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 September 30,
               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, CA 94054
               (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 [X] No [ ]

Number of shares  of  common  stock  outstanding  as of  February  25,  1999 was
24,829,815

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
                    (In thousands, except per share amounts)
                                   (Unaudited)


                                                                   SEPTEMBER 30,
                                                                        1998   
                                 ASSETS

CURRENT ASSETS
   Cash                                                                $     25
   Accounts receivable - trade, net of allowance for
      doubtful accounts of $91                                               31
   Prepaid expenses and other                                                88
                                                                       --------

      Total current assets                                                  144

Property and equipment, net                                                 351
Deposits                                                                     37
                                                                       --------
TOTAL ASSETS                                                           $    532
                                                                       ========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
   Note payable - related parties                                      $    164
   Convertible debentures                                                 7,400
   Accounts payable                                                       1,995
   Accrued liabilities                                                    1,696

   Liabilities in excess of assets of discontinued 
     operations                                                              54
                                                                       --------
      Total current liabilities                                          11,309
                                                                       --------
STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock, $.001 par value, 50,000 shares authorized,
      24,966 shares issued and outstanding                                   25
   Warrants                                                               1,378
   Additional paid-in capital                                            22,268
   Deficit accumulated during development stage                         (34,448)
                                                                       --------
      Total stockholders' equity (deficit)                              (10,777)
                                                                       --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                   $    532
                                                                       ========

See accompanying notes to these condensed consolidated financial statements.


<PAGE>3

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

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                MARCH 3, 1993
                                                 THREE MONTHS ENDED      NINE MONTHS ENDED     (INCEPTION) TO
                                                    SEPTEMBER 30,          SEPTEMBER 30,        SEPTEMBER 30,

                                               1997          1998        1997           1998         1998
                                               ----          ----        ----           ----         ----

<S>                                         <C>            <C>         <C>         <C>            <C>      
REVENUES                                    $     48       $     37    $    149    $      77      $     226
                                            --------       --------    --------    ---------      ---------
COSTS AND EXPENSES
  Cost of goods sold                              24            138          53          160            213

  Research and development                       919            189       2,988        2,954         10,054
  Selling, general and administrative          1,533            708       3,750        5,334         15,819
  Impairment loss on property and equipment        -              -           -          937            937
                                            --------       --------    --------    ---------      ---------                
    Total costs and expenses                   2,476          1,035       6,791        9,385         27,023
                                            --------       --------    --------    ---------      ---------
OPERATING LOSS                                (2,428)          (998)     (6,642)      (9,308)       (26,797)
                                            --------       --------    --------    ---------      ---------
OTHER INCOME AND EXPENSE
  Interest expense, net of interest income       575            612         575        4,061          5,278
  Debt conversion expense                          -              -           -          261            261
  Other expense                                    -              -           -            -             34
                                            --------       --------    --------    ---------      ---------
    Total other expense                          575            612         575        4,322          5,573
                                            --------       --------    --------    ---------      ---------
Loss from continuing operations before 
  income tax expense and discontinued 
  operations                                  (3,003)        (1,610)     (7,217)     (13,630)       (32,370)
Income tax expense                                 1              -           2            2              6
                                            --------       --------    --------    ---------      ---------
Loss from continuing operations               (3,004)        (1,610)     (7,219)     (13,632)       (32,376)
                                            --------       --------    --------    ---------      ---------

Loss on disposal of discontinued operation         -              -           -        1,155          1,155
Loss from operations of discontinued operation,
  net of income tax expense                      239              -         541          400            917
                                            --------       --------    --------    ---------      ---------
Loss from discontinued operations                239              -         541        1,555          2,072
                                            --------       --------    --------    ---------      ---------

Net Loss                                    $ (3,243)      $ (1,610)   $ (7,760)   $ (15,187)     $ (34,448)
                                            ========       ========    ========    =========      ========= 
Basic and diluted net loss per common share
  Continuing operations                     $  (0.14)      $  (0.06)   $  (0.44)   $   (0.61)
  Discontinued operations                      (0.01)             -       (0.03)       (0.07)
                                            --------       --------    --------    ---------  
  Basic and diluted net loss per common 
    share                                   $  (0.15)      $  (0.06)   $  (0.47)   $   (0.68)
                                            ========       ========    ========    =========

WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING                                   21,062         24,894      16,456       22,335
                                            ========       ========    ========    ========= 

</TABLE>

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
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                MARCH 3, 1993
                                                                     NINE MONTHS ENDED         (INCEPTION) TO
                                                                       SEPTEMBER 30,            SEPTEMBER 30,

                                                                  1997             1998              1998
                                                                  ----             ----              ----

<S>                                                          <C>                <C>             <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss from continuing operations                         $   (7,219)      $   (13,632)     $   (32,376)
   Adjustments to reconcile net loss from continuing
      operations to net cash used in operating activities:
      Depreciation and amortization                                   256               244              681
      Amortization of discount on long-term debt                        -             2,346            2,346
      Impairment loss on property and equipment                         -               937              937
      Interest related to beneficial conversion features
         of notes payable and long-term liabilities                   541               832            1,933
      Compensation recognized upon issuance of stock
         and stock options                                          1,122               550            5,708
      Expense recognized upon issuance of stock for
         Conversion incentive                                           -               261              261
      Contribution of product license                                   -                 -            1,275
      Contribution of technology                                      500                 -              500
      Write-off acquisition costs                                       -                68               68
      Write-off related party receivable                               25                 -              140
   Changes in operating assets and liabilities:
      Cash - restricted                                                 1                 8                -
      Accounts receivable                                               -               (31)             (31)
      Other receivables                                                (9)                -                -
      Prepaid and other expenses                                     (133)               88              (88)
      Deposits                                                        (44)               53              (37)
      Accounts payable                                                199             1,520            2,211
      Accrued liabilities                                             276               841            2,017
                                                               ----------       -----------      ----------- 
      Net cash used in operating activities from 
          continuing operations                                    (4,485)           (5,915)         (14,455)
                                                               ----------       -----------      ----------- 

Net loss from discontinued operations                                (541)           (1,555)          (2,072)
   Loss from disposal of assets                                         -                49               49
   Write down of film rights and film cost inventory                    -               277              250
   Write down of goodwill                                               -               848              848
   Change in liabilities in excess of assets of discontinued
      operations                                                        -                54               54
                                                               ----------       -----------      ----------- 
Net cash used in operating activities from discontinued
   operations                                                        (541)             (327)            (871)
                                                               ----------       -----------      ----------- 

                                         (continued)

<PAGE>5


                        INNOVACOM, INC. AND SUBSIDIARIES
                        (A Development Stage Enterprise)
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
                                   (continued)

                                                                                                MARCH 3, 1993
                                                                     NINE MONTHS ENDED         (INCEPTION) TO
                                                                       SEPTEMBER 30,            SEPTEMBER 30,

                                                                  1997             1998              1998
                                                                  ----             ----              ----
CASH FLOWS FROM INVESTING ACTIVITIES:
   Cash received in acquisition of Sierra Vista                     2,917                 -            2,917
   Advance to related party                                           (25)                -             (140)
   Cost incurred for organization of joint venture                      -                 -              (68)
   Purchases of property and equipment                               (570)           (1,015)          (1,989)
   Proceeds from sale of asset                                          -                 -                4
                                                               ----------       -----------      ----------- 
      Net cash provided by (used in) investing activities           2,322            (1,015)             724
                                                               ----------       -----------      ----------- 

CASH FLOWS FROM FINANCING ACTIVITIES:
   Bank overdraft                                                     (39)                -                -
   Proceeds from sale of common stock                                 665                 -            2,898
   Proceeds from notes payable                                      2,166               778            4,865
   Net proceeds from sale of debenture with detachable
      warrants                                                          -             2,500            7,109
   Principal payments on notes payable                                  -              (145)            (245)
                                                               ----------       -----------      ----------- 
      Net cash provided by financing activities                     2,792             3,133           14,627
                                                               ----------       -----------      ----------- 

NET INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS                                                         88            (4,124)              25

CASH AND CASH EQUIVALENTS, beginning of period                          -             4,149                -
                                                               ----------       -----------      ----------- 

CASH AND CASH EQUIVALENTS, end of period                       $       88       $        25      $        25
                                                               ==========       ===========      =========== 

</TABLE>


 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
                               September 30, 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 September 30, 1998,  results of operations for
the three and nine months ended September 30, 1998 and 1997, and the period from
inception (March 3, 1993) to September 30, 1998, and the cash flows for the nine
months ended  September 30, 1998 and 1997, and the period from inception  (March
3, 1993) to September 30, 1998.  The results for the period ended  September 30,
1998,  are not  necessarily  indicative  of the results to be  expected  for the
entire fiscal year ending December 31, 1998.

Note 2 - Discontinued Operation

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  operation 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 September 30, 1998. All assets have been
written down to their net realizable value as of September 30, 1998.

The net assets of Sierra Vista included in the accompanying consolidated balance
sheet as of September 30, 1998, consisted of the following:

Cash                                                       $    1
Accounts payable                                               55
                                                           ------
Net liabilities in excess of assets                        $   54
                                                           ======

Sierra Vista has never generated any revenues.


<PAGE>7


Note 3 - Subsequent Events

On June 5, 1998, Thomas E. Burke, the Company's President who had started on May
1, 1998,  resigned.  On July 21,  1998,  he filed a statement  of claim with the
American Arbitration Association,  San Francisco, CA. Mr. Burke claimed that the
Company  breached his employment  contract by failing to pay him a lump-sum cash
payment of $1 million, salary, bonuses, expenses, and other termination payments
and benefits under his employment  contract.  In September  1998, Mr. Burke also
filed claims for unpaid wages with the California State Labor Commissioner.  The
Company  maintained that Mr. Burke had made certain  misrepresentations  and had
breached his employment  contract,  and vigorously  defended  itself against Mr.
Burke's  actions.  On December 14, 1998, the Company and Mr. Burke settled their
respective  claims against each other,  such  settlement  including a payment by
each party to the other.  The amount of these  payments  was not material to the
Company.

In  December  1997,  the Company  issued  $5,000,000  face value of  Convertible
Debentures (the "Debentures"). As discussed below, other Debentures with similar
terms have been issued periodically through January 1999.

To provide for  additional  working  capital,  on August 28,  1998,  the Company
issued additional Debentures in the aggregate principal amount of $500,000, with
the right to issue up to an additional $1 million more Debentures under the same
terms.  In October and November of 1998,  a total of $1 million more  Debentures
were issued.  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. Also in this  transaction,  the
Company canceled  previously issued warrants to purchase up to 250,000 shares of
Common Stock at $3.00 per share and up to 250,000 shares at $4.00  replacing the
canceled  warrants with a like number of five-year  warrants to purchase  Common
Stock at a price of $.50 per share.

On December 15, 1998,  the Company  issued an additional  $500,000 in Debentures
for working  capital  under the same terms as those issued in August of 1998. In
conjunction  with  the sale of  these  Debentures,  the  Company  issued  to the
Debenture  holders five year warrants to purchase up to 125,000 shares of Common
Stock at $.50 per share.

On January 15, 1999, the Company issued an additional $750,000 in Debentures for
working  capital  under the same terms as those issued in August and December of
1998. In conjunction  with the sale of these  Debentures,  the Company issued to
the  Debenture  holders five year  warrants to purchase up to 187,500  shares of
Common Stock at $.50 per share.

On March 8, 1999, the Company borrowed an additional  $600,000 from the investor
who had purchased the majority of the Debentures and is evidenced in the form of
a note. The note bears interest at 13% and is due on demand.

In  connection  with the sales of the  Debentures in December  1997,  June 1998,
August 1998,  November 1998 and January 1999, and the demand note in March 1999,


<PAGE>8


the Company  issued five year  warrants to purchase up to an aggregate  total of
1,570,000  shares of common stock at prices ranging from $2.42 per share to $.11
per share to two investment brokers.

The Company was not in compliance with certain  covenants under the terms of the
December  1997  and June and  August  1998  Debenture  and  Warrant  transaction
documents.  Consequently  these Debentures are classified as current debt in the
Company's financial statements. Interest expense for the nine month period ended
September 30, 1998 contains expense of approximately $1,817,000 which represents
accelerated amortization of the deferred interest and original issue discount on
this  debt.  Reclassification  of the debt from long  term to  current  required
presentation  of the  debt at its  full  face  value,  causing  the  Company  to
recognize this expense on an accelerated basis.

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  decided to
discontinue its single chip encoder design project,  cancel a number of projects
and reduce personnel.  See:  "Liquidity and Capital Resources".  Therefore,  the
results  for the  nine  month  period  ended  September  30,  1998,  will not be
indicative of future operations.

Revenues

Revenues  for the three  months  ended  September  30,  1998 were  approximately
$37,000  as  compared  to  approximately  $48,000  for the same  period in 1997.
Revenue for the nine months ended September 30, 1998 was  approximately  $77,000
as compared to  approximately  $149,000 for the same period in 1997. The revenue
in 1997 was from the sale of developer  kits to  prospective  purchasers  of the
Company's  single chip encoder.  There were no such sales in 1998,  but sales of
pre-production and sample products partially offset this decline.

Cost of goods sold

Cost of goods sold was  approximately  $160,000 in the first nine months of 1998
as compared to  approximately  $53,000 in the same period of 1997. Cost of sales
increased  from   approximately   $24,000  in  the  third  quarter  of  1997  to
approximately  $138,000  in the  same period of 1998. The costs of sales in 1997


<PAGE>9


and in the first half of 1998 consist  principally  of the material  cost of the
product  shipped.  Cost of sales in the third  quarter of 1998 contains not only
the material cost of the product shipped,  but also expenses related to building
and staffing a production  department in anticipation of product  releases.  The
cost of sales as a proportion of sales  experienced in the periods shown in 1997
and 1998 do not  necessarily  predict the cost of sales that the  Company  might
experience at such time, if any, that production level products begin to ship in
normal  production  volumes.  Cost  of  sales  in  future  periods  will  depend
principally on the volume of production required to support sales.

Research and development

Research and development  expense was  approximately  $2,954,000 and $189,000 in
nine and three month  periods  ended  September  30,  1998,  respectively.  This
compared to approximately  $2,988,000 and $919,000 for the same periods in 1997.
The  decline in the third  quarter of 1998  relative  to the same period in 1997
reflects the actions taken by  management in June 1998 to terminate  development
work on the single chip encoder,  and to focus  development work on a relatively
few products that management believed were close to market. Management's actions
decreased  essentially all aspects of research and development expense including
payroll, outside consultants,  and purchases of materials and supplies. Research
and  development  expense in the third quarter of 1998 also reflects a reduction
of  approximately  $232,000  for the effect of a number of accounts  payable and
other  liabilities  settled  at  discounted  amounts.  Without  this  reduction,
reported  research and  development  expense in the third  quarter of 1998 would
have been approximately $421,000.

Management intends to continue research and development expense at approximately
current  levels  for at least  the next two  quarters,  but  without  reductions
similar  to the  discounted  liability  settlements  described  above,  reported
research and  development  expense in future  quarters  will be higher than that
reported in the current quarter.  There can be no assurance that future quarters
will contain such similar reductions.

Selling, general and administrative

Selling,  general  and  administrative  expenses  increased  from  approximately
$3,750,000 in the first three  quarters of 1997 to  approximately  $5,334,000 in
the same period of 1998,  while  dropping from  approximately  $1,533,000 in the
third quarter of 1997 to approximately $708,000 in the same quarter of 1998. The
increase  in the  nine  month  expenses  from  1997 to 1998 is  entirely  due to
increased  expense in the first half of 1998 as the Company  prepared to release
several  products.  Selling,  general and  administrative  expenses in the third
quarter of 1997  contained  two large  items that were not  repeated in the same
period of 1998; an expense of approximately $320,000 imputed for the issuance of
options to  purchase  common  stock,  and an expense of  approximately  $192,000
related to the  purchase  of  Technical  Systems  Associates.  The  purchase  of
Technical  Systems  Associates  was  abandoned in the last  quarter of 1997.  In
addition,  while  personnel  costs  were  largely  unchanged  between  the third
quarters  of 1997 and  1998,  consulting,  marketing,  and most  other  expenses
declined in accordance  with the Company's  cutbacks in June of 1998.  The third
quarter of 1998 also  contained  approximately  $141,000  of expense  reductions
recognized  from  the  discounted  settlement  of  accounts  payable  and  other
liabilities of the Company, analogous to the expense reductions described in the
research and development discussion,  above. Without these reductions,  selling,
general and administrative expense would have been approximately $849,000 in the
third quarter of 1998.

Management intends to maintain selling,  general and administrative  expenses at
no greater  than the  current  rate for at least the next two  quarters,  but if

<PAGE>10


reductions from liability settlements at discount as seen in the current quarter
are not  repeated  in later  periods,  the  amount of expense  reported  will be
higher.  There  is no  assurance  that  future  quarters  will  contain  similar
reductions.

Interest expense, net of interest income

Interest  expense,  net of  interest  income was  approximately  $4,061,000  and
$612,000  in the nine and  three  month  periods  ended  September  30,  1998 as
compared to approximately $575,000 in both the same periods in 1997. The Company
did not  begin  to  carry  significant  debt,  and had no  significant  interest
expense,  until July of 1997.  Interest expense reported in the third quarter of
1997 was due in largest part to expense recognized due to conversion  incentives
allowed to the borrower.  Stated interest was approximately $39,000. The last of
this debt  converted to equity in the second  quarter of 1998,  and  accordingly
none of the interest in the third quarter of 1998 related to this debt. Interest
expense in the third quarter of 1998 related  principally  to  borrowings  under
convertible  Debentures that began in December of 1997. Stated interest on these
Debentures  was  approximately   $123,000.  In  addition,  the  Company  accrued
approximately  $120,000 of  interest  expense in  penalties  for failure to file
registration  statements  to  register  the  common  stock  that  underlies  the
conversion  feature of these Debentures.  Interest income was not significant in
any of the periods shown in these financial statements.

The Company was not in compliance with certain  covenants under the terms of the
December  1997  and June and  August  1998  Debenture  and  Warrant  transaction
documents.  Consequently  these Debentures are classified as current debt in the
Company's  financial  statements  and the  Company's  statements  of  operations
reflect  amortization of deferred charges on these loans so that the full amount
of the debt is shown at September 30, 1998.  Interest  expense in the nine month
period ended  September  30, 1998  contains  approximately  $2,285,000  from the
original discount on the Debentures of which approximately $1,817,000 represents
accelerated amortization of the deferred interest and original issue discount on
this  debt.   The  three  month  period  ended   September   30,  1998  contains
approximately $372,000 of original issue discount amortization.

Management  anticipates that the Company will continue to experience significant
levels of interest  expense in future  quarters due to the debt incurred to fund
operations.  Issuance of new Debentures  after  September 30, 1998 increases the
level of stated interest, and also creates imputed interest through amortization
of original  discount.  See:  "Note 3 - Subsequent  Events",  and "Liquidity and
Capital  Resources".  Until  such  time,  as any,  that the  Company  is able to
generate enough cash internally to fund its operations,  it will need to rely on
external  funding.  If that  external  funding is in the form of debt,  interest
expense will be incurred. Interest expense reported in future quarters will also
reflect the immediate  amortization  of deferred  interest  charges,  if any, on
newly placed  Debentures as long as the Company  remains out of compliance  with
the covenants of its Debenture agreements,  and is obligated to report such debt
as  a  current  liability,  and  penalties  for  failure  to  file  registration
statements as required by the Debenture agreements.

Liquidity and Capital Resources

Through September 30, 1998, the Company funded its operations  primarily through
the sale of stock and placement of debt. On September 30, 1998,  the Company had
a cash  balance  of  approximately  $25,000  and a working  capital  deficit  of
approximately  $11,165,000.  This compares with cash of approximately $4,149,000
and a working capital deficit of approximately  $1,454,000 at December 31, 1997.
The decrease in cash is primarily  due to the  operating  losses of the Company,
partially  offset by non-cash  expenses and  increases in debt.  The decrease in
working  capital  is  further  effected  by  the reclassification of convertible


<PAGE>11


Debentures  from  long term to  current  debt  because  the  Company  was not in
compliance with certain of the terms of the Debentures.

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  common  stock and  terminated  the  credit
facility.  As an inducement to Micro  Technologies to make this conversion,  the
Company  allowed Micro  Technology to convert into 1,220,608  shares at the then
market price of the stock,  $.26 per share,  as opposed to the conversion  price
under the credit  facility,  which would have averaged  approximately  $2.40 per
share. The Company recognized an additional expense of approximately $261,000 in
the quarter ended June 30, 1998 for the value of the additional  stock issued to
Micro Technology to induce the conversion.

To provide for  additional  working  capital,  on 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.

On December 15, 1998,  the Company  issued an additional  $500,000 in Debentures
for working  capital  under the same terms as those issued in August of 1998. In
conjunction  with  the sale of  these  Debentures,  the  Company  issued  to the
Debenture  holders five year warrants to purchase up to 125,000 shares of Common
Stock at $.50 per share.

On January 15, 1999, the Company issued an additional $750,000 in Debentures for
working  capital  under the same terms as those issued in August and December of
1998. In conjunction  with the sale of these  Debentures,  the Company issued to
the  Debenture  holders five year  warrants to purchase up to 187,500  shares of
Common Stock at $.50 per share.

On March 8, 1999,  the Company  borrowed an  additional  $600,000  from the same
investor  who had  purchased  the  majority  of the  Debentures.  The note bears
interest at 13% and is due on demand.

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.

<PAGE>12


In this  event,  the  Company  will  require  additional  funding to finance its
operations.  Traditionally,  the Company has financed its operations through the
issuance  of  convertible  Debentures,  but 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.

As  of  February  1,  1999,  the  Company  has  initiated   communications  with
significant suppliers and large customers to determine the extent to which those
third  parties'  failure to remedy  their own Year 2000  Issues  may  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.  Upon  receipt of the
responses, the Company will assess what steps, if any, will be necessary.


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  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. In September
1998,  Mr. Burke also filed claims for unpaid  wages with the  California  State
Labor   Commissioner.   The  Company   believed  that  Mr.  Burke  made  certain
misrepresentations  and vigorously  defended itself in this action.  On December
14, 1998, the Company and Mr. Burke settled their respective claims against each
other,  such  settlement  including  a payment by each  party to the other.  The
amount of these payments was not material to the Company.

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.
Discovery has been initiated.

<PAGE>13


The Company has been threatened or served with a number of lawsuits from vendors
for collection of amounts due by the Company for unpaid trade payables.  To date
the Company has been able to amicably  settle  several  such suits on terms that
were not materially  adverse to the Company,  and anticipates that it will do so
for the suits still outstanding.  There can be no assurance,  however,  that the
number of these  suits  that are filed,  or the terms that might be allowed  for
settlement  will not create  material  hardship  to the  Company in the  future.
Management anticipates that the number of such suits might increase over time as
the Company's unpaid obligations age further if more vendors conclude that legal
action is the prudent course to pursue for collection.

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 replaced 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".  Further, in June 1998, Peter Sprague resigned
as a director.  In December 1998 Frank Alioto  replaced Mark Koz as the Chairman
of the board of  directors.  In January 1999 Stanton R.  Creasey,  the Company's
Chief  Financial  Officer,  was appointed to the board of  directors.  The board
currently  consists  of  seven  members.  Further,  as  part  of the  management
restructuring, in June 1998 the Company and Mr. Koz mutually agreed to amend his
employment  contracts  to provide for,  among other  things,  no severance  upon
termination  and in  December  1998 Mr.  Koz's  employment  with the Company was
terminated.  Mr. Koz  remains as a director of the  Company.  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 decided to
discontinue  and seek a buyer for the single chip encoder  design project and to
discontinue Sierra Vista Entertainment.  During the six month period ending June
30, 1998, the Company recognized a loss of approximately  $1,555,000 as a result
of the discontinuance of Sierra Vista  Entertainment.  See: "Note 2 Discontinued
Operation", and "Management's Discussion and Analysis or Plan of Operation".

To provide for working  capital since  December  1997, the Company has issued an
aggregate  face value of  $9,750,000 of  convertible  debentures to two investor
funds that are affiliated with each other. See: "Note 3 - Subsequent  Events" to
the Company's financial statements.  At March 8, 1999 the average price at which
these convertible  debentures could be converted into the Company's Common Stock
was  approximately  $.24 per share.  If these two investors had exercised  their
conversion  rights at that time they would have owned  approximately  64% of the
outstanding  Common Stock of the Company,  giving them effective  control of the
Company.  Because the price at which most of these convertible debentures can be
converted  into common  stock  changes is  dependent  on movements in the market
price of the Company's common stock, the actual percentage of control that these
two funds  might  acquire  at any given  time  could be greater or less than the
figure determined as of March 8, 1999.

<PAGE>14


The Company was not in compliance with certain  covenants under the terms of the
December  1997  and June and  August  1998  Debenture  and  Warrant  transaction
documents.  Consequently  these debentures are classified as current debt in the
Company's financial statements.

Item 6.  Exhibits and Reports on Form 8-K

        (a)    Exhibits.


<PAGE>15

                                   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:  March 19, 1999               FRANK J. ALIOTO
                                    --------------------------------------
                                    Frank J. Alioto, President and
                                    Chief Executive Officer


Date:  March 19, 1999               STANTON CREASEY
                                    --------------------------------------
                                    Stanton Creasey, Chief Financial Officer