U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

        [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 1998
                                      

        [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 for the transition period from _______ to _______

                         Commission file number 0-23505


                                 INNOVACOM, INC.
        (Exact name of small business issuer as specified in its charter)



                    Nevada                             88-0308568
        (State or other jurisdiction of    (IRS Employer Identification No.)
        incorporation or organization)



                               3400 Garrett Drive
                         Santa Clara, California 95054
               (Address of principal executive offices) (Zip Code)

                                 (408) 727-2447
                           (Issuer's telephone number)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that 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]

Number of shares of common stock outstanding as of May 1, 1998 was 20,561,897

Transitional Small Business disclosure format
        Yes  [  ]           No  [X]



<PAGE>2



PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

                        INNOVACOM, INC. AND SUBSIDIARIES
                        (A Development Stage Enterprise)
                      CONDENSED CONSOLIDATED BALANCE SHEET

                                                   

                                  ASSETS                   MARCH 31, 1998
                                  ------                  ---------------- 

CURRENT ASSETS:

Cash                                                       $    795,392

Accounts receivable - trade, net of allowance 
 for doubtful accounts of $34,300                                35,907
Prepaid expenses and other                                       92,923
Due from related parties                                         35,531
                                                            -----------
 Total current assets                                           959,753

Property And Equipment, net                                   1,448,264
Debt Issuance Costs, net of accumulated 
 amortization of $36,700                                        631,410
Deposits                                                         42,200
                                                            -----------

TOTAL ASSETS                                            $     3,081,627
                                                            ===========


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------


CURRENT LIABILITIES:

Note payable - related parties                          $     4,171,923
Accounts payable                                              1,324,684
Accrued liabilities                                           1,084,362
Liabilities in excess of assets of discontinued 
 operations                                                       1,453
                                                          -------------
 Total current liabilities                                    6,582,422


LONG-TERM DEBT, less unamortized discount of $910,575         4,089,425
                                                           ------------
 Total liabilities                                           10,671,847

STOCKHOLDERS' EQUITY (DEFICIT):

Common stock, $.001 par value, 50,000,000 shares
 authorized, 20,563,897 shares issued and outstanding           20,562
Warrants                                                       968,578
Additional paid-in capital                                  16,453,753
Deficit accumulated during development stage               (25,033,113)
                                                           -----------
 Total stockholders' equity (deficit)                       (7,590,220)
                                                            ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)     $    3,081,627
                                                            ===========


See accompanying notes to these condensed consolidated financial statements.


                                              

<PAGE>3



                        INNOVACOM, INC. AND SUBSIDIARIES
                        (A Development Stage Enterprise)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



                                                             MARCH 3, 1993
                                THREE MONTHS ENDED          (INCEPTION) TO
                                     MARCH 31,                 MARCH 31,
                                   1998     1997                 1998
                                --------------------      -----------------


REVENUES                       $  45,082   $  75,000           $  194,082
                               ----------------------     ----------------
COSTS AND EXPENSES
 Cost of Goods Sold               22,263      21,151               74,801
 Research and development      1,423,088   1,209,565            8,522,296
 Production expense                    -           -               36,235
 Selling, general and 
  administrative               2,014,743     840,765           12,983,647
                               ----------------------      ---------------
 Total costs and expenses      3,460,094   2,071,481           21,616,979
                               ----------------------      ---------------
OPERATING LOSS                (3,415,012) (1,996,481)         (21,422,897)
                               ----------------------      ---------------

OTHER INCOME (EXPENSE):
 Interest income                  10,009         713               22,093
 Interest expense               (986,434)     (4,466)          (2,211,282)
 Loss on disposal of property 
  and equipment                        -           -               (2,559)
 Other income (expense)                -           -              (31,490)
                               ----------------------       --------------
  Total other income (expense)  (976,425)     (3,753)          (2,223,238)
                               ----------------------       --------------

 Loss from continuing 
  operations before income tax
  expense and discontinued 
  operations                  (4,391,437) (2,000,234)         (23,646,135)
Income tax expense                 1,600       1,600                8,000
                              ----------------------          ------------
Loss from continuing 
 operations                   (4,393,037) (2,001,834)         (23,654,135)
                              -----------------------         ------------
Loss on disposal of 
 discontinued operation       (1,154,980)          -           (1,154,980)
Loss from operations of 
 discontinued operation, net
 of $800 of income tax expense  (223,998)          -             (223,998)
                              -----------------------         ------------
Loss from discontinued 
 operations                   (1,378,978)          -           (1,378,978)
                              -----------------------         ------------
Net Loss                     $(5,772,015)$(2,001,834)        $(25,033,113)
                             ========================       ==============

Basic and diluted net loss
 per Common Share:
Continuing operations        $      (.21)$      (.16)
Discontinued operations             (.07)          -
                              ------------------------
Basic and diluted net loss 
 per common share            $      (.28)$      (.16)
                              ========================


WEIGHTED AVERAGE NUMBER OF 
SHARES OUTSTANDING            20,561,897   12,394,111
                              =========================


See accompanying notes to these condensed consolidated financial statements.


                                             

<PAGE>4



                        INNOVACOM, INC. AND SUBSIDIARIES
                        (A Development Stage Enterprise)

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                 MARCH 3, 1993
                                     THREE MONTHS ENDED         (INCEPTION) TO
                                           MARCH 31,               MARCH 31,
                                        1998         1997            1998
                                     ----------------------    --------------


CASH FLOWS FROM OPERATING ACTIVITIES:

 Net loss from continuing operations  $(4,393,037) $(2,001,834)    $(23,654,135)

 Adjustments to reconcile net loss 
   from continuing operations to net
   cash used in operating activities:
 Depreciation and amortization            128,913       21,503          566,067
 Amortization of discount on
  long-term debt                          770,476            -          770,476
 Loss on disposal of asset                      -            -            2,559
 Interest related to beneficial 
  conversion features of notes
  payable and long-term liabilities        24,544            -        1,125,651
 Compensation recognized upon issuance 
  of stock and stock options              209,607      168,695        5,368,339
 Contribution of product license                -            -        1,275,000
 Contribution of technology                     -            -          500,000
 Write-off acquisition costs               68,364            -           68,364
 Write-off related party receivable             -            -          139,594
 Write down of purchased incomplete 
  research and development                      -      500,000
 Changes in operating assets and 
  liabilities:
 Cash - restricted                              -        9,507           (8,481)
 Accounts receivables                     (35,907)      (6,000)         (35,907)
 Prepaid and other expenses                75,867            -         (100,760)
 Due from related parties                 (35,531)           -          (35,531)
 Film rights and film cost inventory            -            -          (27,500)
 Deposits                                  (3,418)           -          (93,297)
 Accounts payable                         636,784      186,901        1,328,031
 Accrued liabilities                      235,166      115,164        1,408,346
                                        ----------------------        ----------
 Net cash used in operating activities
  from continuing operations           (2,318,172)  (1,006,064)     (11,403,184)
                                        -----------------------     ------------

Net loss from discontinued operations  (1,378,978)           -       (1,378,978)
 Loss from disposal of assets              40,744            -           40,744
 Write down of film rights and film 
  cost inventory                          277,500            -          277,500
 Write down of goodwill                   848,129            -          848,129
 Change in liabilities in excess of 
  assets of discontinued operations         1,453           -             1,453
                                        -----------------------      -----------

Net cash used in operating activities 
 from discontinued operations            (211,152)                     (211,152)
                                        -----------------------     ------------


     

<PAGE>5


                        INNOVACOM, INC. AND SUBSIDIARIES
                        (A Development Stage Enterprise)

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (Continued)

                                                               MARCH 3, 1993
                                     THREE MONTHS ENDED       (INCEPTION) TO
                                           MARCH 31,             MARCH 31,
                                      1998         1997            1998
                                   ----------------------       --------------

CASH FLOWS FROM INVESTING ACTIVITIES:

 Cash received in acquisition of 
  Sierra Vista                               -        -               2,916,798
 Advance to related party                    -        -                (139,594)
 Cost incurred for organization of
  joint venture                              -        -                 (68,364)
 Purchases of property and equipment  (823,718) (216,105)            (1,797,065)
 Proceeds from sale of asset                 -        -                   3,500
                                    ---------------------            -----------
 Net cash used in investing 
  activities                          (823,718) (216,105)               915,275
                                    ---------------------            -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Bank overdraft                              -    (8,046)                     -
 Proceeds from sale of common stock          -   665,000              2,897,670
 Proceeds from notes payable                 -   565,215              4,087,990
 Net proceeds from sale of debenture 
  with detachable warrants                   -         -              4,608,593
 Principal payments on notes payable         -         -                (99,800)
                                     --------------------            -----------
 Net cash provided by financing
  activities                                 - 1,222,169             11,494,453
                                    ---------------------            ----------

 NET INCREASE (DECREASE)
  IN CASH AND CASH EQUIVALENTS      (3,353,042)        -                795,392


CASH AND CASH EQUIVALENTS,
 beginning of period                 4,148,434         -                      -
                                    ---------------------          -------------
CASH AND CASH EQUIVALENTS, end 
 of period                          $  795,392      $  -          $     795,392
                                    =====================          ============




 See accompanying notes to these condensed consolidated financial statements.


                                           
<PAGE>6



                        INNOVACOM, INC. AND SUBSIDIARIES
                        (A Development Stage Enterprise)
              Notes to Condensed Consolidated Financial Statements
                                 March 31, 1998

                                   (Unaudited)


Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information  and  pursuant  to  the  rules  and  regulations  of  the
Securities and Exchange Commission.  Accordingly, they do not include all of the
information and footnotes required by generally accepted  accounting  principles
for  complete  financial  statements.  For  further  information,  refer  to the
financial  statements  and footnotes  thereto  included in the Company's  annual
report on Form 10-KSB for the fiscal year ended December 31, 1997.

In the opinion of management,  the unaudited  condensed  consolidated  financial
statements  contain all adjustments  considered  necessary to present fairly the
Company's  financial  position at March 31, 1998, results of operations and cash
flows for the three  months  ended March 31, 1998 and 1997,  and the period from
inception  (March 3, 1993) to March 31,  1998.  The results for the period ended
March 31, 1998, are not necessarily indicative of the results to be expected for
the entire fiscal year ending December 31, 1998.

Note 2 - Discontinued Operations

On June 15, 1998 (measurement date), the Company's Board of Directors decided to
discontinue the operations of Sierra Vista Entertainment, Inc. ("Sierra Vista"),
its  wholly-owned   subsidiary  and  entertainment   segment  of  the  business.
Accordingly,  Sierra Vista is accounted for as a discontinued  operations in the
accompanying condensed  consolidated  financial statements.  All operations from
the measurement date to the date of disposal have been estimated and included in
the loss from  discontinued  operation at March 31, 1998.  All assets have been
written  down to their  net  realizable  value as of March 31,  1998.  It is the
Company's  intention  to sell  the  assets  that it can,  but  will  not  incur
significant costs in doing so.

The net assets of Sierra Vista included in the accompanying consolidated balance
sheet as of March 31, 1998, consisted of the following:


                                             
<PAGE>7




Cash - restricted                                         $         8,480
Prepaid and other assets                                            7,992
                                                          ---------------
        Current assets of discontinued operations                  16,472

Property and equipment                                             10,000
Deposits                                                           51,097
                                                           --------------
        Total assets of discontinued operations            $       77,569
                                                           ==============

Accounts payable                                          $         3,347
Accrued liabilities                                                75,675
                                                          ---------------
        Total liabilities of discontinued operations      $        79,022
                                                          ===============


The entertainment segment has never generated any revenues.

Note 3 - Subsequent Events

On June 5, 1998,  Thomas E. Burke, the Company's  president who had started with
the Company on May 1, 1998, resigned.  On July 21, 1998, he filed a statement of
claim with the American Arbitration Association, San Francisco,  California. Mr.
Burke is claiming the Company has breached his employment contract by failing to
pay him a lump-sum  cash payment of $1 million,  salary,  bonuses,  expenses and
other termination payments under his employment  contract.  The Company believes
that Mr. Burke has made  certain  misrepresentations  and intends to  vigorously
defend  itself  in this  action.  In the event Mr.  Burke is  successful  in his
claims,  this will have an adverse  effect on the  Company's  business  plan and
financial  condition.   See  "Management's  Discuss  and  Analysis  or  Plan  of
Operation."

On May 21, 1998, Micro Technologies  converted  $4,181,422 of its line of credit
to the Company in exchange for 1,742,362 shares of Common Stock.

To provide for working capital,  in June 1998, the Company issued 7% Convertible
Debentures in the aggregate  principal amount of $2 million (the  "Debentures").
The Debentures  accrue  interest at the rate of 7% per annum and are convertible
into shares of the Company's  Common Stock at a conversion  price equal to $0.35
per share. The Debentures have a term of five years, expiring June 29, 2003, and
are secured by all of the assets of the Company.  As part of the issuance of the
Debentures,  the Company  issued to the Debenture  holders five year warrants to
purchase up to 500,000 shares of Common Stock at $.50 per share.  In conjunction
with the issuance of the Debentures, Micro Technologies subordinated its lien on
the Company's assets to the Debenture holders.

On June 26, 1998,  Micro  Technologies  converted its  remaining  balance on the
credit facility of $317,358 into 1,220,608 shares of common stock and terminated
the credit facility.

To provide for  additional  working  capital,  on or about August 28, 1998,  the
Company  issued  additional  Debentures  in the  aggregate  principal  amount of
$500,000,  with the right to issue up to $1 million more Debentures in September
and/or October 1998 under the same terms. The Debentures  accrue interest at the
rate of 7% per annum and are  convertible  into shares of the  Company's  Common
Stock at a  conversion  price  equal to the  lesser of (i) 125% of the  five-day
average share price at the time of issuance and (ii) 80% for  conversions  prior
to 120 days after issuance,  77.5% for conversions  120-150 days after issuance,



<PAGE>8



and 75% thereafter.  The Debentures  have a term of five years,  expiring August
28, 2003,  and are secured by all of the assets of the  Company.  As part of the
issuance of the  Debentures,  the Company  issued to the Debenture  holders five
year warrants to purchase up to 75,000 shares of Common Stock at $.50 per share.

The Company was not in compliance with certain  covenants under the terms of the
December  1997  and June  1998  Debenture  and  Warrant  transaction  documents.
Subsequent to March 31, 1998, the Company received a waiver with regard to those
items.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

With the exception of historical facts stated herein,  the matters  discussed in
this  report  are  "forward   looking"   statements   that  involve   risks  and
uncertainties  that  could  cause  actual  results  to  differ  materially  from
projected  results.  Such  "forward  looking"  statements  include,  but are not
necessarily  limited  to,  statements  regarding  anticipated  levels  of future
revenues and earnings from  operations of the Company.  Factors that could cause
actual  results to differ  materially  include,  in  addition  to other  factors
identified  in this  report,  lack of  revenues,  substantial  losses,  need for
additional  capital  and limited  operating  history,  and other  risks  factors
detailed in the Company's  Securities and Exchange  Commission  ("SEC")  filings
including the risk factors set forth in the Company's  Registration Statement on
Form SB-2,  SEC File No.  333-45875 and "Certain  Consideration"  section in the
Company's  Form 10-KSB for the year ended  December  31,  1997.  Readers of this
report are cautioned not to put undue reliance on "forward  looking"  statements
which  are,  by  their  nature,  uncertain  as  reliable  indicators  of  future
performance.  The Company  disclaims any intent or obligation to publicly update
these  "forward  looking"  statements,  whether as a result of new  information,
future events, or otherwise.

As  discussed  in  "Item  5.  Other  Information,"  in June  1998,  the  Company
reevaluated  its business and decided to focus the Company in the development of
video compression technology in the areas of digital television, communications,
and digital video disks.  As a result of this emphasis,  the Company has decided
to discontinue its ASIC design  project,  cancel a number of projects and reduce
personnel.  See "Liquidity and Capital Resources - Management Plans." Therefore,
the results for the three months ended March 31, 1998, will not be indicative of
future operations.

Three Months Ended March 31, 1998, Compared to March 31, 1997.

Revenues

Revenues  decreased to  approximately  $45,000 for the first quarter ended March
31, 1998, from approximately $75,000 for the first quarter ended March 31, 1997.
In the first  quarter of 1997 three  developer  kits were sold to customers  who
were considering  purchase of the Company's  single chip encoder product.  There
were  no  developer  kit  sales  in the  same  period  of  1998,  but  sales  of
pre-production system and board products partially offset this decline.

                                            

<PAGE>9



Cost of goods sold

Cost of goods sold was  approximately  $22,000  or 49% of revenue  for the first
quarter  ended  March 31,  1998,  compared  to  approximately  $21,000 or 28% of
revenue for the first quarter ended March 31, 1997. This reflects the difference
in the  cost  structure  of the  developer  kits  sold in 1997  relative  to the
pre-production   products  sold  in  1998.  Neither  percentage  is  necessarily
representative of the cost of sales percentage that might be experienced at such
time, if any, that finished products begin to be shipped.

Research and development

Research and development was  approximately  $1,210,000 for the first quarter in
1997 as  opposed  to  approximately  $1,423,000  for the first  quarter of 1998.
Expense in the first  quarter of 1997  included  $500,000  for the  purchase  of
certain technology, an expense that was not repeated in the same period in 1998,
but this was more than offset by  expenditures in many areas but principally for
supplies and materials,  consultants,  and payroll that were higher in the first
quarter of 1998 than in 1997.

Selling, general and administrative

Selling,  general and administrative expenses were approximately  $2,015,000 for
the quarter  ended March 31, 1998,  compared to  approximately  $841,000 for the
quarter  ended  March  31,  1997.  In the first  quarter  of 1998,  the  Company
experienced  increased  expenses required by public companies for SEC and public
reporting, legal expenses related to the Company's ongoing litigation, and costs
due to  additional  administrative  personnel  relative to the first  quarter of
1997. In the first  quarter of 1998,  the Company' was preparing for the release
of new products, but was not doing so in the same period in 1997. This caused an
increase in  marketing  and sales  expenses in the quarter  ended March 31, 1998
relative to the same quarter in 1997.

Interest Income

Interest  income  was  approximately  $10,000  in the first  quarter  of 1998 as
compared to  approximately  $1,000 for the same  quarter in 1997.  Both  amounts
reflect  interest  earned on short term  investment of surplus cash. The Company
had more  surplus cash in the first  quarter of 1998 and earned  correspondingly
more interest income.

Interest expense

Interest  expense in the three  months  ended March 31,  1998 was  approximately
$987,000  as compared to  approximately  $4,000 for the same period in 1997.  At
December 31, 1997, and during the three months ended March 31, 1998, the Company
had a note  payable and  convertible  debentures  outstanding  with a balance in
total in  excess of  $8,000,000.  There  were no  corresponding  liabilities  at
December  31, 1996,  or in the three  months  ended March 31,  1997.  The stated
interest  on these  two  items for the three  months  ended  March 31,  1998 was
approximately $173,000. Amortization of the original discount of the convertible
debentures generated an additional interest expense in the first quarter of 1998
of approximately  $777,000.  These expenses were not present in the three months
ended March 31, 1997.


<PAGE>10



Loss from Continuing Operations Before Income Tax Expense and Discontinued 
 Operations

Loss from  continuing  operations  before  income tax expense  and  discontinued
operations  increased  from  approximately  $2,002,000 in the three months ended
March 31, 1997, to  approximately  $4,391,000 for the same period in 1998.  This
increase reflects the substantial increases in expenses from 1997 to 1998.

Income Tax Expense

Income tax expense reflects the minimum state tax provision for the Company.

Liquidity and Capital Resources

Through March 31, 1998, the Company funded its operations  primarily through the
sale of stock and placement of short and long term debt. On March 31, 1998,  the
Company  had a cash  balance of  approximately  $795,000  and a working  capital
deficit of  approximately  $5,623,000.  This compares with cash of approximately
$4,148,000 and a working capital deficit of approximately $1,454,000 at December
31, 1997. The decrease in both cash and working  capital is primarily due to the
operating losses of the Company,  net of non-cash expenses,  and to purchases of
fixed  assets in the three  month  period  ended  March 31,  1998.  Cash used by
operating  activities  from  continuing   operations  for  the  Company  totaled
approximately  $2,318,000  and  $1,006,000  for the three months ended March 31,
1998 and 1997,  respectively.  Cash used in  investing  activities  consisted of
expenditures  for the  purchase of property  and  equipment.  Such  expenditures
increased  to  approximately  $824,000  during the three  months ended March 31,
1998, from approximately $216,000 during the prior year period. During the three
months ended March 31, 1997,  cash  provided by  financing  activities  included
proceeds of $665,000  from the sale of common  stock,  and  proceeds  from notes
payable borrowings of $565,000

In May 1998, Micro  Technologies  converted  $4,181,422 of its line of credit to
the Company in exchange for 1,742,362 shares of Common Stock.

To provide for working capital,  in June 1998, the Company issued 7% Convertible
Debentures in the aggregate  principal amount of $2 million (the  "Debentures").
The Debentures  accrue  interest at the rate of 7% per annum and are convertible
into shares of the Company's  Common Stock at a conversion  price equal to $0.35
per share. The Debentures have a term of five years, expiring June 29, 2003 (the
"Due Date"), and are secured by all of the assets of the Company. As part of the
issuance of the  Debentures,  the Company  issued to the Debenture  holders five
year  warrants  to  purchase  up to 500,000  shares of Common  Stock at $.50 per
share. In conjunction  with the issuance of the Debentures,  Micro  Technologies
subordinated its lien on the Company's assets to the Debenture holders.

On June 26, 1998,  Micro  Technologies  converted its  remaining  balance on the
credit facility of $317,358 into 1,220,608 shares of common stock and terminated
the credit facility.

The Company  continued to experience  losses in the quarter ended June 30, 1998,
which forced the Company to expend essentially all its cash on hand at March 31,
1998,  to borrow  additional  amounts from a number of lenders,  and to carry an
increased  level of  accounts  payable.  In June of 1998,  the  Company  reduced
headcount  substantially,  closed  or  curtailed  a  number  of  operations  and
projects,  suspended  essentially  all new purchases or commitments  for capital
assets,  and began to identify and sell surplus assets with the goal of reducing
its  monthly  cash  usage  rate by  more  than  50%.  Management  determined  to
concentrate on those projects and


                                             

<PAGE>11



products that it anticipated  would generate  short-term  revenue and cash flow,
and minimize future requirements for additional debt or equity placements.

To provide for  additional  working  capital,  on or about August 28, 1998,  the
Company  issued  additional  Debentures  in the  aggregate  principal  amount of
$500,000,  with the right to issue up to $1 million more Debentures in September
and/or October 1998 under the same terms. The Debentures  accrue interest at the
rate of 7% per annum and are  convertible  into shares of the  Company's  Common
Stock at a  conversion  price  equal to the  lesser of (i) 125% of the  five-day
average share price at the time of issuance and (ii) 80% for  conversions  prior
to 120 days after issuance,  77.5% for conversions  120-150 days after issuance,
and 75% thereafter.  The Debentures  have a term of five years,  expiring August
28, 2003,  and are secured by all of the assets of the  Company.  As part of the
issuance of the  Debentures,  the Company  issued to the Debenture  holders five
year warrants to purchase up to 75,000 shares of Common Stock at $.50 per share.

In the event the company is unable to generate revenue, the Company will require
additional funding to finance its operations. There can be no assurance that the
Company will be successful  in its efforts to internally  generate the cash that
will be required to fund the Company's operations and to pay off the liabilities
incurred  in  prior  periods.  Traditionally,   the  Company  has  financed  its
operations through the issuance of convertible debentures. However, no assurance
can be given that the Company will be able to secure additional financing or, if
it can, that it will be available on terms favorable to the Company.

Impact of the Year 2000 Issue

The Year 2000 Issue is the result of computer  programs  being written using two
digits rather than four to define the applicable year. Any of the Company's,  or
its  suppliers'  and  customers'  computer  programs  that  have  date-sensitive
software  may  recognize a date using "00" as the year 1900 rather than the year
2000.  This  could  result  in  system  failures  or   miscalculations   causing
disruptions of operations  including,  among other things, a temporary inability
to process  transactions,  send invoices,  or engage in similar normal  business
activities.

The majority of the Company's  operations  are based on PC  application  and the
Company  believes that its software is year 2000 compliant.  The Company has not
yet identified any year 2000 problem but will continue to monitor the issues. No
assurances  can be given that the year 2000  problem will not occur with respect
to the Company's computer systems.

Neither the Company nor its subsidiary have initiated formal communications with
significant suppliers and large customers to determine the extent to which those
third  parties'  failure to remedy their own Year 2000 Issues  would  materially
effect the  Company and its  subsidiaries.  The  Company  has not  received  any
indication  from its suppliers and large  customers that the Year 2000 Issue may
materially  effect  their  ability to conduct  business  and the  Company has no
current plans to formally undertake such an assessment.


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

On July 21, 1998 Mr. Thomas E. Burke,  the Company's former  president,  filed a
statement of claim with the American  Arbitration  Association,  San  Francisco,
California. Mr. Burke is claiming the Company has

                                            
<PAGE>12



breached his  employment  contract by failing to pay him a lump-sum cash payment
of $1 million, salary, bonuses, expenses and other payments under his employment
contract.   The   Company   believes   that   Mr.   Burke   has   made   certain
misrepresentations  and intends to vigorously  defend itself in this action.  In
the event Mr.  Burke is  successful  in his  claims,  this will have a  material
adverse  effect on the  Company's  business plan and  financial  condition.  See
"Management's Discussion and Analysis or Plan of Operation."

In August 1998,  the Staff of the Division of  Enforcement of the Securities and
Exchange  Commission advised the Company that the Commission had issued a formal
order for private  investigation.  The investigation  involves allegations that,
since  January 1, 1995,  certain of the  Company's  present or former  officers,
directors,  employees, business consultants,  investment bankers, and/or certain
other  persons  or  entities  associated  with the  Company,  may have  employed
devices,  schemes,  or artifices  to defraud,  by,  among other  things,  making
undisclosed payments to certain registered  representatives relating to sales of
the Company's  securities,  and by manipulating  the Company's stock price.  The
Division  of   Enforcement   has  issued   subpoenas  in  connection   with  the
investigation.

Item 2.  Changes in Securities and Use of Proceeds. - Not Applicable.

Item 3.  Defaults Upon Senior Securities. - Not Applicable

Item 4.  Submission of Matters to a Vote of Security Holders. - Not Applicable.

Item 5.  Other Information.

On June 23, 1998,  Frank J. Alioto was elected  President  and  appointed to the
Company's  board of  directors.  Mr.  Alioto  replaces  Mr.  Thomas E. Burke who
resigned as President  and a director of the Company on June 5, 1998.  Mr. Burke
resigned from the Company  stating that the Company had breached his  employment
contract.  See  "Item 1.  Legal  Proceedings."  In the event  that Mr.  Burke is
successful  in his  employment  claim  against the Company,  this will have an a
material adverse effect on the Company's operations.  Further, in June 1998, Mr.
Peter  Sprague  resigned  as a  director.  The board  currently  consists of six
members. Further, as part of the management  restructuring,  the Company and Mr.
Koz have mutually agreed to amend his employment contracts to provide for, among
other  things,  no severance  upon  termination.  Mr. Koz still remains as chief
technology  officer of the Company and Chairman of the board.  Mr.  Anderson has
resigned  from his position as Director of Strategic  Planning and  President of
the  Company's  Entertainment  Division,  but still remains as a director of the
Company.

In  light  of the  corporate  restructuring  and new  president,  the  board  of
directors  decided to focus the Company on the development of video  compression
technology products in the areas of digital television (DTV), communications and
digital video disks (DVD). As a result of this emphasis, the Company has decided
to  discontinue  and seek a buyer for the ASIC design project and to discontinue
Sierra Vista  Entertainment.  The Company has recognized a loss of approximately
$1,379,000 as a result of the discontinuance of Sierra Vista Entertainment.  See
"Item 2. Management's Discussion and Analysis or Plan of Operation."

To provide for working capital,  in June 1998, the Company issued 7% Convertible
Debentures in the aggregate  principal amount of $2 million (the  "Debentures").
The Debentures  accrue  interest at the rate of 7% per annum and are convertible
into shares of the Company's  Common Stock at a conversion  price equal to $0.35
per share. The Debentures have a term of five years, expiring June 29, 2003 (the
"Due Date"), and are secured by all of the assets of the Company. As part of the
issuance of the Debentures, the Company issued to the

<PAGE>13


Debenture  holders five year warrants to purchase up to 500,000 shares of Common
Stock at $.50 per share.  Further,  the  Company  issued  warrants  to  purchase
400,000 shares at $.35 per share as finder's fee.

The  Debentures  were issued to an  affiliate of JNC  Opportunity  Fund who also
purchased 7%  convertible  debentures in the  aggregate  amount of $5 million in
December 1997 (the "1997  Debentures").  Under the terms of the 1997 Debentures,
JNC  Opportunity  has the right to convert  the 1997  Debentures  into shares of
common  stock of the  Company at a  conversion  price equal to the lesser of (i)
$3.47  per  share or (ii) 80% of the  average  closing  bid  price of a share of
common stock for the five trading days prior to  conversion.  As a result of the
Company's  current trading price for a share of Common Stock, if JNC Opportunity
decides  to  convert  the 1997  Debentures  into  shares  of Common  Stock,  JNC
Opportunity will obtain substantial control of the Company.

To provide for  additional  working  capital,  on or about August 28, 1998,  the
Company issued additional Debentures to the same affiliate of JNC Opportunity in
the  aggregate  principal  amount of $500,000,  with the right to issue up to $1
million more  Debentures in September  and/or October 1998 under the same terms.
The Debentures  accrue  interest at the rate of 7% per annum and are convertible
into shares of the  Company's  Common Stock at a  conversion  price equal to the
lesser of 125% of the average  share  price at the time of issuance  and 80% for
conversions prior to 120 days after issuance, 77.5% for conversions 120-150 days
after issuance,  and 75%  thereafter.  The Debentures have a term of five years,
expiring  August 28, 2003,  and are secured by all of the assets of the Company.
As part of the issuance of the  Debentures,  the Company issued to the Debenture
holders  five year  warrants to purchase up to 75,000  shares of Common Stock at
$.50 per share.

The Company was not in compliance with certain  covenants under the terms of the
December  1997  and June  1998  Debenture  and  Warrant  transaction  documents.
Subsequent to March 31, 1998, the Company received a waiver with regard to those
items.

Item 6.  Exhibits and Reports on Form 8-K

        (a)Exhibits.

           10.22    Convertible Debenture Purchase Agreement dated as of 
                    June 29, 1998 Between InnovaCom, Inc. and JNC Strategic
                    Fund Ltd.
           
           10.23    Convertible Debenture Purchase Agreement dated as of 
                    August 28, 1998 Between InnovaCom, Inc. and JNC Strategic
                    Fund Ltd.

           10.24    Form of Debenture

           10.25    Waiver Agreement dated as of September 18, 1998.


                                            
<PAGE>14


                                          SIGNATURES



In accordance with the requirements 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.

                                            INNOVACOM, INC.
                                            (Registrant)



Date: September 23, 1998  FRANK J. ALIOTO
                          ______________________________________
                          Frank J. Alioto, President and 
                          Chief Executive Officer


Date: September 23, 1998  STANTON CREASEY 
                          ______________________________________
                          Stanton Creasey, Chief Financial Officer