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 June 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 [ ] No [X]

Number of shares of common stock outstanding as of June 30, 1998 was 24,728,146

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)

<TABLE>
<S>                                                                                   <C>   

                                                                                         JUNE 30,
                                                                                           1998   
                                         ASSETS

CURRENT ASSETS
    Cash                                                                               $    1,225
    Accounts receivable - trade, net of allowance for doubtful
       accounts of $34                                                                         30
    Other receivables                                                                          11
    Prepaid expenses and other                                                                 26
                                                                                        ---------

       Total current assets                                                                 1,292

Property and equipment, net                                                                   389
Deposits                                                                                       41

TOTAL ASSETS                                                                           $    1,722
                                                                                        =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
    Note payable - related parties                                                     $      309
    Convertible debentures                                                                  6,950
    Accounts payable                                                                        2,291
    Accrued liabilities                                                                     1,667
    Liabilities in excess of assets of discontinued operations                                 78
                                                                                        ---------

       Total current liabilities                                                           11,295

STOCKHOLDERS' EQUITY (DEFICIT)
    Common stock, $.001 par value, 50,000 shares authorized,
       24,728 shares issued and outstanding                                                    25
    Warrants                                                                                1,189
    Additional paid-in capital                                                             22,051
    Deficit accumulated during development stage                                         (32,838)
                                                                                        ---------
       Total stockholders' equity (deficit)                                               (9,573)
                                                                                        ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                   $    1,722
                                                                                        =========
</TABLE>

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>   
<S>                                               <C>             <C>           <C>    <C>    <C>    <C>


                                                                                                              MARCH 3, 1993
                                                        THREE MONTHS ENDED            SIX MONTHS ENDED        (INCEPTION) TO
                                                             JUNE 30,                     JUNE 30,               JUNE 30,

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

REVENUES                                          $           -  $         26   $        40  $        101   $       189
                                                   ------------   -----------    -----------   -----------    ----------
COSTS AND EXPENSES
    Cost of goods sold                                       5              8            22            29            75
    Research and development                             1,342            860         2,765         2,069         9,865
    Selling, general and administrative                  2,611          1,376         4,626         2,217        15,111
    Impairment Loss on disposal of property 
     and equipment                                         937              -           937             -           937
                                                    -----------    ----------    -----------      ----------    ----------
         Total costs and expenses                        4,895          2,244         8,350         4,315        25,988     
                                                    -----------    ----------    -----------      -----------   ----------   
OPERATING LOSS                                          (4,895)        (2,218)       (8,310)       (4,214)      (25,799)
                                                   ------------    -----------    -----------     -----------   -----------

OTHER INCOME AND EXPENSE
   Interest expense, net of interest (income)           2,473              (5)        3,449             -         4,666
   Debt conversion expense                                261               -           261             -           261
   Other (income) expense                                   -               -             -             -            34
                                                   ------------    -----------    -----------     -----------   -----------
     Total other (income) expense                       2,734              (5)        3,710                       4,961
                                                   ------------    -----------    -----------     -----------   -----------

Loss from continuing operations before income tax
  expense and discontinued operations                  (7,629)         (2,213)      (12,020)       (4,214)       (30,760)
Income tax expense                                          -               -             2             1              6
                                                   ------------    -----------    -----------     -----------   -----------
Loss from continuing operations                        (7,629)         (2,213)      (12,022)       (4,215)       (30,766)

Loss on disposal of discontinued operation                  -               -         1,155             -          1,155
Loss from operations of discontinued operation, net
 of income tax expense                                    176             302           400           302            917
                                                  ------------    -----------    -----------     -----------   -----------        
Loss from discontinued operations                         176             302          1,555          302          2,072
                                                  ------------    -----------    -----------     -----------   -----------
Net Loss                                          $    (7,805)   $     (2,515)   $   (13,577)   $  (4,517)    $  (32,838)
                                                  ============   ============    ============    ===========   ===========

Basic and diluted net loss per common share
   Continuing operations                         $      (0.35)   $     (0.14)    $    (0.57)    $   (0.30)
   Discontinued operations                              (0.01)         (0.02)         (0.08)        (0.02)
                                                  ------------    -----------    -----------     -----------  
   Basic and diluted net loss per common share   $      (0.36)   $     (0.16)    $    (0.65)    $   (0.32)
                                                  ============    ===========    ===========     ===========            
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING                                            21,501         15,815         21,034        14,114
                                                  ============    ===========    ===========     ===========
</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>

<S>                                                                     <C>           <C>            <C>    

                                                                                                      MARCH 3, 1993
                                                                             SIX MONTHS ENDED        (INCEPTION) TO
                                                                                 JUNE 30,               JUNE 30,

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

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss from continuing operations                                $   (12,022)  $    (4,215)   $   (30,766)
    Adjustments to reconcile net loss from continuing
       operations to net cash used in operating activities:
       Depreciation and amortization                                           202           118            640
       Amortization of discount on long-term debt                            2,574             -          2,574
       Loss on disposal of asset                                               937             -            939
       Interest related to beneficial conversion features
           of notes payable and long-term liabilities                          247             -          1,348
       Compensation recognized upon issuance of stock
           and stock options                                                   560           679          5,719
       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                                        -             -            140
    Changes in operating assets and liabilities:
       Cash - restricted                                                         8           (31)             -
       Accounts receivable                                                     (30)            -            (30)
       Other receivables                                                       (11)           (7)           (11)
       Prepaid and other expenses                                              151           (26)           (26)
       Deposits                                                                 49           (24)           (41)
       Accounts payable                                                      1,792           226          2,483
       Accrued liabilities                                                     820           259          1,993
                                                                        -----------   -----------    -----------
       Net cash used in operating activities from continuing
           operations                                                       (4,394)       (2,521)       (12,934)
                                                                        -----------   -----------    -----------

Net loss from discontinued operations                                       (1,555)         (302)        (2,072)
    Loss from disposal of assets                                                49             -             49
    Write down of film rights and film cost inventory                          277             -            249
    Write down of goodwill                                                     848             -            848
    Change in liabilities in excess of assets of discontinued
       operations                                                               78             -             78
                                                                        -----------   -----------    -----------
Net cash used in operating activities from discontinued
    operations                                                                (303)         (302)          (848)
                                                                        -----------   -----------    -----------
</TABLE>



                                                    (continued)


<PAGE>5




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

                                                                                                      MARCH 3, 1993
                                                                             SIX MONTHS ENDED        (INCEPTION) TO
                                                                                 JUNE 30,               JUNE 30,

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


CASH FLOWS FROM INVESTING ACTIVITIES:
    Cash received in acquisition of Sierra Vista                                 -         2,917          2,917
    Advance to related party                                                     -             -           (140)
    Cost incurred for organization of joint venture                              -             -            (68)
    Purchases of property and equipment                                       (997)         (282)        (1,971)
    Proceeds from sale of asset                                                  -             -              4
                                                                        -----------   -----------    -----------
       Net cash provided by (used in) investing activities                    (997)        2,635            742
                                                                        -----------   -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Bank overdraft                                                               -           (38)              -
    Proceeds from sale of common stock                                           -           665           2,898
    Proceeds from notes payable                                                778             -           4,866
    Net proceeds from sale of debenture with detachable 
       warrants                                                              1,992             -           6,601
    Principal payments on notes payable                                                                     (100)
                                                                        -----------   -----------    -----------
       Net cash provided by financing activities                             2,770           627          14,265
                                                                        -----------   -----------    -----------

NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS                                                             (2,924)          439          1,225

CASH AND CASH EQUIVALENTS, beginning of period                               4,149             -              -
                                                                        ------------    -----------    -----------  
CASH AND CASH EQUIVALENTS, end of period                                $    1,225      $    439       $   1,225
                                                                        ============    ===========    ===========
</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
                                  June 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 June 30, 1998,  results of operations  for the
three and six months ended June 30, 1998 and 1997, and the period from inception
(March 3, 1993) to June 30,  1998,  and the cash flows for the six months  ended
June 30, 1998 and 1997,  and the period from  inception  (March 3, 1993) to June
30, 1998.  The results for the period ended June 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 June 30,  1998.  All assets have been
written down to their net realizable value as of June 30, 1998.

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

Cash                                                               $     2
Property and equipment                                                   2
Accounts payable                                                        82
                                                                        --

Net liabilities in excess of assets                                $    78
                                                                        ==

Sierra Vista has never generated any revenues.

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

<PAGE>7


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.

Subsequent to June 30, 1998, the Company  settled two items of litigation  which
resulted in reductions of previous liability  estimates  totaling  approximately
$202,000.  Selling,  general  and  administrative  expense for the three and six
month periods ending June 30, 1998 reflects  expense  reductions for the effects
of these settlements.

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.

In  connection  with the sales of the  Debentures in December  1997,  June 1998,
August  1998,  November  1998 and January  1999,  the  Company  issued five year
warrants to  purchase up to an  aggregate  total of  1,450,000  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  1998  Debenture  and  Warrant  transaction  documents.
Consequently  these  Debentures  are classified as current debt in the Company's
financial statements. Interest expense for the three and six month periods ended
June 30, 1998 contains  expense of  approximately  $1,445,000  which  represents
accelerated amortization of the deferred interest and original issue discount on

<PAGE>8



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 additional expense in the current period.

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 chip  design  project,  cancel a number of other  projects  and
reduce personnel. See: "Liquidity and Capital Resources". Therefore, the results
for the three and six month periods ended June 30, 1998,  will not be indicative
of future operations.

Three Months Ended June 30, 1998, Compared to June 30, 1997.

Revenues

Revenues  were  approximately  $26,000 in the three  months  ended June 30, 1997
compared to zero in the same period in 1998.  The revenue in the 1997 period was
from a developer  kit sold to a prospective  purchaser of the  Company's  single
chip encoder. There were no sales in the three months ended June 30, 1998.

Cost of goods sold

Cost of goods  sold was  approximately  $8,000 or 31% of  revenue  for the three
months  ended June 30,  1997.  The cost of goods  percentage  seen in the second
quarter of 1997 is not  necessarily  indicative  of that which the Company might
experience at such time, if any, that finished products begin to be shipped.

Research and development

Research and development was approximately  $1,342,000 in the three months ended
June 30, 1998,  an increase of  approximately  $482,000  over the expense in the
same period in 1997.  Consulting expense increased by approximately  $807,000 in
the  second  quarter  of 1998 from the  second  quarter  of 1997 as the  Company
attempted  to complete  development  of its single chip  encoder.  Payroll  also
increased by  approximately  $219,000 in the second  quarter of 1998 relative to
1997 as part of the same attempt to complete the encoder chip, but this increase
was offset by reduction of  compensation  imputed under APB 25 of  approximately
$495,000.  The  development of the single chip encoder was terminated at the end
of the second quarter of 1998.

<PAGE>9



Selling, general and administrative

Selling,  general  and  administrative  expenses  increased  from  approximately
$1,376,000 in the second quarter of 1997 to approximately $2,611,000 in the same
period in 1998.  Payroll  costs  increased  from  1997 to 1998 by  approximately
$704,000  as the  Company  increased  the  numbers  of sales and  administrative
employees in anticipation of the  introduction and shipment of products in 1998.
Included in this payroll cost increase were payments of  approximately  $266,000
to the Company's new  President,  Thomas E. Burke in the second quarter of 1998.
The second quarter of 1998 also included a charge of approximately  $265,000 for
the  issuance  of  below-market  options  for Mr.  Burke,  and  moving and legal
expenses related to his arrival and departure of another approximately $125,000.

Loss on disposal of property and equipment

In June 1998, the management of the Company decided to terminate the single chip
encoder product and to focus the Company's research and development efforts into
projects with more  immediate  prospects for revenues.  Certain  portions of the
Company's  property and equipment were specific to the chip development  project
and with the termination of the project, this property and equipment was written
down to its realizable  value.  The amount of this write-down was  approximately
$937,000.  There was no similar loss experienced in the three month period ended
June 30, 1997.

Interest expense, net of interest income

Interest expense, net of interest income in the three months ended June 30, 1998
was  approximately  $2,473,000.  There was  essentially  no interest  expense or
income in the  corresponding  period of 1997.  The Company had notes payable and
convertible  debentures  outstanding in excess of $8,000,000 at the beginning of
the  second  quarter  of 1998,  borrowed  in  excess of  $2,000,000  more in the
quarter,  and  converted  approximately  $4,000,000  into  equity.  There was no
similar  debt  outstanding  in the  corresponding  period  of 1997.  The  stated
interest expense on the Company's obligations for the second quarter of 1998 was
approximately  $160,000.  Interest  expense includes  approximately  $299,000 of
incentives allowed on other borrowings,  and late charges and other items booked
as interest expense of approximately $101,000.

The Company was not in compliance with certain  covenants under the terms of the
December  1997  and June  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 June 30, 1998. Interest expense in the three month period ended
June 30, 1998 contains approximately  $1,913,000 of amortization of the original
discount  on the  Debentures  sold in  December  1997  and  June  1998 of  which
approximately  $1,445,000  represents  accelerated  amortization of the deferred
interest and original issue discount on this debt.

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  $2,213,000 in the three months ended
June 30, 1997, to  approximately  $7,629,000  for the same period in 1998.  This

<PAGE>10


increase  reflects  the  substantial  increases  in  expenses  from 1997 to 1998
including the write-off of the Company's chip development project.

Six Months Ended June 30, 1998, Compared to June 30, 1997.

Revenues

Revenues  for the six months ended June 30, 1998 were  approximately  $40,000 as
compared to  approximately  $101,000 for the same period in 1997. The revenue in
1997 was from the sale of four developer  kits to prospective  purchasers of the
Company's  single chip encoder.  There were no such sales in 1998,  but sales of
pre-production board level products partially offset this decline.

Cost of goods sold

Cost of goods sold declined from approximately  $29,000 or 29% of revenue in the
first half of 1997 to approximately $22,000 or 55% of revenue in the same period
of 1998.  This reflects the different cost  structures of the developer kits and
the pre-production  boards.  Neither percentage  necessarily predicts accurately
the cost of sales that the Company  might  experience at such time, if any, that
production level products begin to ship.

Research and development

Research and development was approximately  $2,765,000 in the first half of 1998
up by  approximately  $696,000  from  the  level  in the  first  half  of  1997.
Consulting expenses increased by approximately  $941,000 between the two periods
as the Company attempted to complete  development of its single chip encoder. As
part of the effort to  complete  the chip,  payroll  costs  were also  higher by
approximately  $453,000.  This was  offset  by a  decrease  in the  compensation
expense recognized under APB 25 in 1998 of approximately  $578,000. In the first
half  of 1997  the  Company  recognized  a  $500,000  expense  for  the  cost of
incomplete technology acquired in exchange for stock.
This expense was not repeated in 1998.

At the end of June 1998, the management of the Company took significant steps to
reduce  research and development  costs.  The project to develop the single chip
encoder,  and several other  development  projects were terminated.  The Company
substantially reduced the size of its research and development staff, terminated
several consulting  contracts,  and continued development on only those projects
that were deemed to be closest to market.  Accordingly,  the Company's  expenses
for  research  and  development  are  expected  to  be  lower  in  the  quarters
immediately  after  June 30,  1998 than they were in the first two  quarters  of
1998.

Selling, general and administrative

Selling,  general and administrative  expenses were approximately  $4,626,000 in
the first  half of 1998 as  compared  to  approximately  $2,217,000  in the same
period of 1997, an increase of approximately  $2,409,000.  Selling,  general and
administrative activity in the first half of 1998 was higher than it was in 1997
at the Company prepared for expected product releases, and staffed up to support
expected sales.  Actual cash payroll increased by approximately  $885,000 in the
first  half of 1998 as  compared  to  1997,  and  compensation  imputed  for the
issuance of stock  options at prices  below market  increased  by  approximately
$614,000.  Legal and accounting  expenses in the first half of 1998 increased by
approximately  $484,000  from the  first  half of 1997 due in large  part to the
costs of SEC filings and substantial increase in the cost of litigation. Travel,

<PAGE>11


entertainment,  and trade  show  costs in the first  half of 1998  increased  by
approximately  $255,000  relative to the first half of 1997 in large measure due
to the costs of attending the National Association of Broadcasters trade show in
1998.

In June of 1998,  the management of the Company took steps to reduce the rate of
selling, general and administrative spending. Payroll was reduced significantly,
plans for future trade shows were  reduced,  litigation  was settled or put into
contingent  fee  arrangements  as  much  as  possible,   and  non-core  business
activities were eliminated.  As a result,  management  anticipates that selling,
general and administrative expenses will be substantially lower for at least the
balance of 1998 than they were in the first half.

Interest expense, net of interest income

Interest expense, net of interest income was approximately $3,449,000 in the six
months  ended June 30,  1998.  During the entire  first half of 1998 the Company
carried  debt in  excess  of $6  million,  on  which  the  stated  interest  was
approximately $333,000. No such debt was outstanding in the same period of 1997.
Interest  income was not significant in the either the first half of 1997 or the
first half of 1998.

The Company was not in compliance with certain  covenants under the terms of the
December  1997  and June  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 June 30, 1998.  Interest  expense in the six month period ended
June 30, 1998 contains approximately  $2,690,000 of amortization of the original
discount  on the  Debentures  sold in  December  1997  and  June  1998 of  which
approximately  $1,445,000  represents  accelerated  amortization of the deferred
interest and original issue discount on this debt.

Management  anticipates that the Company will continue to experience high levels
of  interest  expense  in  future  quarters  due to the  debt  incurred  to fund
operations.  Issuance of new Debentures  after June 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
debt 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.

Liquidity and Capital Resources

Through June 30, 1998, the Company funded its operations  primarily  through the
sale of stock and  placement of debt.  On June 30, 1998,  the Company had a cash
balance  of   approximately   $1,225,000  and  a  working   capital  deficit  of
approximately  $10,003,000.  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
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.


<PAGE>12


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  three  and six  month  periods  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.

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.  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.

<PAGE>13


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.

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.

<PAGE>14


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 ASIC  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 January 15, 1999 the average price at
which these convertible  debentures could be converted into the Company's Common
Stock was  approximately  $.10 per share.  If these two  investors had exercised
their conversion rights at that time they would have owned  approximately 81% 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 in concert with  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 January 15, 1999.

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

<PAGE>15

Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits.

               10.26 Convertible Debenture Purchase Agreement, dated as of 
               December 15, 1998 between InnovaCom, Inc. and JNC Strategic Fund;
     
               10.27 Debenture, dated as of December 15, 1998 between InnovaCom,
               Inc. and JNC Strategic Fund;     
               
               10.28 Warrant, dated as of December 15, 1998 between InnovaCom, 
               Inc. and JNC Strategic Fund;
          
               10.29 Registration Rights Agreement, dated as of December 15, 
               1998 between InnovaCom, Inc. and JNC Strategic Fund;

               10.30 Security Agreement, dated as of December 15, 1998 between
               InnovaCom, Inc. and JNC Strategic Fund;

               10.31 Convertible Debenture Purchase Agreement, dated as of 
               January 14, 1999 between InnovaCom, Inc. and JNC Strategic Fund;
     
               10.32 Debenture, dated as of January 14, 1999 between InnovaCom,
               Inc. and JNC Strategic Fund;     
               
               10.33 Warrant, dated as of January 14, 1999 between InnovaCom, 
               Inc. and JNC Strategic Fund;
          
               10.34 Registration Rights Agreement, dated as of January 14, 1999
               between InnovaCom, Inc. and JNC Strategic Fund;

               10.35 Security Agreement, dated as of January 14, 1999 between
               InnovaCom, Inc. and JNC Strategic Fund;






<PAGE>16



                                                     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:  February 17, 1999                         /S/ FRANK J. ALIOTO
                                                 ------------------------------
                                                 Frank J. Alioto, President and
                                                 Chief Executive Officer


Date:  February 17, 1999                         /S/ STANTON CREASEY
                                                 ------------------------------
                                                  Stanton Creasey, Chief
                                                  Financial Officer