------------------------
Loss before provision for income taxes                                                 (7.9)%      (58.2)%     50.3%
Provision for income taxes                                                                -          0.2%      (0.2)%
                                                                                   -------------------------------------
Net loss                                                                               (7.9)%      (58.4)%     50.5%
                                                                                   =====================================
</TABLE>

         The following is a discussion  comparing the results of operations  for
the twelve months ending December 31, 1999 and 1998:

                                       24

<PAGE>


         Net sales.  The  increase in net sales  during the twelve  months ended
December 31, 1999,  from levels for the twelve  months ended  December 31, 1998,
was primarily due to increased  sales in the  post-production  and  distribution
marketplaces as well as increased customer service revenues. The increased sales
resulted  largely from sales from product lines  acquired in the  acquisition of
the Scitex Digital Video assets and business in December, 1998.

         International  sales in the twelve  months ended  December 31, 1999 and
1998,  represented  35% and 43% of net sales,  respectively,  as export sales to
Europe  decreased,  as a percentage  of total sales,  from 15% to 14% and export
sales to the Pacific Rim decreased,  as a percentage of total sales, from 23% to
18%.

         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 December 31, 1999 and 1998:

                      For the Twelve Months Ended   For the Twelve Months Ended
                           December 31, 1999            December 31, 1998
                        ----------------------         --------------------
    Market              Amount         Percent         Amount       Percent
    ------              ------         -------         ------       -------
Production             $ 3,840           11.7%        $ 5,275         44.5%
Post-Production         15,879           48.2%          4,046         34.2%
Distribution             8,813           26.7%          1,640         13.8%
Other                    4,437           13.4%            886          7.5%
                       -------          -----         -------        -----
                       $32,969          100.0%        $11,847        100.0%
                       =======          =====         =======        =====


         Cost of sales.  Cost of sales, as a percentage of sales,  decreased for
the twelve  months ended  December 31, 1999,  from levels for the twelve  months
ended  December 31, 1998,  as a result of increased  overall  sales and a higher
proportion of higher margin, customer service sales.

         Research and  development.  Research and  development  expenses for the
twelve  months ended  December 31,  1999,  increased  over levels for the twelve
months  ended  December 31,  1998,  due to  increases  in headcount  and related
overhead expenses,  consultant  expenses,  and materials and services related to
specific project  development.  The increase in headcount was primarily a result
of the  acquisition  of the Scitex Digital Video assets and business in December
1998.

         Marketing and sales. Marketing and sales expenses for the twelve months
ended  December  31,  1999,  increased  over levels for the twelve  months ended
December 31, 1998,  primarily due to increases in headcount and related overhead
expenses,  expenses for consultants and temporary  employees,  sales  commission
expenses,  travel expenses,  trade show expenses,  and advertising expenses. The
increase in headcount  was primarily a result of the  acquisition  of the Scitex
Digital Video assets and business in December 1998.

         General and administrative.  The increase in general and administrative
expenses  for the twelve  months ended  December  31, 1999,  from levels for the
twelve  months  ended  December  31,  1998,  was  primarily  due to increases in
headcount and related overhead expenses,  expenses for consultants and temporary
employees,  fees for  professional  services,  bank charges and  amortization of
intangibles. The increase in headcount was primarily a result of the acquisition
of the Scitex Digital Video assets and business in December 1998.

         Interest and other income, net. Interest and other income, net, for the
twelve  months ended  December 31,  1999,  decreased  over levels for the twelve
months  ended   December  31,  1998,   due  to  a  decrease  in  the  levels  of
interest-paying investments as well as an increase in debt taken on, in part, to
fund the acquisition of the Scitex Digital Video assets and business in December
1998.

                                       25

<PAGE>


         Provision  for income taxes.  For the twelve months ended  December 31,
1999,  the  provision  for income  taxes  represents  an estimate of the current
foreign tax liability. No benefit related to U.S. losses incurred for the twelve
months ended  December 31, 1999,  has been  recognized by the Company due to the
inability to carry back 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 year ended December 31, 1998, the provision for income taxes
represents an estimate of foreign tax liability.

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 1997:

<CAPTION>
                                                                          For the Three Months
                                                                                  Ended
                                                                                December 31,                Increase (Decrease)
                                                                         ------------------------         ------------------------
                                                                           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 1997:


<CAPTION>
                                                                                          For the Three Months
                                                                                                 Ended
                                                                                              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                                                                   1.3%      (1.7)%
                                                                                         (0.4)%

                                                                                   -------------------------------------
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>

                                                         26

<PAGE>


         The following is a discussion  comparing the results of operations  for
the three months ending December 31, 1998 and 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.

         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 Ended  For the Three Months Ended
                               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 carry back net operating losses and a lack of earnings history. The
deferred  tax asset on the  balance  sheet has been fully  offset by

                                       27

<PAGE>


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 September 30, 1997.

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.

<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, 1998 and 1997:

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


         Note:  In 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:

                                       28

<PAGE>


         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.

         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 carry
back 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.

                                       29

<PAGE>


         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.

Liquidity and Capital Resources

         Since   inception,   the  Company  has  financed  its   operations  and
expenditures  for property and  equipment  through the sale of capital stock and
convertible  debt,  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, 1999, the Company had $328,000 of cash.  Operating
activities  provided $87,000 in net cash in the twelve months ended December 31,
1999 and used $1.8 million in net cash in the twelve  months ended  December 31,
1998.  Net cash  provided by  operating  activities  in the twelve  months ended
December 31, 1999,  was due  primarily to decreases in accounts  receivable  and
inventories  partially  offset  by the  net  loss  and an  increase  in  accrued
liabilities and customer deposits.  Net cash used by operating activities in the
twelve months ended  December 31, 1998, was due primarily to the net loss and an
increase  in  accounts  payable  partially  offset by an  increase  in  accounts
receivable.  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.

         On December 10,  1998,  the Company  signed an  agreement  with LaSalle
Business  Credit,  Inc.  ("LBC"),  a member  of the ABN AMRO  group,  for a $7.5
million  revolving line of credit.  The agreement was amended on March 11, 1999,
July 23,  1999,  and  November  3, 1999.  In  addition,  a waiver was granted on
December  17,  1999,  for the breach of a  financial  covenant as of October 31,
1999.  On January  21,  2000,  the  agreement  between  the  Company and LBC was
terminated.  The credit line was secured by all the assets of the  Company.  The
availability   under  this  line  was  calculated  based  on  eligible  accounts
receivable  .  Borrowings  under  the line were  subject  to  certain  financial
covenants and, as of December 31, 1999,  the Company was not in compliance  with
these covenants. As of December 31, 1999, the Company had an outstanding balance
borrowed  under the line of $559,000.  The balance paid by the Company to LBC at
the time of  termination  was $1.5 million.  The final payment to LBC was funded
from the proceeds of the sale of the ELSET product line to IMadGINE.

         On  February  10,  2000,  the  Company  signed  an  agreement  with The
Provident Bank ("Provident"), an Ohio chartered bank, for a $2,000,000 revolving
line of credit.  Interest accrues on outstanding  borrowings at the bank's prime
rate plus 125 basis  points.  The  credit  line is  secured by all assets of the
Company.  Availability  under the line is calculated based on eligible  accounts
receivable.   Borrowings  under  the  line  are  subject  to  certain  financial
covenants.  Borrowings  are limited to a maximum of  $1,500,000  until March 31,
2000.  Removal  of this  borrowing  limit is  dependent  on  meeting  a  certain
financial covenant.

         On March 12, 1999,  the Company  completed a private  placement of $3.5
million in senior  subordinated  convertible notes with a group of investors led
by the American Bankers  Insurance Group, Inc.  ("ABIG").  The agreement between
the  Company and the  holders of the  convertible  notes was amended and certain
waivers  granted on November 3, 1999,  and  February  10,  2000.  As part of its
agreement to grant certain  waivers on February 10, 2000,  ABIG  stipulated that
the Company use the proceeds  from sale of the ELSET virtual set product line to
IMadGINE to (a) pay or reserve funds to pay for all debt owed to Scitex  Digital
Video and (b) reserve funds for the payment of all transaction  fees relating to
the sale of the ELSET product line. The notes currently have a coupon rate of 8%
per year,  mature in 2004, and are convertible into shares of Accom common

                                       30

<PAGE>


stock at a price of $1.30 per share.  Proceeds from the private  placement  were
used to pay the balance on the  revolving  line of credit with LaSalle  Business
Credit that was outstanding at the time the proceeds were received.

         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.  The Company  believes  that its  operating  plans are
reasonable  and can be achieved.  In the event that results from  operations and
cash flows  generated are less than  planned,  the Company will  reevaluate  its
operating  plans  and  believes  it will  have the  ability  to delay or  reduce
expenditures  so as to not breach the  covenants  of its  credit  facilities  or
require  additional  resources  to ensure that the Company  continues as a going
concern at least through December 31, 2000.

          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-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 The  Provident  Bank  ("Provident")  is equal to the bank's
prime rate plus 125 basis  points.  The interest rate on a $750,000 note payable
to Scitex  Digital  Video is equal to the Merrill  Lynch Money Market  Rate.  As
Provident's  prime rate or the Merrill  Lynch Money Market Rate  fluctuate,  the
interest  expense  incurred  by the  Company  on the  aforementioned  debt  will
fluctuate.  If  Provident's  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 $13,000 (based on debt balances at December 31,
1999).

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

         All of the Company's sales are transacted in U.S. dollars. In addition,
most of the Company's purchases are transacted in U.S. dollars. As a result, the
Company's  operations would not be affected by exchange rate fluctuations except
to the extent that sales in certain  countries  might decease if the U.S. dollar
became substantially stronger than the currency of the countries in question and
purchases denominated in U.S. dollars became prohibitively expensive.

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.

                                       31

<PAGE>


                                    PART III

         Certain  information  required by Part III is omitted  from this report
because the Company will file a definitive proxy statement within 120 days after
the end of its fiscal year  pursuant to Regulation  14A (the "Proxy  Statement")
for its  annual  meeting  of  stockholders  to be held  June  15,  2000  and the
information included therein is incorporated herein by reference.

Item 10. Directors and Executive Officers of the Registrant

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

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

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

Item 11. Executive Compensation

         Information   with  respect  to  executive   compensation  and  related
information is incorporated by reference from the information  under the caption
"Executive   Compensation  and  Related  Information"  in  the  Company's  Proxy
Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Information  with respect to security  ownership of certain  beneficial
owners and management is incorporated  by reference from the  information  under
the caption "Common Stock Ownership of Certain Beneficial Owners and Management"
in the Company's Proxy Statement.

Item 13. Certain Relationships and Related Transactions

         Information   with  respect  to  certain   relationships   and  related
transactions is incorporated by reference from the information under the caption
"Certain   Relationships  and  Related  Transactions"  in  the  Company's  Proxy
Statement.


                                     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, 1999 and 1998
                  and September 30, 1998 and 1997.

                  Consolidated  Statements of Operations - For the twelve months
                  ended  December  31,  1999 and 1998,  the three  months

                                       32

<PAGE>


                  ended  December  31,  1998 and 1997 and for the  Fiscal  Years
                  ended September 30, 1998 and 1997.

                  Consolidated  Statement  of  Shareholders'  Equity  - For  the
                  twelve  months ended  December 31, 1999,  for the three months
                  ended  December  31,  1998  and for  the  Fiscal  Years  ended
                  September 30, 1998 and 1997.

                  Consolidated  Statements of Cash Flows - For the twelve months
                  ended  December  31,  1999 and 1998,  the three  months  ended
                  December  31,  1998 and 1997 and for the  Fiscal  Years  ended
                  September 30, 1998 and 1997.

                  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.
 3.1.1(2)         Certificate of Amendment of Bylaws, dated as of May 26, 1999.
 3.1.2(2)         Certificate of Amendment of Bylaws, dated as of July 20, 1999.
 3.2(3)           Amended  and  Restated  Certificate  of  Incorporation  of the
                  Company  filed with the  Delaware  Secretary of State upon the
                  closing of the Company's initial public offering.
 3.2.1(2)         Certificate of Amendment of Certificate  of  Incorporation  of
                  the Company filed with the Delaware Secretary of State on July
                  20, 1999.
 3.3              Certificate  of  Designation   of  Rights,   Preferences   and
                  Privileges  of  Series  A   Participating   Preferred   Stock.
                  Reference is made to Exhibits 4.3, 4.4 and 4.5.
 4.1              Reference is made to Exhibits 3.1, 3.2, 3.3, 4.3, 4.4 and 4.5.
 4.2(1)           Specimen Common Stock Certificate.
 4.3(4)           Preferred Shares Rights  Agreement,  dated as of September 13,
                  1996, between the Company and U.S. Stock Transfer Corporation,
                  including   the   Certificate   of   Designation   of  Rights,
                  Preferences and Privileges of Series A Participating Preferred
                  Stock,  the form of  Rights  Certificate  and the  Summary  of
                  Rights attached thereto as Exhibits A, B and C, respectively.
 4.4(5)           Amendment No. 1 to Preferred Shares Rights Agreement, dated as
                  of July 14, 1998,  between the Company and U.S. Stock Transfer
                  Corporation.

                                       33

<PAGE>


 4.5(6)           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(7)           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              Lease,  dated November 19, 1999, by and between Menlo Business
                  Park LLC and the Company.
10.1.1            Addendum  to Lease,  dated  March  25,  1999,  by and  between
                  Whispering Pines Associates II 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              Loan and Security Agreement,  dated February 10, 2000, between
                  the Company and The Provident Bank,  including  Revolving Loan
                  Promissory Note.
10.6(10)          Restricted   Stock   Purchase   Agreement   and   Non-Recourse
                  Promissory Note, each dated December 4, 1998,  between Phillip
                  Bennett and the Company.
10.6.2(2)         Amended and Restated Secured Promissory Note, dated as of June
                  20, 1999, issued to Phillip Bennett in the principal amount of
                  $500,000.
10.7(10)          Restricted   Stock   Purchase   Agreement   and   Non-Recourse
                  Promissory  Note, each dated December 7, 1998,  between Lionel
                  M. Allan and the Company.
10.7.1(2)         Amendment to Restricted Stock Purchase Agreement,  dated as of
                  June 20,  1999,  between  the  Company and Lionel M. Allan and
                  Amended and Restated Secured Promissory Note, issued to Lionel
                  M. Allan in the principal amount of $65,000,  each dated as of
                  June 20, 1999.
10.8(10)          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(10)          Stock Purchase  Agreement,  dated  December 10, 1998,  between
                  Michael Luckwell and the Company.
10.10(10)         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.
10.14(12)         Asset Purchase Agreement, dated as of January 21, 2000, by and
                  among the Company,  Accom Virtual Studio,  Inc., Accom Virtual
                  Studio  (Germany) GmbH,  Elset  Electronic Set GmbH,  IMadGINE
                  Video Systems Marketing, B.V. and Orad Hi-Tec Systems Ltd.

                                       34

<PAGE>


10.15(12)         Conditional  Contract  for Sale of Share,  dated as of January
                  21,  2000,  by and  between  Accom  Virtual  Studio  Inc.  and
                  IMadGINE Video Systems Marketing, B.V.
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 36 of this
                  Report).
27.1              Financial Data Schedule. (EDGAR filed version only)


 (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
     Quarterly  Report on 10-Q for the  quarter  ended  June 30,  1999 (File No.
     0-26620).
 (3) Incorporated  by reference from an exhibit filed with the Company's  Annual
     Report on 10-K for the  fiscal  year  ended  September  30,  1995 (File No.
     0-26620).
 (4) Incorporated  by  reference  from  an  exhibit  filed  with  the  Company's
     Registration Statement on Form 8-A (File No. 0-26620) to register Preferred
     Share Purchase Rights under the Company's  stockholder rights plan, adopted
     by the Company's board of directors on September 3, 1996.
 (5) 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.
 (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 December 23, 1998.
 (7) 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.
 (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 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).
(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 the Company's  Current
     Report on Form 8-K (File No. 0-26620),  filed on February 4, 2000 (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.
("SDV") and certain of SDV'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  reviewing  the  audited  financials  of SDV and will  file the
financial  statements required by such Form 8-K as soon as practicable after the
review is complete.

                                       35

<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 30th day of March, 2000.


                                             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,            March 30, 2000
             -----------------               President and Chief Executive Officer
              (Junaid Sheikh)                (Principal Executive Officer)


          /s/ DONALD K. MCCAULEY             Senior Vice President and Chief                March 30, 2000
          ----------------------             Financial Officer (Principal Financial
           (Donald K. McCauley)              and Accounting Officer)


            /s/ LIONEL M. ALLAN              Director                                       March 30, 2000
            -------------------
             (Lionel M. Allan)


          /s/  THOMAS FANELLA                Director                                       March 30, 2000
          -------------------
            (Thomas E. Fanella)


                                             Director                                       March 30, 2000
            ------------------
             (David A. Lahar)


                                             Director                                       March 30, 2000
           --------------------
            (Michael Luckwell)


        /s/ EUGENE M. MATALENE, JR.          Director                                       March 30, 2000
        ---------------------------
         (Eugene M. Matalene, Jr.)
</TABLE>

                                                    36

<PAGE>



                                   Accom, Inc.
                        Consolidated Financial Statements
                      As of December 31, 1999 and 1998 and
                           September 30, 1998 and 1997
                                       And
             For the twelve months ended December 31, 1999 and 1998,
            For the three months ended December 31, 1999 and 1998 and
           For the two fiscal years ended September 30, 1998 and 1997
                       with Report of Independent Auditors



<PAGE>


                                   Accom, Inc.
                        Consolidated Financial Statements
                      As of December 31, 1999 and 1998 and
                           September 30, 1998 and 1997
                                       And
             For the twelve months ended December 31, 1999 and 1998,
           For the three months ended December 31, 1999 and 1998 and
           For the two fiscal years ended September 30, 1998 and 1997
                       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, 1999 and 1998 and September  30, 1998 and 1997,  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the twelve  months ended  December  31,  1999,  the three months ended
December 31, 1998 and for both of the 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 auditing standards generally
accepted in the United States.  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, 1999 and 1998 and September  30, 1998 and 1997,  and the
consolidated  results  of their  operations  and their cash flows for the twelve
months ended December 31, 1999, the three months ended December 31, 1998 and for
both of the fiscal years in the period ended  September  30, 1998, in conformity
with accounting principles generally accepted in the United States. 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
January 22, 2000

                                      F-2

<PAGE>


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

<CAPTION>
                                                                                 As of December 31,           As of September 30,
                                                                              -----------------------       -----------------------
                                                                                1999           1998           1998           1997
                                                                              --------       --------       --------       --------
<S>                                                                           <C>            <C>            <C>            <C>
                           Assets

Current assets:
   Cash and cash equivalents                                                  $    328       $   --         $  3,231       $  5,317
   Accounts  receivable, net of allowance for doubtful
     accounts of $2,163 and $2,896 as of December 31, 1999
     and 1998, respectively, and $237 and $401 as of
     September 30, 1998 and 1997, respectively                                   1,616          3,578          1,903          3,123
   Inventories                                                                   5,112          5,345          1,527            980
   Income tax refunds receivable                                                  --             --             --              621
   Prepaid expenses and other current assets                                       580            535            345            488
                                                                              --------       --------       --------       --------
         Total current assets                                                    7,636          9,458          7,006         10,529
Property and equipment, net                                                      2,343          3,299          1,038            967
Intangible assets                                                                1,986          3,247           --             --
Restricted cash                                                                   --            1,132           --             --
Other assets                                                                        70             77             49             49
                                                                              --------       --------       --------       --------
                                                                              $ 12,035       $ 17,213       $  8,093       $ 11,545
                                                                              ========       ========       ========       ========

            Liabilities and Stockholders' Equity
Current liabilities:

   Bank borrowings-line of credit                                             $    559       $  3,916       $   --         $   --
   Current portion of notes payable                                              1,315            900           --               24
   Accounts payable                                                              2,560          2,108          1,276          1,476
   Accrued liabilities                                                           2,037          3,823            973          1,313
   Customer deposits                                                               965          1,285             37             25
   Deferred revenue                                                               --               87             87            141
                                                                              --------       --------       --------       --------
         Total current liabilities                                               7,436         12,119          2,373          2,979
Long-term portion of notes payable                                               3,261          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;
     40,000 shares authorized as of December 31, 1999
     and 20,233 shares authorized as of December 31, 1998
     and September 30, 1998 and 1997; 10,133 and 10,121
     shares issued and outstanding as of December 31, 1999
     and 1998, respectively, and 6,671 and 6,627 shares
     issued and outstanding as of September 30, 1998 and 1997,
     respectively                                                               24,201         24,197         21,462         21,427
   Notes receivable from stockholders                                             (630)          (630)          --             --
   Accumulated deficit                                                         (22,233)       (19,638)       (15,742)       (12,861)
                                                                              --------       --------       --------       --------
     Total stockholders' equity                                                  1,338          3,929          5,720          8,566
                                                                              --------       --------       --------       --------
                                                                              $ 12,035       $ 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>
                                                           Twelve Months Ended,       Three Months Ended        Fiscal Year Ended,
                                                               December 31,              December 31,              September 30,
                                                          ---------------------     ---------------------     ---------------------
                                                            1999         1998         1998         1997         1998         1997
                                                          --------     --------     --------     --------     --------     --------
                                                                      (Unaudited)              (Unaudited)
<S>                                                       <C>          <C>          <C>          <C>          <C>          <C>
Sales
    Product                                               $ 28,532     $ 10,961     $  3,030     $  4,060     $ 11,991     $ 17,201
    Service                                                  4,437          886          333           73          626          426
                                                          --------     --------     --------     --------     --------     --------
                                                            32,969       11,847        3,363        4,133       12,617       17,627

Cost of sales
    Product                                                 14,417        6,286        1,924        1,721        6,083       10,952
    Service                                                  1,151          120           50           25           95           82
                                                          --------     --------     --------     --------     --------     --------
                                                            15,568        6,406        1,974        1,746        6,178       11,034

  Gross profit                                              17,401        5,441        1,389        2,387        6,439        6,593
                                                          --------     --------     --------     --------     --------     --------

Operating expenses:
  Research and development                                   7,340        3,721        1,210          784        3,295        3,344
  Marketing and sales                                        9,158        4,916        1,163        1,214        4,967        5,981
  General and administrative                                 3,072        1,623          703          299        1,219        1,925
  Charge for acquired in-process
     technology                                               --          2,195        2,195         --           --           --
                                                          --------     --------     --------     --------     --------     --------

  Total operating expenses                                  19,570       12,455        5,271        2,297        9,481       11,250
                                                          --------     --------     --------     --------     --------     --------

Operating income (loss)                                     (2,169)      (7,014)      (3,882)          90       (3,042)      (4,657)

  Interest and other income                                     93          153           22           54          185          183
  Interest and other expense                                  (507)         (39)         (35)          (1)          (5)          (7)
                                                          --------     --------     --------     --------     --------     --------

Income (loss) before provision for
  income taxes                                              (2,583)      (6,900)      (3,895)         143       (2,862)      (4,481)
                                                          --------     --------     --------     --------     --------     --------

Provision for income taxes                                      12           19            1            1           19            9
                                                          --------     --------     --------     --------     --------     --------

Net income (loss)                                         $ (2,595)    $ (6,919)    $ (3,896)    $    142     $ (2,881)    $ (4,490)
                                                          ========     ========     ========     ========     ========     ========

Basic  net income (loss) per share                        $  (0.26)    $  (1.00)    $  (0.52)    $   0.02     $  (0.43)    $  (0.68)
                                                          ========     ========     ========     ========     ========     ========
Diluted net income (loss) per share                       $  (0.26)    $  (1.00)    $  (0.52)    $   0.02     $  (0.43)    $  (0.68)
                                                          ========     ========     ========     ========     ========     ========

Shares used in computing basic net  income
  (loss) per share                                          10,124        6,891        7,552        6,638        6,662        6,587
                                                          ========     ========     ========     ========     ========     ========
Shares used in computing diluted net
  income (loss) per share                                   10,124        6,891        7,552        7,034        6,662        6,587
                                                          ========     ========     ========     ========     ========     ========

<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, 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
  Issuance of common stock upon exercise of
     stock options                                           12                4             --               --                  4
  Net loss and comprehensive loss                          --               --               --             (2,595)          (2,595)
                                                       --------         --------         --------         --------         --------
Balances, December 31, 1999                              10,133         $ 24,201         $   (630)        $(22,233)        $  1,338
                                                       ========         ========         ========         ========         ========

<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>
                                                                    Twelve Months Ended   Three Months Ended    Twelve Months Ended
                                                                         December 31,         December 31,         September 30,
                                                                     ------------------    ------------------    ------------------
                                                                      1999       1998       1998        1997      1998       1997
                                                                     -------    -------    -------    -------    -------    -------
                                                                              (Unaudited)           (Unaudited)
<S>                                                                  <C>        <C>        <C>        <C>        <C>        <C>
         Cash Flows From Operating Activities

Net income (loss)                                                    $(2,595)   $(6,919)   $(3,896)   $   142    $(2,881)   $(4,490)
Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
   Charge for acquired in-process technology                            --        2,195      2,195       --         --         --
   Depreciation and amortization of goodwill and
     other acquisition-related intangibles                             1,408        707        275        118        550        528
   Non-cash charge to record required reductions in accounts
      receivable, inventories, and property and
      equipment, and accruals for streamlining
      operations                                                        --         --         --         --         --        3,995
   Changes in operating assets and liabilities, net
       of effects of  reserves to streamline
       operations:
     Accounts receivable                                               1,962      2,494        950       (325)     1,219      1,300
     Inventories                                                         632        561        799       (309)      (547)     1,967
     Income tax refunds receivable                                      --          243       --          378        621       (426)
     Prepaid expenses and other current assets                           (45)       277         36        (97)       144        410
     Other assets                                                          7       --         --         --         --           93
     Accounts payable                                                    464       (884)      (114)       570       (200)      (766)
     Accrued liabilities and customer deposits                        (1,659)      (383)       131        187       (327)      (611)
     Deferred revenue                                                    (87)       (45)      --           (9)       (54)      (387)
                                                                     -------    -------    -------    -------    -------    -------
   Net cash provided by (used in) operating activities
                                                                          87     (1,754)       376        655     (1,475)     1,613
                                                                     -------    -------    -------    -------    -------    -------

         Cash Flows From Investing Activities

Expenditures for property and equipment                                 (400)      (326)       (48)      (344)      (622)      (563)
Proceeds from the sale of property and equipment                         351       --         --         --         --         --
Acquisition of Scitex Digital Video business                            --       (7,893)    (7,893)      --         --         --
                                                                     -------    -------    -------    -------    -------    -------
       Net cash used in investing activities                             (49)    (8,219)    (7,941)      (344)      (622)      (563)
                                                                     -------    -------    -------    -------    -------    -------

         Cash Flows from Financing Activities

Borrowings and payments on line of credit, net                        (3,357)     3,916      3,916       --         --         --
Repayments on notes payable                                             (750)       (10)      --          (14)       (24)       (58)
Proceeds from long-term notes                                          3,261       --         --         --         --         --
Issuance of common stock                                                   4      1,563      1,550         26         39        104
Repurchase of common stock                                              --           (4)      --         --           (4)      --
Restricted cash                                                        1,132     (1,132)    (1,132)      --         --         --
                                                                     -------    -------    -------    -------    -------    -------
       Net cash provided by financing activities                         290      4,333      4,334         12         11         46
                                                                     -------    -------    -------    -------    -------    -------

Net increase (decrease) in cash and cash equivalents                     328     (5,640)    (3,231)       323     (2,086)     1,096
Cash and cash equivalents at beginning of the period                    --        5,640      3,231      5,317      5,317      4,221
                                                                     -------    -------    -------    -------    -------    -------
Cash and cash equivalents at end of the period                       $   328    $  --      $  --      $ 5,640    $ 3,231    $ 5,317
                                                                     =======    =======    =======    =======    =======    =======

                                                             -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>
                                                                   Twelve Months Ended  Three Months Ended, Twelve Months Ended
                                                                       December 31,       December 31,        September 30,
                                                                    -----------------     -------------      --------------
                                                                    1999         1998     1998     1997      1998      1997
                                                                    ----         ----     ----     ----      ----      ----
                                                                             (Unaudited)        (Unaudited)
<S>                                                               <C>           <C>      <C>      <C>       <C>       <C>
Supplemental Disclosure of Cash Flow Information

Interest paid                                                     $    374      $   22   $   22   $     1   $     1   $    6
                                                                  ========      ======   ======   =======   =======   ======

Income taxes paid                                                 $      7      $   17   $    1   $     1   $    17   $    2
                                                                  ========      ======   ======   =======   =======   ======

Noncash investing and financing activities:
  Issuance of common stock in exchange for notes
     receivable                                                   $   --        $  630   $  630   $  --     $  --     $ --
                                                                  ========      ======   ======   =======   =======   ======
  Issuance of warrants as partial consideration for
     acquisition of Scitex Digital Video business                 $   --        $  555   $  555   $  --     $  --     $ --
                                                                  ========      ======   ======   =======   =======   ======
  Issuance of notes payable as partial consideration
     for Scitex Digital Video business                            $   --        $2,065   $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,  primarily for the  professional,  worldwide  video  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 $2.6  million in the  twelve  months  ended
December 31, 1999.  The Company also  incurred a net loss of $3.9 million in the
three  months  ended  December  31, 1998 and a net loss of $2.9 million and $4.5
million in the twelve months ended  September  30, 1998 and 1997,  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 financing  executed in February 2000 (see Note 7)
that the Company  will have  sufficient  financial  resources  to  continue  its
operations  through  December 31, 2000. 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.

No customer  accounted  for 10% or more of net sales for the twelve months ended
December 31, 1999. One customer  accounted for 14%, 16% and 13% of net sales for
the three  months  ended  December  31,  1998,  and for the twelve  months ended
September  30, 1998 and 1997,  respectively.  Export sales for the twelve months
ended  December 31, 1999,  the three months ended  December 31, 1998 and for the
twelve months ended  September 30, 1998 and 1997, were  approximately  35%, 45%,
45% and 42%,  respectively.  Export  sales to Europe  and the  Pacific  Rim as a
percentage of total sales were 14% and 18%, respectively,  for the twelve months
ended December 31, 1999, 17% and 21%,  respectively,  for the three months ended
December  31,  1998,  19% and 22%,  respectively  for the  twelve  months  ended
September  30, 1998 and 10% and 27%,  respectively,  for the twelve months ended
September 30, 1997.

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 twelve months ended December 31, 1999.

                                      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.  Under the terms of its agreement  with The Provident  Bank
("Provident")  (see Note 7),  cash  received  by the  Company  is  "swept"  into
accounts  controlled  by  Provident.  Cash  for  operations  is

                                      F-9

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies (continued)

provided by borrowing  from   Provident   under the  terms of the agreement with
Provident establishing a line of credit.

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, 1999, 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.  If post-

                                      F-10

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2.  Summary of Significant Accounting Policies (continued)

shipment obligations exist or there are concerns about collection at the time of
shipment, revenue is deferred until obligations are met or collection occurs.

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  revenues are  deferred and  recognized  on a
straight-line  basis 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.

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

                                      F-11

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2.  Summary of Significant Accounting Policies (continued)

to determine if the carrying  value of the assets is 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.  Based on a review
of  the  accruals   recorded  in  December  1998  in  connection  with  the  SDV
acquisition,  accruals and related  intangibles  acquired in the SDV  acquistion
were reduced by $858,000 as of December 31, 1999.  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      December 31,
                                          Useful   -----------------------
                                           Life      1999           1998
                                           ----      ----           ----
                                        (In years)     (In thousands)

   Core technology                           8     $    642       $    869
   Developed technology                      5        1,281          1,732
   Other intangibles                      3-15          512            692
                                                   --------       --------
                                                      2,435          3,293
   Less: Accumulated amortization                       449            46
                                                   --------       --------
                                                   $  1,986       $  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.

                                      F-12

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies (continued)

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 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 183,000 and 29,000 for
the twelve months ended December 31, 1999 and 1998, respectively, 12,000 for the
three months ended December 31, 1997 and 77,000 and 268,000 for the fiscal years
ended September 30, 1998 and 1997, 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 Twelve Months    For the Three Months Ended      Fiscal Year Ended,
                                                       Ended December 31              December 31,               September 30,
                                                     ----------------------      -----------------------     ----------------------
                                                       1999          1998           1998          1997          1998          1997
                                                     --------      --------      ----------      -------     ---------      -------
<S>                                                  <C>           <C>           <C>             <C>         <C>            <C>
Net income (loss)                                    $ (2,595)     $ (6,919)     $   (3,896)     $   142     $  (2,881)     $(4,490)
                                                     ========      ========      ==========      =======     =========      =======
Shares  used  in  computing
basic net income (loss) per share                      10,124         6,891           7,552        6,638         6,662        6,587
                                                     ========      ========      ==========      =======     =========      =======
Basic net income (loss) per
share                                                $  (0.26)     $  (1.00)     $    (0.52)     $  0.02     $   (0.43)     $ (0.68)
                                                     ========      ========      ==========      =======     =========      =======

Calculation of shares outstanding
for computing diluted net income
(loss) per share:

  Shares used in computing basic
  net income (loss) per share                          10,124         6,891           7,552        6,638         6,662        6,587

  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                                              10,124         6,891           7,552        7,034         6,662        6,587
                                                     ========      ========      ==========      =======     =========      =======

Diluted net income (loss) per
share                                                $  (0.26)     $  (1.00)     $    (0.52)     $  0.02     $   (0.43)     $ (0.68)
                                                     ========      ========      ==========      =======     =========      =======
</TABLE>


Comprehensive Income

Effective  October  1,  1998,  the  Company  adopted  SFAS No.  130,  "Reporting
Comprehensive  Income." There are no material  components of other comprehensive

                                      F-13

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies (continued)

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  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 revenue by market:

<CAPTION>
                                              For the Twelve Months           For the Three Months                For the Year
                                               Ending December 31,             Ending December 31,             Ended September 30,
                                             -----------------------         -----------------------         -----------------------
     Market                                   1999             1998           1998            1997             1998           1997
     ------                                  -------         -------         -------         -------         -------         -------
                                                            (Unaudited)                    (Unaudited)
<S>                                          <C>             <C>             <C>             <C>             <C>             <C>
Production                                   $ 3,840         $ 5,275         $ 1,113         $ 2,389         $ 6,551         $ 8,259
Post Production                               15,879           4,046           1,493           1,040           3,593           6,534
Distribution                                   8,813           1,640             424             631           1,847           2,408
Other                                          4,437             886             333              73             626             426
                                             -------         -------         -------         -------         -------         -------
                                             $32,969         $11,847         $ 3,363         $ 4,133         $12,617         $17,627
</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.

                                      F-14

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

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.

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.

                                      F-15

<PAGE>


3. Business Combinations (continued)

(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.  As of December 31, 1999,  $750,000 had been paid on the
     second  note.  The  remaining  balance of $565,000 was paid in January 2000
     utilizing the proceeds of the sale of ELSET product line (see Note 13).

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.

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
Net 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

                                      F-16

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

3. Business Combinations (continued)

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.

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 SDV.

Unaudited Pro Forma

The  following  summary  unaudited  pro  forma  information  shows the pro forma
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 pro forma  information  has been prepared  from  unaudited
information  and is subject to change as a result of additional  procedures that
are currently  being  reviewed by management.  Accordingly,  the results are not
necessarily  indicative of those which would have  occurred 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 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.

                                      F-17

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

3.  Business Combinations (continued)

The following unaudited pro forma results include the straight-line amortization
of intangibles assets:

                                     Three Months Ended    Twelve Months Ended
(In Thousands, Except Per Share Data)     December 31,       September 30,
                                          ------------   ----------------------
                                             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)


4.  Inventories

Inventories consist of the following:

                                       As of December 31,    As of September 30,
                                       ------------------    -------------------
                                        1999       1998       1998       1997
                                       ------     ------     ------     ------
                                          (in thousands)       (in thousands)

Purchased parts and materials          $1,656     $2,399     $  256     $  225
Work-in-process                         1,634        394        445        204
Finished goods                            369        151        181        182
Demonstration inventory                 1,453      2,401        645        369
                                       ------     ------     ------     ------
                                       $5,112     $5,345     $1,527     $  980
                                       ------     ------     ------     ------

5.  Property and Equipment

Property and equipment consist of the following:

                                       As of December 31,    As of September 30,
                                       ------------------    ------------------
                                         1999      1998       1998        1997
                                       -------    -------    -------    -------
                                         (in thousands)        (in thousands)

Machinery and equipment                $ 3,399    $ 2,488    $ 2,038    $ 1,768
Furniture and fixtures                     367        505        219        207
Computer equipment                       1,422      1,661      1,409      1,070
Service inventory                        1,214      1,505       --         --
                                       -------    -------    -------    -------
                                         6,402      6,159      3,666      3,045
Less:  accumulated depreciation         (4,059)    (2,860)    (2,628)    (2,078)
                                       -------    -------    -------    -------
Net property and equipment             $ 2,343    $ 3,299    $ 1,038    $   967
                                       -------    -------    -------    -------


Depreciation  expense for the twelve months ended  December 31, 1999,  the three
months ended  December 31, 1998,  and the fiscal years ended  September 30, 1998
and 1997 was $1.0 million, $229,000, $550,000, and $528,000.

                                      F-18

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

6.  Accrued Liabilities

Accrued liabilities consist of the following:

                                       As of December 31,    As of September 30,
                                       ------------------    -------------------
                                        1999      1998        1998      1997
                                       ------    ------      ------    ------
                                        (in thousands)         (in thousands)
Accrued compensation                   $  317    $  167      $  150    $  228
Accrued outside sales commissions         534       655         149        90
Accrued acquisition liabilities            45     1,589         126       208
Accrued streamlining expenses            --        --           305       379
Other                                   1,141     1,412         243       408
                                       ------    ------      ------    ------
                                       $2,037    $3,823      $  973    $1,313
                                       ======    ======      ======    ======


7.  Bank Borrowings

On December  10,  1998,  the Company  entered  into an  agreement  with  LaSalle
Business  Credit,  Inc.  ("LBC"),  a subsidiary  of ABN AMRO Bank,  N.V.,  for a
revolving line of credit ("line").  The agreement was amended on March 11, 1999,
July 23,  1999,  and  November  3, 1999.  In  addition,  a waiver was granted on
December  17,  1999,  for the breach of a  financial  covenant as of October 31,
1999.  The line of  credit  provided  for  borrowings  subject  to the  level of
eligible  accounts  receivable and required  compliance  with certain  financial
covenants.  The Company was not in compliance with the financial covenants as of
December  31,  1999.  As of December  31,  1999,  the  Company  had  outstanding
borrowings  against  the  line of  $559,000.  An  additional  $1.4  million  was
available  for  borrowing  under the terms of the agreement in place with LBC at
the time. The Company continued to utilize the LBC line until its termination in
January 2000.

In  conjunction  with the  Company's  sale of the ELSET virtual set product line
(see  Note  13) on  January  21,  2000,  the  Company's  agreement  with LBC was
terminated.  Proceeds from the sale were used to pay the  outstanding  liability
with LBC of $1.5 million.

On February 10, 2000,  the Company  entered into an agreement with The Provident
Bank  ("Provident"),  an Ohio  chartered  bank,  for a revolving line of credit.
Borrowings  against  the  line  are  subject  to  levels  of  eligible  accounts
receivable and compliance with certain financial  covenants,  including interest
coverage,  tangible net worth,  and EBITDA  covenants.  At  inception,  the line
allowed  for  borrowings  up to  $1,500,000  with  a  provision  for  increasing
borrowings  up  to  $2,000,000  after  March  31,  2000,  if  certain  financial
performance covenants were met.

Interest  accrues on  outstanding  borrowings  at the bank's prime rate plus 125
basis  points.  All sums  due  under  the  agreement  are due on March 1,  2003.
Borrowings are secured by all assets of the Company.

                                      F-19

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

7.  Bank Borrowings (continued)

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

To the  extent  that the  Company  does not fully  utilize  the line of  credit,
Provident  charges a  "commitment  fee,"  which is equal to 0.5% per year of the
portion of the credit line not utilized.

The  Company may  terminate  the line  before  March 1, 2003,  only if it has no
outstanding  balance with Provident and has made no borrowings  against the line
for six consecutive months. In addition, there is a termination fee of $20,000.

8.  Long-Term Debt

On March 12, 1999, the Company  completed a private placement of $3.5 million in
senior  subordinated  convertible  notes  with a group of  investors  led by the
American  Bankers  Insurance Group,  Inc.  ("ABIG").  The agreement  between the
Company and the holders of the convertible notes was amended and certain waivers
granted on November 3, 1999,  and February 10, 2000. As part of its agreement to
grant certain waivers on February 10, 2000, ABIG stipulated that the Company use
the proceeds from sale of the ELSET  virtual set product line to IMadGINE  Video
Systems  Marketing B.V. (see Note 13) to (a) pay or reserve funds to pay for all
debt owed to Scitex  Digital  Video and (b) reserve funds for the payment of all
transaction fees relating to the sale of the ELSET product line.

The notes  currently have a coupon rate of 8% per year,  mature in 2004, and are
convertible  into shares of Accom common stock at a price of $1.30 per share. If
the Company fails to meet certain  covenants  specified in the agreement between
the Company and ABIG, ABIG has the right to declare the notes  immediately  due.
As of December 31, 1999,  the Company was not in compliance  with the covenants.
ABIG issued a waiver of compliance until March 31, 2000.

The proceeds from the private  placement  were used to partially pay the balance
on  the  revolving  line  of  credit  with  LaSalle  Business  Credit  that  was
outstanding at the time the proceeds were received.

                                      F-20

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

9.  Commitments

Leasing Arrangements

The  Company  leases its  primary  office and  manufacturing  facility  under an
operating lease which expires in June 2005. The Company leases another office in
Grass Valley, California,  under an operating lease which expires in April 2004.
In addition,  the Company  leases  office space in Hong Kong under a lease which
expires in January 2001.  Rent expense for the twelve months ended  December 31,
1999,  the three  months  ended  December 31, 1998 and for fiscal years 1998 and
1997 was approximately $628,000, $131,000, $465,000 and $448,000, respectively.

Future minimum rental payments under noncancelable  leases at December 31, 1999,
are as follows (in thousands):

2000                                                       $       1,219
2001                                                               1,110
2002                                                               1,001
2003                                                               1,009
2004                                                                 922
2005                                                                 443
                                                           -------------
Total                                                      $       5,704
                                                           =============


The  Company  was  a  sublessor  for  a  portion  of  its  primary   office  and
manufacturing  facility.  Sublease  rental  income for the twelve  months  ended
December 31, 1999,  the three months ended December 31, 1998 and for fiscal 1998
and 1997 was approximately $86,000, $27,000, $175,000 and $84,000, respectively.

10.  Stockholders' Equity

Warrants

In December, 1998, the Company issued to Scitex Digital Video ("SDV") as part of
the  acquisition  of the assets and business of SDV 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,  SDV has an option to exchange
their 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

                                      F-21

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

10. Stockholders' Equity (continued)

Warrants (continued)

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.

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-22

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

10.  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, 1996                 849,161        1,167,816    $0.48-$5.88         $2.78
   Shares authorized                           565,689         -                -                -
   Options granted                          (1,719,894)       1,719,894    $1.25-$1.69         $1.31
   Options exercised                           -               (103,613)   $0.48-$1.31         $0.56
   Options cancelled                         1,253,676       (1,253,676)   $0.48-$5.88         $2.78
                                       --------------------------------------------------------------------
Balances at September 30, 1997                 948,772        1,530,421    $0.48-$5.88         $1.27
   Shares authorized                            66,597         -                -                -
   Options granted                          (1,456,920)       1,456,920    $0.81-$1.63         $1.01
   Options exercised                           -                (33,109)   $0.48-$1.31         $0.76
   Options cancelled                         1,702,899       (1,702,899)   $0.48-$1.69         $1.26
                                       --------------------------------------------------------------------
Balances at September 30, 1998               1,261,348        1,251,333    $0.48-$5.88         $1.00
   Shares authorized                           -               -                -
   Options granted                            (804,000)         804,000    $0.31-$0.65         $0.63
   Options exercised                           -               -                -                -
   Options cancelled                            40,615          (40,615)   $0.81-$1.03         $0.98
                                       --------------------------------------------------------------------
Balances at December 31, 1998                  497,963        2,014,718    $0.31-$5.88         $0.85
   Shares authorized                           -               -                -
   Options granted                            (121,400)         121,400    $0.41-$1.25         $0.71
   Options exercised                           -                (12,083)   $0.31-$0.48         $0.34
   Options cancelled                           195,583         (195,583)   $0.48-$1.03         $0.82
                                       --------------------------------------------------------------------
Balances at December 31, 1999                  572,146        1,928,452    $0.31-$5.88         $0.85
                                       ====================================================================
</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-23

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

10.  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, 1999 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 - $0.63            149,694           7.22              $0.43              54,626        $0.45
        $0.65                662,000           8.95              $0.65             165,500        $0.65
    $0.84 - $1.00            227,400           8.40              $0.88             114,932        $0.88
        $1.03                861,855           6.52              $1.03             716,136        $1.03
    $1.25 - $5.88             27,500           7.78              $2.10              27,500        $2.10
                      -------------------------------------------------------------------------------------
    $0.31 - $5.88          1,928,449           7.65              $0.85           1,078,694        $0.95
                      =====================================================================================
</TABLE>


As of December 31, 1999,  the Company has  reserved  2,500,598  shares of common
stock for issuance upon the exercise of stock options under all of its plans.

Employee Stock Purchase Plan

The Company  instituted an Employee Stock Purchase Plan ("the Purchase Plan") in
1995. Under the provisions of the Purchase Plan,  250,000 shares were authorized
for the issuance of common stock.  Shares could be purchased  under the Purchase
Plan at 85% of the lesser of the fair  market  value of the common  stock on the
entry date into the offering period or the purchase date.

The  Purchase  Plan was  discontinued  in 1998.  As of December  31,  1999,  the
Purchase Plan has not been reinstated.

                                      F-24

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

10.  Stockholders' Equity (continued)

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 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 Twelve      For the Three      For the Fiscal Years,
                                             Months Ended        Months Ended       Ended September 30,
                                             December 31,        December 31,       -------------------
                                                 1999                1998            1998         1997
                                                 ----                ----            ----         ----
<S>                                           <C>                 <C>             <C>          <C>
  Risk-free interest rates                        6.5%               5.1%            4.7%         6.0%
  Dividends paid                                   -                  -               -            -
  Volatility factors - Company's common
      stock expected market price                1.00                0.80            0.80         0.80
  Expected option life                        3.00 years          4.00 years      4.00 years   4.83 years
</TABLE>


The weighted average "fair value" of stock options granted for the twelve months
ended  December 31, 1999,  the three months ended  December 31, 1998 and for the
fiscal  years  ended  September  30, 1998 and 1997 was $0.54,  $0.87,  $0.55 and
$0.56, respectively.

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:

                                      F-25

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

10.  Stockholders' Equity (continued)

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

                                                        Fiscal years ended,
                                                           September 30,
                                                       ---------------------
                                                       1998             1997
                                                       ----             ----
  Risk-free interest rates                             4.7%             6.0%
  Dividends paid                                        -                 -
  Volatility factors - Company's common
       stock expected market price                     0.80             0.80
  Expected option life                              0.50 years       0.50 years


The weighted  average "fair value" of employee  purchase rights issued under the
Employee  Stock  Purchase Plan during the fiscal years ended  September 30, 1998
and 1997 was $1.47 and $0.85, respectively. No purchase rights were issued under
the Employee  Stock  Purchase Plan during the twelve  months ended  December 31,
1999 and 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>
                                                            For the Twelve      For the Three         For the Fiscal Years Ended
                                                             Months Ended       Months Ended                  September 30,
                                                             December 31,       December 31,         ------------------------------
                                                                1999                1998                1998               1997
                                                              ---------          ----------          ----------           ---------
<S>                                                           <C>                <C>                 <C>                  <C>
Pro forma net loss (in thousands):                            $  (2,865)         $   (3,979)         $   (3,477)          $  (5,753)
Pro forma net loss per share:                                 $   (0.28)         $    (0.53)         $    (0.14)          $   (0.87)
</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.

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.

                                      F-26

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

11.  Income Taxes

The Company's  provision for income taxes for the years ended  December 31, 1999
and 1998 consists entirely of foreign taxes.

As  of  December  31,  1999,   the  Company  had  federal  net  operating   loss
carryforwards of approximately $4,700,000. The Company also had federal research
and development  tax credit  carryforwards  of  approximately  $300,000.  If not
utilized, the net operating loss and credit carryforwards will expire at various
dates beginning in 2007 and continuing through 2019.

Utilization  of the  net  operating  losses  and  credits  may be  subject  to a
substantial annual limitation due to ownership change provisions of the Internal
Revenue Code of 1986 and similar state  provisions.  The annual  limitation  may
result in the expiration of net operating losses and credits before utilization.

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

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

                                                             As of December 31,
                                                          ----------------------
                                                           1999           1998
                                                          -------        -------
Deferred tax assets:
   Net operating loss carryforwards                       $ 1,511        $ 1,804
   Research credit carryforwards                              431            373
   Acquired intangibles                                       927            988
   Capitalized R&D                                          2,750          3,152
   Nondeductible reserves and accruals                      1,183            900
   Inventory valuation                                      2,128          1,108
   Other                                                       62             55
                                                          -------        -------
Total deferred tax assets                                   8,992          8,380
Valuation allowance                                        (8,992)         8,380
                                                          -------        -------
Net deferred tax assets                                   $  --          $  --
                                                          =======        =======


The  valuation  allowance  for  deferred tax assets  increased by  approximately
$1,810,000  for the period ended  December 31, 1998 and  $1,130,000 for the year
ended September 30, 1998.

                                      F-27

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

12.  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 Allan and David Lahar,  and
an officer of the  Company,  Phillip  Bennett,  in  exchange  for full  recourse
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  shares
were  issued at a price of $1.00 per share.  The shares  were issued in exchange
for full recourse promissory notes totaling $630,000.

Mr.  Allan's note accrues  interest at the prime rate.  The note is due December
2003. No payments of principal had been made as of December 31, 1999.

Mr.  Lahar's  note  accrues  interest  at the  prime  rate.  The note was due on
September 1, 1999. The principal was paid in full on January 21, 2000.

Mr.  Bennett's  note  accrues  interest  at 5.5%  per  year.  The note is due on
December  7, 2001.  No payments of  principal  had been made as of December  31,
1999.

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. An additional  $87,500 was paid to the same company in March
1999, for services  provided by Mr. Lahar in arranging the debt placement by the
American Bankers Insurance Group in the same month.

In February 2000,  $87,500 was paid to Eugene  Matalene,  Jr., a director of the
Company,  for services  provided in arranging the debt placement by the American
Bankers  Insurance Group in March,  1999. Such amount is included in the accrued
liabilities of the Company as of December 31, 1999.

13.  Subsequent Event

On  January  21,  2000,  Accom,  Inc.,  and  certain of its  subsidiaries,  sold
substantially  all of their  respective  assets related to the ELSET virtual set
product line to IMadGINE Video Systems  Marketing,  B.V.  ("IMadGINE"),  a Dutch
company that is a wholly owned subsidiary of Orad Hi-Tec Systems Ltd.  ("Orad"),
an Israeli corporation. IMadGINE also purchased the stock of Accom's subsidiary,
Accom Poland z o.o., a Polish corporation ("Accom Poland").  The Company and its
subsidiaries  also  sold  certain  intellectual  property  related  to the ELSET
business. The net book value of the assets sold by the Company was approximately
$87,000.

                                      F-28

<PAGE>


                                   Accom, Inc.
                   Notes to Consolidated Financial Statements

13.  Subsequent Event (continued)

The Company sold these assets in exchange for: (i) $4,000,000 in cash and (ii) a
warrant to purchase 70,423 shares of Orad.

The  Company  used the cash  proceeds  of the sale to: (a) pay the $1.5  million
balance  outstanding on the line of credit with LaSalle Business  Credit,  Inc.;
(b) pay off the $565,000 balance remaining on one of the notes payable to Scitex
Digital Video; (c) according to an agreement with the American Bankers Insurance
Group,  set aside sufficient funds to: (1) pay the second note payable to Scitex
Digital Video in the amount of $750,000 when it comes due in April 2000, and (2)
pay transaction expenses associated with the sale of ELSET.

                                      F-29