U.S. SECURITIES AND EXCHANGE COMMISSION
                        WASHINGTON, D.C. 20549
                              FORM 10-KSB

     (Mark One)
      [X]   ANNUAL  REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
            ACT OF 1934
            For the fiscal year ended December 31, 1997

      [  ]  TRANSITION  REPORT  UNDER  SECTION  13  OR  15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934
            For the transition period from _____ to _____

            COMMISSION FILE NUMBER 0-23503

                                INNOVACOM, INC.
            (Exact name of registrant as specified in its charter)

            NEVADA                           367                 88-0308568
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization)       Classification Code)    Identification No.)

         3400 Garrett Drive, Santa Clara, California  95054; 408-727-2447
           (Address and telephone number of principal executive offices)

Securities registered under Section 12(b) of the Exchange Act:
      None

Securities registered under Section 12(g) of the Exchange Act:

      TITLE OF EACH CLASS
      Common Stock

Indicate  by  check  mark  whether  the  registrant (1) has filed  all  reports
required to be filed by Section 13 or 15(d)  of  the Securities Exchange Act of
1934,  during  the preceding 12 months (or for such  shorter  period  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    .

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

Revenues for the year ended December 31, 1997 were $149,000.

As  of  April 14, 1998, the aggregate market value of the voting common  stock
held by non-affiliates  was  $36,222,518  based  on the average bid and ask
price of $2.25 per share.

As  of  March  31, 1998, the number of shares of common stock  outstanding  was
20,561,897.

Documents incorporated by reference: None

Transitional Small Business Disclosure Format (check one):  Yes    .  No  X .

<PAGE>2

     WITH THE EXCEPTION  OF  HISTORICAL  FACTS  STATED  HEREIN,  THE  FOLLOWING
DISCUSSION   MAY   CONTAIN  FORWARD-LOOKING  STATEMENTS  REGARDING  EVENTS  AND
FINANCIAL TRENDS WHICH  MAY  AFFECT  THE COMPANY'S FUTURE OPERATING RESULTS AND
FINANCIAL POSITION.  SUCH STATEMENTS ARE  SUBJECT  TO  RISKS  AND UNCERTAINTIES
THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS AND FINANCIAL POSITION  TO DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS.   FACTORS
THAT  COULD  CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE, IN ADDITION  TO
OTHER FACTORS  IDENTIFIED IN THIS REPORT,  THE COMPANY'S OPERATING LOSSES, NEED
FOR ADDITIONAL CAPITAL,  DEPENDENCE  ON  THE  DEVELOPMENT  OF  ITS  SINGLE CHIP
PRODUCT, ITS ABILITY TO DEVELOP NEW PRODUCTS, THE SECURITY INTEREST IN  ALL  OF
THE COMPANY'S ASSETS, AND DEPENDENCE ON KEY PERSONNEL, ALL OF WHICH FACTORS ARE
SET  FORTH IN MORE DETAIL IN THE SECTIONS ENTITLED "CERTAIN CONSIDERATIONS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION" HEREIN.  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.

                                    PART I.

ITEM 1.  DESCRIPTION OF BUSINESS

                              BUSINESS

CORPORATE INFORMATION

     The Company  was  originally incorporated in Florida in March of 1993 as a
research and development  company  and  was essentially dormant until 1996.  In
March of 1996, the Company began to emphasize  the  development  of   broadcast
quality  encoded  video  utilizing  the  Motion  Picture Experts Group ("MPEG")
second  generation  standard  for  video and audio compression  ("MPEG-2")  and
obtained a license from FutureTel, Inc  to utilize portions of  its development
of a video compression chip and related MPEG-2  technology,  termed the "Gecko"
technology.  From 1993 until 1995, Mr. Mark C. Koz, the Company's  founder  and
Chairman,  was  also  a shareholder in and an officer and director of FutureTel
and assisted in the development  of  the  Gecko technology.  Mr. Koz terminated
his relationship as an officer, director and  shareholder  of FutureTel and, in
connection with his departure, FutureTel licensed the Gecko  technology  to the
Company  in  exchange  for  royalties,  for  a period of seven years and not to
exceed  $3  million,  based on sales of video compression  chips  utilizing  or
derived from the Gecko  technology.  The Company has applied certain aspects of
the Gecko technology in its  development  of its single chip video encoder, the
DVImpact Chip.

     In  July  1996,  the  Company  merged  with   Jettson  Realty  Development
Corporation, a Nevada corporation ("Jettson").  The  merger  took the form of a
share  for  share  exchange,  in  which  all of the shares of the Company  were
exchanged for approximately 52% of Jettson.  The merger was accounted for under
the reverse take-over method of accounting.   Thereafter,  the  name of Jettson
was  changed to "InnovaCom, Inc."  The Company's Common Stock currently  trades
on the  OTC  Bulletin  Board  under  the symbol "MPEG."  The merger between the
Company  and  Jettson  is  currently the subject  of  litigation.   See  "Legal
Proceedings."

     In May 1997, the Company  acquired  Sierra  Vista  Entertainment,  Inc., a
Nevada  corporation  ("Sierra  Vista") in a share for share exchange by issuing
8,514,500 shares of its Common Stock  to  Sierra  Vista  shareholders.   Sierra
Vista  is  a  motion  picture  production  company  and  as  a  result  of  the
acquisition,  the  Company gained access to approximately $3 million of working
capital and a credit facility of up to $5 million.

<PAGE>3

     The  Company  is  developing  digital  video  compression  and  processing
technology to provide  broadcast quality video encoding and processing products
and systems utilizing the  MPEG-2 standard.  The Company's development includes
single chips, multiple chips,  circuit  boards,  software, and complete digital
video compression and processing systems.  The Company  is currently developing
digital video compression and processing technology using  existing third party
three  chip  compression hardware.  The Company intends to replace  this  three
chip hardware with its own single chip video encoder, the DVImpact Chip, during
1998.

CERTAIN CONSIDERATIONS

     In addition  to  the other information presented in the Annual Report, the
Company and its business  are  subject  to  certain  factors  as  discussed  as
follows.

     LIMITED OPERATING HISTORY.  Since its inception, the Company has generated
nominal  revenues.   Its  primary activities to date have been the research and
development of MPEG-2 products  for  digital  video  compression and processing
technology.   The  Company's  success  is  dependent upon the  development  and
marketing of its proposed products, as to which  there  can  be  no  assurance.
Unanticipated  problems,  expenses  and  delays  are frequently encountered  in
developing  new  products.  Other factors that may affect  the  development  of
products and their  sales  include,  but  are  not limited to, new or competing
products  developed  by  competitors,  the  need  to develop  customer  support
capabilities  and  market  expertise,  delays  in product  development,  market
acceptance, and the success or failure of sales  and marketing activities.  The
Company has no experience in bringing products to  market  in  any  substantial
manner  and  the failure of the Company to meet any of the conditions discussed
above could have a materially adverse effect upon the Company's operations.  No
assurances can be given that the Company can or will ever be profitable.

     OPERATING  LOSSES.   Since its inception, the Company has incurred losses.
For the years ended December 31, 1997 and 1996, the Company incurred net losses
of $10,822,980 and $8,193,395  and  had  an  accumulated deficit of $19,018,775
since  inception.   The Company expects to continue  to  incur  losses  and  to
continue to accumulate  a  deficit  for at least the first two quarters of 1998
and until the Company completely develops  and  markets  its products and gains
significant  market acceptance.  No assurances can be given  that  the  Company
will achieve profitability.

     QUALIFIED  OPINION.   The report of  the Company's independent accountants
contains an explanatory paragraph  regarding  the Company's ability to continue
as  a going concern.  Among the factors cited by  the  accountants  as  raising
substantial  doubt  as  to the Company's ability to continue as a going concern
include  the fact that the  Company  has  no  established  source  of operating
income and that it has recurring losses from operations.

     NEED  FOR  ADDITIONAL  CAPITAL  AND DILUTION.  Development of new products
require substantial capital.  The Company's  future  capital  requirements will
depend  on  many  factors,  including  cash  flow from operations, progress  in
developing new products, competing technological  and  market developments, and
the Company's ability to successfully market its products.  Because the Company
currently does not have significant revenues, and will not  have revenues until
it  begins  to  market  its  products,  the Company will be required  to  raise
additional capital through equity or debt  financings  for its operations.  Any
equity  financings  could  result  in  dilution to the Company's  then-existing
stockholders.  Sources of debt financing  will  result in interest expense.  If
the Company is unable to raise additional funds, the Company may be required to
reduce its operations.

<PAGE>4

     LITIGATION  INVOLVING  THE  COMPANY   The Company  and  its  officers  and
directors  are  involved in a number of legal  proceedings.    Such  litigation
includes an action by the Company  against former directors and officers of the
Company and  alleged  financial  consultants  to  the Company  for, among other
things,  breach of fiduciary duty, fraud, breach of  contract  and RICO.  Three
of  these defendants have filed  cross-complaints against the Company  and  its
officers and directors.  Further, a former employee of the Company has filed an
action for breach of contract, and an alleged creditor of the Company has filed
an action for the repayment of monies.  As a result of  litigation, the Company
will  have  to  spend a substantial amount of time and  fees in prosecuting and
defending itself in these matters.

     SECURITY INTEREST IN THE COMPANY'S ASSETS.  The Company has entered into a
$5 million Credit  Facility  and  Note  which  expires on June 30, 1998.  As of
March  31,  1998, the amount of principal and interest  outstanding  under  the
Credit Facility  and  Note  was  $4,181,422.   The  outstanding  principal  and
interest  is  secured  by  all of the assets of the Company.  Therefore, in the
event the Company is unable  to repay the Credit Facility, the holder will hold
a first-priority security interest  in  the Company's assets upon default.  The
holder of the Note has indicated that it  intends  to  convert  the  Note  into
shares  of  Common  Stock.   However, no assurance can be given that the holder
will convert the Note.  If the  holder  does  not convert the Note, the Company
will be required to request the holder to extend  the  Note  or seek some other
source to repay the Note.  No assurances can be made that the  Company  will be
able  to repay all amounts due under the Credit Facility and Note when required
or that a default will not occur prior to repayment.

     COMPETITION.   The  digital video and audio industry is marked by numerous
small as well as large competitors.   Some of the Company's competitors include
C-Cube Microsystems, Inc., IBM and LSI  Logic,  Inc.  Additionally, the Company
competes   in   an  industry  segment  in  which  numerous   competitors   have
substantially greater  resources  than the Company.  The Company believes other
single  chip encoder products may enter  the  market  prior  to  the  Company's
proposed  single  chip  encoder.   No  assurances can be given that existing or
potential competitors of the Company will  not  develop  products  equal  to or
better  than  those  developed  by  the  Company or that such products will not
receive greater market acceptance.

     DEPENDENCE ON INDEPENDENT MANUFACTURERS/SUBCONTRACTORS  AND  SUPPLIERS  OF
COMPONENTS.   The Company does not maintain its own manufacturing or production
facilities, and  does  not  intend  to  do  so  in the foreseeable future.  The
Company anticipates that its products will be manufactured  and  its components
will be supplied by independent companies.  Many of these independent companies
may  also  manufacture  and  supply  products  for  the Company's existing  and
potential competitors.  The Company does not have any licensing or other supply
agreements  with  its manufacturers and suppliers.  Therefore,   the  Company's
suppliers could terminate  their relationship with the Company at any time.  In
the event the Company were to  have  difficulties  with  its  manufacturers and
suppliers,  the  Company could experience delays in supplying products  to  its
customers.

     UNCERTAINTY OF  MARKET  ACCEPTANCE.   To date, the Company has had minimal
sales of its products.  The Company's success  will  depend  upon acceptance of
its  products  by  the technology industry, including independent  third  party
companies and the general  public.   Achieving  such  acceptance  will  require
significant  marketing  investment.   No  assurances  can  be  given  that  the
technology  industry  will  accept the Company's existing and proposed products
or, if accepted, the level of acceptance.

     DEPENDENCE ON TECHNOLOGY  INDUSTRIES  AND TECHNOLOGICAL OBSOLESCENCE.  The
digital video and audio industry is characterized  by  extensive  research  and
development  and  rapid  technological changes, resulting in very short product
life cycles.  Further, the video and audio industry is characterized by intense
competition  among  various   technologies  and  their  respective  proponents.
Development of new or improved  products,  processes or technologies may render
the  Company's  products obsolete or less competitive.   The  Company  will  be

<PAGE>5

required to devote  substantial  efforts and financial resources to enhance its
existing products and to develop new products.  No assurances can be given that
competing  products  or  new products  or  technology  will  not  be  developed
rendering the Company's products and technology obsolete.

     DEPENDENCE ON MPEG-2 ACCEPTANCE AND CONTINUATION AS STANDARD.  The Company
has focused much of its resources  on  the MPEG-2 technology and the success of
that standard will dramatically impact the  Company's  success.   No assurances
can  be  given  that  the MPEG-2 standard will remain in favor in the industry.
Furthermore, should the  standard be modified or replaced, no assurances can be
given  that  the Company's research  and  development  work  will  successfully
transfer to an alternative standard.

     RELIANCE  ON OEM CUSTOMERS AND RETAIL DISTRIBUTORS.  The Company's success
will depend to a  significant extent upon its ability to develop a distribution
system with original  equipment  manufacturers ("OEMs") and retail distributors
to  distribute  and  sell  the  Company's  products  in  the  marketplace.   No
assurances can be given that the  Company  will  be successful in obtaining and
retaining the OEM customers and retail distributors  it requires to continue to
grow and expand its marketing and sales efforts.

     PROTECTION OF INTELLECTUAL PROPERTY.  The Company  currently does not hold
any patents.  The Company has a non-exclusive worldwide license  from FutureTel
to  manufacture, use, sell and otherwise deal with the Gecko video  compression
technology.    If   the   Company  completes  its  acquisition  of  Intelligent
Instruments Corporation, it may become the holder of a patent for a proprietary
set-top box design and a pending patent  for  a proprietary server design.  See
"Business - Intelligent Instruments Corporation."  The Company currently  holds
certain trademarks on the Company's name and the names of certain products.

     No  assurances  can  be  given  that  another company will not attempt  to
infringe  upon any current or future licenses,  patents,  patent  applications,
trademarks, or copyrights of the Company or its products and technology or that
the Company may not inadvertently infringe upon any current or future licenses,
patents, patent  applications,  trademarks, or copyrights of another company or
its products and technology.  Such  infringement could result in protracted and
costly litigation and sales losses.   Further,  no assurances can be given that
others  will  not  independently  develop  products  or   technology  that  are
equivalent or superior to those of  the Company or that such  products will not
utilize  the  same  or  similar  technology  developed by the Company,  whether
protected or unprotected by a license or patent.

     CONCENTRATION OF STOCK OWNERSHIP.   As of  March  31,  1998,  the  present
directors,  executive  officers,  and  stockholders  owning more than 5% of the
outstanding Common Stock and their respective affiliates  will beneficially own
approximately  28.97%  of the outstanding Common Stock of the  Company.   As  a
result of their ownership,  the directors, executive officers, and more than 5%
stockholders and their respective affiliates collectively will have substantial
control of all matters requiring  stockholder  approval, including the election
of  directors  and  approval  of  significant  corporate   transactions.   Such
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company.

     POSSIBLE DILUTION FROM DEBENTURES, WARRANTS, AND A NOTE.   As of March 31,
1998,  there  are   Debentures,  Warrants,  Additional  Warrants  and  a   Note
outstanding to purchase up to an aggregate of 8,104,262 shares of Common Stock,
including  up  to  5,111,904  shares  underlying the Debentures, 500,000 shares
underlying  the Warrants, 250,000 shares  underlying  Additional  Warrants  and
2,242,358 shares  underlying  the  Note.  Depending on the current market price
per  share of Common Stock, holders of  the  Debentures,  Warrants,  Additional
Warrants  and  Note  may  be able to purchase shares of Common Stock at a price

<PAGE>6

less than the trading price  of  the  Common Stock with a resulting dilution of
the interests to the other stockholders.   Because  of  this potential dilutive
effect,  the  Debentures, Warrants, Additional Warrants and  Note  may  have  a
detrimental impact  on  the  terms under which the Company may obtain financing
through a sale of its Common Stock  in  the  future.   Any  evaluation  of  the
favorability  of  market  conditions  for  a  subsequent  stock offering by the
Company  must  take into account any outstanding Warrants, Additional  Warrants
and Note.

     POSSIBLE VOLATILITY  OF  SECURITIES  PRICES.   The  trading  price  of the
Company's  Common  Stock  could  be subject to wide fluctuations in response to
quarterly  variations  in operating  results,  announcements  of  technological
innovations or new products  by  the  Company  or  its  competitors, changes in
financial  estimates  by  securities analysts, the operating  and  stock  price
performance of other companies  that  investors  may  deem  comparable  to  the
Company,  and  other  events  or factors.  Moreover, in some future quarter the
Company's operating results may  fall  below  the  expectations  of  securities
analysts  and  investors.   In  such  event,  the market price of the Company's
Common Stock would likely be materially and adversely  affected.   In addition,
the  stock  market  in  general,  and  the  market prices for high-tech related
companies in particular, have experienced extreme  volatility  that  often  has
been  unrelated  to  the  operating performance of such companies.  These broad
market and industry fluctuations  may adversely affect the trading price of the
Company's Common Stock, regardless of the Company's operating performance.

     PENNY STOCK REGULATIONS.  The  Securities  and  Exchange  Commission  (the
"Commission")  has  adopted regulations which generally define "penny stock" to
be any equity security that has a market price (as defined) less than $5.00 per
share or an exercise  price  of  less  than $5.00 per share, subject to certain
exceptions.  The Company's securities may  be covered by the penny stock rules,
which impose additional sales practice requirements  on broker-dealers who sell
to   persons   other  than  established  customers  and  accredited   investors
(generally, institutions  with  assets  in  excess of $5,000,000 or individuals
with net worth in excess of $1,000,000 or annual  income  exceeding $200,000 or
$300,000 jointly with their spouse).  For transactions covered  by  this  rule,
the  broker-dealers  must  make  a  special  suitability  determination for the
purchase and receive the purchaser's written agreement of the transaction prior
to the sale.  Consequently, the rule may affect the ability  of  broker-dealers
to  sell the Company's securities and also affect the ability of purchasers  to
sell their shares in the secondary market.

     DEPENDENCE  ON  KEY PERSONNEL.  The Company's performance is substantially
dependent on the performance of its executive officers and key personnel and on
its ability to retain  and  motivate  such  personnel.  The loss of any of  the
Company's key personnel, particularly the Company's  founder Mark C. Koz, could
have a material adverse effect on the Company's business,  financial  condition
and operating results.  The Company's success will also depend upon its ability
to  hire and retain additional qualified personnel.  No assurance can be  given
that the Company will be able to hire or retain such qualified personnel.

DIGITAL VIDEO INDUSTRY OVERVIEW

     In  the  past,  video  images  were  transmitted  and  stored using almost
exclusively analog formats.  Digital video technology, including  the Company's
technology, has been developed more recently and provides several benefits over
analog.  For example, unlike analog, digital video can be compressed, providing
significant storage and transmission efficiencies.  Further, digital  video can
generally be duplicated and transmitted without significant loss of quality.

     The Moving Picture Experts Group ("MPEG") was formed in 1988 to develop  a
worldwide  industry  standard  for  digital compression of video.  In 1991, the
MPEG  committee  adopted   the  first  technical   standard  of  digital  video
compression for full video motion for personal computers,  which  is  known  as
"MPEG-1."

<PAGE>7

     The MPEG committee determined that a higher quality digital video standard
was  needed for broadcast quality video.  The MPEG committee eventually adopted
the second  generation standard of MPEG for video and audio compression ("MPEG-
2").  The MPEG-2  video compression standard defines the standard applicable to
broadcast quality video  which may permit effective storage and transmission of
digital video.

THE COMPANY'S PRODUCTS AND TECHNOLOGY

     Currently, the Company  is  utilizing  existing  third  party  three  chip
compression  hardware  in  development  of  its  digital  video compression and
processing technology.  The Company intends to replace this three chip hardware
with its own single chip video encoder, which has been termed "DVImpact," along
with  the Company's development of a circuit board and software  for  providing
MPEG-2 video encoding.

     The  DVImpact  Chip  and  related video compression hardware and software,
which is the subject of patent application  docket  numbers  2056 and 2057, has
applied certain aspects of the Gecko technology which was licensed  from Future
Tel in 1996.

     Under the License Agreement, the Company has the rights to use, duplicate,
distribute,  modify and enhance the technology for the development, manufacture
and distribution of its products and to sublicense the technology to others for
the enhancement,  development,  manufacture  and  distribution of its products.
The  Company  also holds trademarks on the Company's  name  and  the  names  of
certain products under development.

     The Company develops core technologies and methodologies for digital video
compression and processing technology applications.  The Company's adherence to
MPEG-2 non-proprietary  "open  standards"  is  anticipated  to help  facilitate
customers' flexibility in developing solutions based on the Company's  products
under  development.  The Company believes adherence to the open standards  may,
therefore,  help  customers'  products  meet  time-to-market requirements.  The
following are products currently under development by the Company.

     DVIMPACT SINGLE CHIP MPEG-2 ENCODER is currently  under development and is
designed to provide real time encoding of a digital video input and to generate
a compressed data stream that management believes will be smaller and of better
quality than that of competing solutions.  With minor modifications,  the  same
chip  is  designed  to  act  as  a high quality MPEG-1 encoder for applications
compliant with MPEG-1 standards.  The Company anticipates using the DVImpact in
its own board and systems level products  as  well  as  selling  the  chip on a
merchant  basis  into  appropriate applications.  Management believes that  the
DVImpact  will address needs  in  a  variety  of  different  markets  and  that
customers will  perceive  advantages  in  the DVImpact over competing solutions
both included in the Company's other products  and  as  a  stand alone merchant
product.

     In  connection  with  the development of the DVImpact single  chip  MPEG-2
encoder, the Company entered  into  an  agreement with a Company to manufacture
the Company's chip.  The agreement calls for payment of $225,000 for design and
manufacture of the chip.  As of December  31,  1997, the Company made a $90,000
non-refundable  deposit to TriTech Microelectronics,  Inc.  for  the  start  of
design work.  The remaining amounts are due upon shipment of prototypes.

     DV-2110 MPEG-2  ENCODER BOARD, currently under development, is designed to
act as the system interface,  i/o  manager,  and host for the DVImpact chip, or
other MPEG-2 encoder chips.  The Company intends to use the DV-2110 imbedded in
the  Company's  systems  products,  and to sell the  board  as  a  stand  alone

<PAGE>8

component,  or  packaged  with certain Company-developed  software  as  an  OEM
product to customers in markets  that  the  Company  does not currently service
with  its own system level products.  The board is intended  to  be  compatible
with personal  computers  running  Windows  95 and NT operating systems, and to
operate with a variety of video compression hardware.   Its  modular design and
flexible architecture are designed to allow it to function in  a  wide range of
digital  audio  and video applications in many different hardware and  software
environments.

     TRANSPEG<trademark>   AND  MAVNET<trademark>  SYSTEMS-LEVEL  PRODUCTS  are
currently in advanced stages  of  development and are designed for professional
broadcast markets.  This includes:  A  line  of  interchangeable digital multi-
channel transmissions products that incorporate compressed  video  and transmit
on   multiple   digital   video   broadcast   standards;  a  digital  broadcast
player/recorder  that  incorporates  MPEG-2  video   compression;   and  MPEG-2
instrumentation  cluster  for vector scope and waveform monitoring; and  MPEG-2
multi-channel encoding system;  and  a corporate DVD authoring system utilizing
MPEG-2 video compression.  These products are intended to provide digital video
processing technology to customers who are facing the conversion from analog to
digital  broadcast  technology while maintaining  the  look  and  feel  of  the
interface that the users  have  known  on  their  analog  tools.  One potential
application  is  a  system designed specifically for broadcasters  for  use  in
producing, downloading,  editing  and delivering digitally compressed broadcast
quality video.  However, the Company  believes  that  a complete MPEG-2 digital
video  compression system could also be utilized by end-users  in  producing  a
variety of other video and audio programs.

SALES AND MARKETING

     The  Company  intends  to  market its systems and products through its own
sales  force  and  through  the  use  of   independent  sales  representatives.
Currently, the Company is emphasizing the sale of its system based solutions to
the video broadcast industry through direct  sales  calls  from  the  Company's
sales  force  and  by  attendance  at  national  and international trade shows.
Because the Company's systems and products have been  in the development stage,
the  Company  has  not  achieved significant revenue from sales  and  does  not
anticipate significant sales  revenue  until  its  products become available in
commercial quantities.

MARKET FOR THE COMPANY'S PRODUCTS

The  markets  for the Company's systems and products using  its  digital  video
compression  technology  can  be  divided  into  three  broad  markets:   video
applications  in   communications,   especially  the  broadcast  market;  video
applications in computers and computer  networks;  and  video  applications  in
consumer  electronics.  The Company intends to market its products in all three
broad  markets,   but   will   initially   emphasize   video   applications  in
communications  targeting  the  analog  to  digital  conversion  of  television
broadcast technology.

     VIDEO APPLICATIONS IN COMMUNICATIONS

     Digital video compression is currently used in several new applications in
the  communications  market,  including  the  conversion from analog to digital
television, increase transponder capacity on satellite  DBS networks, and wired
and wireless cable networks.

     The Company intends to initially emphasize the marketing  of  its  systems
solutions  to  the analog television broadcast station which desires to convert
to the transmission  of  digital  television in accordance with the mandates of
the Federal Communications Commission.  Most analog television stations must

<PAGE>9

convert to digital transmission within  the  next  six years. The Company is in
the  final  stages of development of a full product line  targeting  the  video
compression needs  of  television  broadcast stations converting from analog to
digital transmissions.

     The first full-scale digital video  transmission  systems  to achieve full
deployment   were   a  series  of  DBS  networks  (Direct  Broadcast  Satellite
television). Through  the  use of digital video compression technology on high-
power Ku-band satellites, DBS  networks  typically provide 100 or more channels
to large geographical areas.  The Company  intends  to  target this market once
its  DVImpact Chip is commercially available through the development  of  video
and audio  compression  and multiplexing systems which are intended to have the
capability of increasing  the  number  of  video channels available to networks
over existing satellite transponders.

     The  wireless  cable  or  MMDS networks involve  a  local  "line-of-sight"
broadcast network which broadcasts  video  over  much  shorter distances from a
stationary ground-based antenna directly to small receiving  antennas placed at
each  subscriber's home. Wireless cable or MMDS systems are typically  deployed
in areas  where  there  may  not  be  an  existing  wired cable system or as an
alternative to existing wired cable systems in high-density  urban centers. The
Company  intends  to target this market once its DVImpact Chip is  commercially
available  through  the   development   of  video  and  audio  compression  and
multiplexing systems which are intended to  have  the  capability of increasing
the  number  of video channels available to wireless networks  using  the  same
amount of radio spectrum.

     Wired cable  networks, which include such varied architectures as switched
digital video, fiber  to  the curb (FTTC), HFC and twisted pair schemes such as
ADSL  and  HDSL,  are  currently   in   the   early  stages  of  deployment  by
telecommunications  suppliers  and digital cable  providers.  Switched  digital
networks can provide a much higher  level  of  interactivity compared to either
DBS  or  MMDS  including  the potential for full two-way  video  communication.
However, the significant investment  in  new  infrastructure,  presents a major
barrier to market penetration as the cost of this infrastructure  is  likely to
be  passed  onto  the  consumer.   However,  the Company intends to target this
market once its DVImpact Chip is commercially available through the development
of video and audio compression and multiplexing  systems  which are intended to
have  the  capability of increasing the number of video channels  available  to
wired cable  networks  using  the  same  amount of bandwidth available over the
cable system.

     VIDEO APPLICATIONS IN COMPUTERS AND COMPUTER NETWORKS

     Manufacturers  and  consumers  of  computer  technology  are  increasingly
embracing  digital video applications for  use  in  educational,  entertainment
communication and training applications. Furthermore, computers are emerging as
the technical  platform  of choice for video editing and video encoding through
the integration of dedicated  video-specific  hardware.  The Company intends to
target  this  market  as  its system level solutions and DVImpact  Chip  become
commercially available.  Hardware  systems  involving  DVD-ROMs may incorporate
some of the Company's video encoding technology on an OEM basis.  Computers are
commonly  used  as  video  post-production  systems  though  the   addition  of
appropriate capture and encoding hardware and application software enabling the
system  to  provide  digital  editing  and/or  content encoding.  The Company's
technology, especially its digital authoring software  technology,  would  have
applications in this market as well. Finally, the Company intends to market its
products  and  systems  for use over local area networks and wide area networks
providing  a cost effective  solution  for  live  video  streams  over  network
applications.

<PAGE>10

     VIDEO APPLICATIONS IN CONSUMER ELECTRONICS

     One emerging  growth  market  for  the Company's technology is in consumer
electronics.  Through  the  use of MPEG-2 compression,  video  can  be  stored,
reproduced and distributed on  the  same media currently in use for other types
of digital data, such as 5-inch (12 cm)  CDs that are commonly used for digital
audio.  Emerging  applications  for  digital  video   capture,   playback   and
distribution  at the consumer level are being advanced by the rapid adoption of
new consumer-oriented  media  formats  such  as  VideoCD  Players, DVD Players,
Recordable  DVD  and  Consumer Digital Video Cameras.  The Company  intends  to
target the consumer market  once  its  DVImpact  Chip is commercially available
through the development of video and audio compression and multiplexing systems
with specific applications in the consumer electronics market.

COMPETITION

     The Company faces competition from numerous companies,  some  of which are
more established, have greater market recognition, and have greater  financial,
production  and  marketing  resources than the Company.  The Company's products
compete on the basis of certain  factors,  including  first  to  market product
capabilities, product performance, price, support of industry standard, ease of
use and customer support as well as user productivity.

     The market for the Company's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions  and other
market  activities  of  industry  participants.   The  Company faces direct and
indirect competition from a broad range of competitors who  offer  a variety of
products  and solutions to the Company's current and potential customers.   The
Company's principal  competition  comes  from: (i) companies offering competing
systems;  and  (ii)  companies  offering  competing   technologies  capable  of
addressing  certain  components  of  the  Company's technology.   Many  of  the
Company's  competitors  have  longer  operating  histories,  including  greater
experience in the market, significantly  greater financial, technical and other
resources than the Company, greater name recognition  and  a  larger  installed
base of customers.

     C-Cube  Microsystems ("C-Cube") is a direct competitor to the Company  and
is similarly focused  on  video  encoded  compression.   C-Cube  has grown very
rapidly through the sales of its MPEG products, primarily in the MPEG-1 market,
and  has  significantly  greater  resources than the Company.  However,  C-Cube
generally  sells components rather than  the  complete  hardware  and  software
digital video  compression  and processing systems the Company hopes to develop
for its customers.

     IBM was expected to compete with a single-chip MPEG-2 encoder and decoder,
but  has not done so yet.  The  Company  and  many  other  market  participants
presently  buy  a  3-chip  MPEG-2  chipset from IBM for their own current board
products.  IBM is expected to release  its  own  single  chip  encoder  in  the
future.

     Other  major  potential competitors include companies such as Phillips and
SGS-Thomson,  as  well  as  large,  integrated  Japanese  and  Korean  consumer
electronics companies,  such  as Sony, Hyundai, Toshiba, NEC and Samsung, which
have their own semiconductor design  and manufacturing capacity.  In high-level
MPEG-2 decoders as well as MPEG-1 encoders,  LSI  Logic  has substantial market
share.  In many of these cases, the Company hopes to be able  to  work  jointly
with  these  companies  to  enhance  quality  encoding and decoding in the mass
markets.

     Among  the  Company's smaller competitors is  FutureTel,  which  primarily
serves the video authoring  marketplace  with  boards and software toolkits for
encoding  video  sequences  for television broadcast  studios.   Minerva  is  a
venture-funded, fast-growing  system  reseller  using  C-Cube  and  other  chip
sources.    Another   market   participant,   3DO,   started   shipping  MPEG-2

<PAGE>11

encoder/decoders for the Apple MacIntosh in 1996, based on IBM's  chipset,  and
may decide to compete in the personal computer market.  Several other companies
develop specialized professional video production boards.

     The  Company's  competitors  can  be  expected  to continue to improve the
design  and performance of their products and to introduce  new  products  with
more  competitive   prices   and   performance   features.    Maintaining   the
technological   and  other  advantages  of  the  Company's  products  over  its
competitors' products  will require a continued high level of investment by the
Company in both research  and development and operations.  No assurances can be
given that the Company will  be  able  to continue to make such investments and
receive the necessary capital or that the  Company  will be able to achieve the
technological advances necessary to achieve  competitive advantages.

RESEARCH AND DEVELOPMENT

     For  the past two years, substantially all of the  Company's time has been
devoted  toward the research and development of digital video  compression  and
processing products and systems.  Internal research is supplemented through the
utilization   of   consultants   who  specialize  in  various  areas.   Product
development is largely performed at the Company's headquarters in California by
approximately 20 engineers who are  supported  and  assisted  by  five  to  ten
engineer  consultants  and by one technician.  The Company's total expenditures
for research and development  were  approximately $4,388,000 and $2,711,000 for
the years ended December 31, 1997 and 1996, respectively.

FUTURETEL LICENSE AGREEMENT

     The Company has entered into an agreement with FutureTel whereby FutureTel
has licensed to the Company certain proprietary  technology  related to digital
video compression.  The license agreement was entered into on March 7, 1996 and
was  exclusive for a period of one year and became non-exclusive  thereafter.
Under  the  license  agreement,  FutureTel  granted  the  Company  the right to
develop, manufacture and distribute products using the licensed technology  and
derivative  works.   Under the terms of the license agreement, the Company will
also have the right to sublicense the technology.

     FutureTel's proprietary  technology is currently subject to patents and in
the event FutureTel decides not to continue to protect its patents, the Company
has the right to enforce and protect  the  patents  which  are  subject  to the
license.

     For its right to use the technology, the Company shall pay to FutureTel  a
percentage  of  gross  revenues  related  from  the  sale of products using the
technology by sublicenses or by the Company equal to 20%  during  year  1;  15%
during  year 2; 8% during year 3; 5% during year 4; 3% during year 5; 1% during
year 6 and  1%  during year 7.  Thereafter, the Company will not be responsible
for any further   payments.   Further,  the  royalty  payments  are  subject to
maximum cumulative amount not to exceed $3 million.

SIERRA  VISTA  ENTERTAINMENT,  INC.    Sierra Vista Entertainment, Inc.("Sierra
Vista")  was incorporated under the laws  of  Nevada  on  April  3,  1996,  for
purposes of  engaging  in  the  production  of television or theatrical feature
films.   Sierra  Vista  intends  to  produce feature  motion  pictures  with  a
production budget of between $1 million and $5 million per film.

     The  Company  and  Sierra Vista entered  into  a  Plan  and  Agreement  of
Reorganization ("Reorganization")  in which the Company acquired 100% of Sierra
Vista's issued and outstanding common stock in exchange for 8,514,500 shares of
Common Stock of the Company.  Upon consummation  of  the Reorganization, Sierra
Vista became a wholly-owned subsidiary of the Company.   As  a condition of the

<PAGE>12

closing of the Reorganization, certain shareholders of Sierra  Vista  who held,
in  the  aggregate,  approximately  5.5  million  shares of Sierra Vista voting
common  stock  entered  into a voting agreement with Mr.  Koz  who  then  owned
approximately 4.9 million  shares  of Common Stock of the Company.  Pursuant to
the  voting agreement the parties agreed  to  nominate  six  directors  of  the
Company,  three  of  which  to be nominated by Mr. Koz and three of which to be
nominated by Sierra Vista shareholders.   Currently,  Mr.  Koz  and  one  other
shareholder are subject to the voting agreement.  Further as a condition of the
closing  to  the Reorganization, Sierra Vista was required to raise $3 million,
which was used  by  the  Company  for  working capital upon consummation of the
Reorganization.  Sierra Vista also arranged  for  a  $5 million Credit Facility
which has been used by the Company for working capital.

     Sierra Vista employs three full-time employees and  is  currently  seeking
financing to produce one motion picture.  However, Sierra Vista is dependent on
the  Company  for  its  working  capital and has been limited in its production
activities due to the financial constraints  of  the  Company.   As the Company
continues  to expend resources on the development of its systems and  products,
management anticipates re-evaluating the propriety of continuing Sierra Vista's
production activities.   No  assurance  can  be  given  that  the  Company will
continue Sierra Vista's production activities in the future.

CHINA JOINT VENTURE

     The  Company  entered  into a joint venture agreement with CRI, a  Chinese
corporation located in Beijing  ("CRI"),  in  September 1997.  The joint venture
intends to establish an exhibition facility in  China  to display United States
technology  and  products  and  to  provide a forum for various  companies  and
individuals  to develop potential business  relationships  and  projects.   The
Company and CRI  are  currently  completing  the  necessary  documentation  for
operation  of  the  joint  venture  in  China.   Pursuant  to  the terms of the
agreement,  the Company will contribute $200,000 to the joint venture  and  CRI
will contribute $100,000.  The joint venture will divide any profits in amounts
in proportion  to  their investment.  As of March 31, 1998, the Company has not
contributed any funds  to  the joint venture.  In connection with entering into
the joint venture with CRI,  the   Board  of Directors approved the issuance of
100,000 shares of Common Stock to NATV Marketing,  a salary of $60,000 per year
and  the  opportunity  to  receive  up  to 50% of the Company's  joint  venture
interest  provided  that  the  joint  venture   achieves   certain  objectives,
including,  but not limited to, full subscription of all rental  facilities  at
the trading pavilion.

INTELLIGENT INSTRUMENTS CORPORATION

The Company's  Board  of Directors has approved the acquisition of  Intelligent
Instruments for 2 million  shares  of  Common  Stock of the Company, subject to
review  of  tax  and  accounting  consideration and subject  to  completion  of
negotiations and final documentation.  Intelligent Instruments holds the patent
for a proprietary set-top box design  and  has  applied  for  a  patent  for  a
proprietary server design, both of which may potentially be compatible with the
digital  video  compression  and  processing  technology being developed by the
Company.  Intelligent Instruments is a company wholly-owned by Mark C. Koz, the
Company's President and Chief Executive Officer.

TECHNICAL SYSTEMS ASSOCIATES, INC.

     The Company entered into an interim agreement to acquire Technical Systems
Associates, Inc. ("TSA"), an antenna company located in Orlando, Florida, in 
March of 1997.  After  conducting a due diligence review of TSA, the Company 
determined that the acquisition  would not likely  meet  its  current  business
objectives.  In October 1997, the Company entered into an agreement for a 
release from the interim agreement.  Under this agreement,  the  Company paid
TSA  an  aggregate   of   $300,000,   of  which approximately  $180,000  had
previously  been  paid,  and agreed to provide  a certain amount of contingent
debt financing in exchange  for  an  option  to be 

<PAGE>13

held by the Company to acquire TSA and for the release.  In January 1998, the 
Company fully terminated the  relationship  and  paid  TSA  approximately 
$58,000 for a discharge of any financing or other obligations under the previous
agreements.

EMPLOYEES

     As  of  March  31,  1998,  the  Company  had  approximately  45  full-time
employees.

ITEM 2.  DESCRIPTION OF PROPERTY.

     The Company is currently renting approximately 22,000 square feet of space
in Santa Clara, California, which includes  offices  and  research  space.  The
Company  has  entered  into  a  five (5) year lease agreement effective January
1998, with an option to extend for  an  additional three (3) year term, for the
leasing of new offices of approximately 18,000  square  feet.  The monthly base
rent  is  $28,800  for  1998,  increasing  by  $900  per  month for  each  year
thereafter, plus operating expenses for the common areas of  the entire complex
equal  to  the Company's pro-rata square footage of the complex  (approximately
47% of the building,  27%  of the project).  Approximately 4,000 square feet is
also being rented pursuant to  a  sublease  agreement which expires on June 30,
1998, and a monthly payment of $9,000.

     The offices are used primarily for engineering,  software  development and
administrative  purposes.   The Company does not maintain its own manufacturing
or production facilities.

     Sierra Vista entered into  a  three  (3)  year  lease  agreement effective
October  1, 1997.  The lease is for approximately 2,800 square  fee  of  office
space in Beverly  Hills,  California.   The monthly base rent is $5,882 for the
first eighteen months and $6,162 thereafter.

     Sierra  Vista  is also currently leasing  a  single  family  residence  of
approximately 2,500 square  fee in Beverly Hills, California.  The monthly rent
is currently approximately $7,000  per  month,  increasing to $7,300 in October
1998.

     Sierra  Vista's  offices  are  used  primarily  for  its  film  and  video
production business.

ITEM 3.  LEGAL PROCEEDINGS.

JETTSON REALTY DEVELOPMENT CORPORATION.   On  November   10,   1997,  InnovaCom
filed   suit  against  Michael D. Haynes, David S. Jett, Manhattan West,  Inc.,
Marketing  Direct  Concepts,   Inc.,  Checkers Foundation, Atlas Stock Transfer
Corporation, Arun Pande, Edwin Reedholm,  and  others  in the Superior Court of
the County of San Francisco (Case Number 990965).  The complaint  alleges  that
in connection with the reverse merger of Jettson Realty Development Corporation
("Jettson") and InnovaCom, a Florida corporation, the Company  issued shares of
Common  Stock  to Michael D. Haynes and  David S. Jett  and entities controlled
by them based upon   fraudulent  misrepresentations.   Further,  the Company is
alleging  that  Manhattan  West  and  Marketing  Direct  Concepts  and Checkers
Foundation, an entity alleged to be controlled by Messrs. Haynes and Jett, were
issued fees, Common Stock, and options to acquire shares of Common Stock  based
upon misrepresentations, including that they could raise capital to assist the
Company in its business.  The Company has received monies in connection with  a
stock  purchase agreement between the Company and Checkers Foundation, but will
not issue  the  shares of Common Stock until this litigation involving Checkers
Foundation has been  resolved.    The Company is also alleging that Atlas Stock
Transfer,  the  Company's former transfer  agent,  breached  its  contract   in
issuing shares of Common Stock in these transactions.  In addition, the Company
is alleging that  Mr.  Pande,  a  former  director  and  officer  of InnovaCom,
violated  his  fiduciary  duty  by receiving  shares of InnovaCom Common  Stock

<PAGE>14

based upon misrepresentations and  inadequate  or  no  consideration,  and made
inappropriate  and  unauthorized expenditures on behalf of the Company for  his
personal benefit, and  that  Mr.  Reedholm,  a  former director of the Company,
received shares of Common Stock of the Company without  the payment of adequate
consideration.   The  Company  is  also  alleging  RICO  (Racketeer  Influenced
Corrupted Organizations Act) against all defendants.  The  Company  is  seeking
damages in excess of $26 million plus punitive damages.

     In  response  to InnovaCom's lawsuit, certain defendants have filed cross-
claims  against the Company.   Mr.  Pande  filed  a  counterclaim  against  the
Company,  and  its  directors,  officers  and attorneys for breach of contract,
fraud, negligent misrepresentation and other  claims.   Mr.  Pande  is alleging
that  the  Company  breached his employment contract, failed to recognized  Mr.
Pande's ownership in  Innovacom,   failed  to  acknowledged  Mr.  Pande's stock
options, and  failed to reimburse Mr. Pande for expenses  made on behalf of the
Company.  Mr. Pande is requesting damages of $11 million plus punitive damages.
The  Company  is disputing each of Mr. Pande's claims.  In addition,  Marketing
Direct Concepts  has  filed  a  counter-claim against the Company and Manhattan
West  for  damages for breach of a  financial  consultant  contract  requesting
damages of approximately  $1 million.  Manhattan West has also filed a counter-
claim against the Company alleging  breach  of  its  consulting  contract  with
InnovaCom.  Further, Atlas Stock Transfer has filed a claim against the Company
and all other defendants seeking indemnity.

     A  number  of  defendants  have defaulted, including Michael Haynes, David
Jett and Checkers Foundation.  InnovaCom  will  be seeking an entry of judgment
against the defaulting defendants including that the Common Stock that they own
may be canceled.  The Jettson litigation is in its  initial  stage  and limited
discovery has been conducted.

     In  February  1998,  the  Staff  of  the  Division  of  Enforcement of the
Securities and Exchange Commission advised the Company that they are performing
an  informal  inquiry surrounding the circumstances of the reverse  acquisition
involving Jettson and subsequent litigation and has requested certain documents
related to these  transactions.   The  Company  has  complied  with the Staff's
request.

JAPAN TOBACCO, MASATO HATA, FUTURETEL, ET. AL.  On July 25, 1996,  Mark C. Koz,
Intelligent  Instruments  Corporation and the Company filed suit against  Japan
Tobacco, Masato Hata, FutureTel,  et  al.,  in  the Santa Clara County Superior
Court (Case No. CV 759582).  The Company and the  other plaintiffs are claiming
fraud by the defendants in the formation of a business  venture  involving  the
development  and  marketing of multimedia technology.  On or about September 5,
1996, FutureTel filed  a cross-complaint against the Company alleging breach of
contract by the Company  for  failure  to  pay  FutureTel for salaries, payroll
taxes and insurance for certain personnel, rental  equipment  expenses incurred
by   FutureTel,   and   legal   fees   all  representing,   in  the  aggregate,
approximately $120,000.  The parties recently  agreed  to settle their dispute.
Under the settlement agreement, each party dropped their  claims  against  each
other,  the  Company  paid  FutureTel  $100,000,  and the Company and FutureTel
amended  the  Company's   license  to manufacture, use,  distribute,  sell  and
otherwise deal with the video compression  technology from FutureTel to make it
irrevocable.   At  the  time of litigation, neither  Mr.  Koz  nor  Intelligent
Instruments Corporation were associated with FutureTel.

MATURI.  On October 7, 1996,  InnovaCom  filed  a complaint for declaratory
relief in Santa Clara County Superior Court (Case  No.  CV  761218) against
Gregory  V.  Maturi,  a former employee.  The complaint seeks clarification
that Mr. Maturi is not  entitled  to any further payments or benefits under
his  employment  agreement  with the Company,  and  that  certain  payments
amounting to approximately $150,000  made by InnovaCom to Mr. Maturi should
be returned to the Company.  On October 18, 1996, Mr. Maturi filed a cross-
complaint against the Company for breach of contract, fraud and deceit, and

<PAGE>15

breach of the implied covenant of good  faith  and  fair  dealing,  seeking
damages  in  excess  of  $5  million.   The  parties have conducted limited
discovery.  No trial date has yet been set.

DECORAH COMPANY.  On June 9, 1997, the Decorah  Company  and  Edwin Reedholm, a
former  director  of the Company, filed a complaint against Digital  Hollywood,
the Company and Mark  C.  Koz  in  the  Circuit  Court of Cook County, Illinois
County Department, Law Division, Case No. 97L06866.   Plaintiffs  are  alleging
breach  of  contract in the amount of $7,225 lent to the Company.  In addition,
Decorah Company  is alleging  that it has lent funds to Digital Hollywood which
has  yet  to be repaid  and  is  seeking  damages  of  approximately  $900,000.
Further, Decorah  Company  is  seeking  damages  against  Mr.  Koz  because  he
guaranteed  the repayment of the monies by Digital Hollywood to Decorah Company
secured by a  portion  of Mr. Koz's Common Stock in the Company.  Discovery has
yet to begin in this proceeding.   In  addition, the Company has recently filed
suit against Mr. Reedholm for breach of  fiduciary  duty  in the Jettson Realty
litigation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The Company's Common Stock began trading on the OTC Bulletin  Board  under
the  symbol  "MPEG"  on July 15, 1996.  The following quotations reflect inter-
dealer prices, without  retail  mark-up,  mark-down  or  commission and may not
represent actual transactions.  The high and low prices of the Company's Common
Stock on a quarterly basis for the past two fiscal years are as follows:

<TABLE>
<CAPTION>
QUARTER                      HIGH                LOW
<S>                       <C>              <C>
September 30, 1996           $8.13               $1.25
December 31, 1996            $9.25               $4.25
March 31, 1997               $6.19               $1.63
June 30, 1997                $5.06               $2.44
September 30, 1997           $4.38               $2.38
December 31, 1997            $3.63               $2.38
</TABLE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The  following  sections  discuss  the Company's financial  condition  and
results  of  operations  based  upon  the  Company's   consolidated   financial
statements  which  have  been  prepared  in  accordance with generally accepted
accounting  principles.  The following sections  also  contain  forward-looking
statements that  involve risks and uncertainties.  The Company's actual results
may  differ materially  from  the  results  discussed  in  the  forward-looking
statements.   Factors  that  might cause such a difference include, but are not
limited to, those discussed in  "Certain  Considerations" section and elsewhere
in this Annual Report.

GENERAL

     The  Company is a development stage company  with  a  principal  focus  in
digital video  compression  and  processing  technology  compliant  with MPEG-2
standards.   The Company is currently developing chips, boards and systems  for

<PAGE>16

targeted potential customers.  In 1997, the Company merged with Sierra Vista, a
Nevada corporation  in the development stages of production and distribution of
feature length films.

     The Company plans  to  make  the transition from development stage to full
production and sale of products in  1998.   The  Company's  single-chip  MPEG-2
encoder,  the  DV2100  MPEG-2 encoder board, and numerous system level products
are at advanced stages of  development  and  are  expected to begin significant
volume shipment in the near future.  Management anticipates  that  the  Company
will  become profitable in 1998, but that continuing operating losses early  in
1998 combined  with  the  requirements  of  increased  inventories and accounts
receivable will require additional funding in 1998.  No assurances can be given
that  the  Company will become profitable or such additional  funding  will  be
available or, if available, that it will be on terms favorable to the Company.

     Product  development in 1998 is planned to continue in areas complimentary
to the Company's  pending product sales.  These product development efforts are
expected to include  updated  versions  of  previously  released  products with
enhanced  feature  sets and functionality, products that will compliment  other
existing products, and  products  that  will  broaden  product lines to address
additional market niches.  Management anticipates significant  increases in the
staffing in its research and development efforts and in production,  marketing,
sales and administration.

     Management of Sierra Vista does not anticipate significant revenues during
the  remainder  of  the  fiscal  year.   No  significant increases in permanent
employees and no significant purchases of equipment  are  anticipated.   Sierra
Vista's  operations  are dependent on receiving adequate working  capital  from
InnovaCom.

     The Company does  not  believe  that  inflation will have an impact on its
results of operations and does not believe that its business is seasonal.

RESULTS OF OPERATIONS

     The following discussion and analysis should  be  read in conjunction with
the Company's consolidated financial statements and the notes thereto and other
financial information included elsewhere in this Annual Report.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996

REVENUES

     Revenues for the year ended December 31, 1997 were $149,000 as compared to
zero for the year  ended December 31, 1996.  The revenues  in  1997  were  from
shipments  of  developer systems to five customers who purchased the systems to
begin development  of  their  own  software  in  anticipation  of the Company's
commercial release of its board encoding products.  The Company's products were
at  an  earlier  stage  of  development in 1996, and accordingly there  was  no
revenue.

GROSS MARGINS

     Gross margins were approximately $96,000, or 64% of revenues, for the year
ended December 31, 1997, as compared  to  zero  for the year ended December 31,
1996.  The gross margin percentage in 1997 is not necessarily representative of
the margins that the Company expects on its products  when commercial shipments
to customers begin sometime in the future.

<PAGE>17

RESEARCH AND DEVELOPMENT

     Research  and  development  expense in the year ended  December  31,  1997
totaled  approximately $4,388,000.   This  was  an  increase  of  approximately
$1,677,000,  or  62%,  from  the  research and development expense for the year
ended December 31, 1996.  The change  results  principally  from an increase in
the number of employees in the research and development group  and  an increase
in  the  period  that these people were working (activity in the first half  of
1996 was low because the Company did not receive significant funding until July
of 1996), which increased  payroll by approximately $1,394,000 and required the
Company  to  recognize  approximately   $732,000  in  compensation  expense  in
connection with the issuance of stock options  or  common stock to employees in
accordance with Accounting Principles Board Opinion 25.  This increase was 
partially  offset by a reduction of approximately  $775,000  in  the amount of
purchased research  and  development expenses in 1997 relative to 1996.

PRODUCTION EXPENSES

     Production expenses of approximately $36,000 were related to Sierra Vista.
InnovaCom had no similar expenses during 1996.

SELLING, GENERAL AND ADMINISTRATIVE

     Selling, general and administrative expenses were approximately $5,285,000
for the year ended December 31,  1997,  which  was  a decrease of approximately
$156,000, or 3%, from approximately $5,441,000 during  the same period in 1996.
The total in 1996 included approximately $3,396,000 in expense   recognized  in
conjunction with the issuance of Common Stock and stock options at prices below
fair  market  value  to  various  consultants.   This expense was approximately
$647,000  in  1997.   Currently, some of the Common Stock  options  granted  to
consultants are subject  to  litigation.   Excluding the $3,396,000 in 1996 and
$647,000 in 1997, selling, general and administrative  expense  would have been
approximately  $2,593,000  higher  in 1997 than in 1996, an increase  of  127%.
This increase is related to an increase  in  the  number  of  employees  and an
increase  in  the  period  of  time they were present in 1997 relative to 1996,
$484,000 in expenses related to  Sierra Vista which was present in 1997 but not
in 1996, and increases in legal and  auditing  of  approximately  $559,000  and
travel expenses of approximately $172,000.

INTEREST INCOME

     Interest   income   increased   from   approximately  $2,000  in  1996  to
approximately $10,000 in 1997.  This increase  reflects  the  return  from  the
temporary investment of surplus cash.

INTEREST EXPENSE

     Interest expense substantially increased from approximately $11,000 during
the year ended December 31, 1996 to approximately $1,214,000 for the year ended
December  31,  1997.  This increase resulted primarily from the credit facility
created in 1997 against which the Company had drawn approximately $3,982,000 of
principal as of  December  31,  1997.   The  outstanding  balance of the credit
facility may be converted into Common Stock of the Company at a discount to the
market  price  of  a  share of Common Stock.  Accordingly, the  value  of  this
discount, approximately  $1,021,000  at  December  31,  1997,  is  recorded  as
interest expense.

<PAGE>18

INCOME TAX EXPENSE

     Income  tax expense for the year ended December 31, 1997 was approximately
$3,000 as compared  to  approximately $1,000 for the same period in 1996.  This
increase was related to the  merger  with  Sierra  Vista  which  increased  the
minimum franchise tax payable to the State of California.

LIQUIDITY AND CAPITAL RESOURCES

     As  of   December  31,  1997,  the Company had negative working capital of
$1,454,500.  At this time, the Company  has  no  substantial revenues, and does
not anticipate any substantial revenues until the  Company  is able to complete
and  sell  its  products.  Historically, the Company has raised  funds  through
equity and debt financings  to  fund its operations and provide working capital
to it and its subsidiaries.  It is  anticipated  that the Company will continue
to  finance  its operations and those operations of  its  subsidiaries  through
equity and debt financings.

     The Company will require additional working capital to fund its operations
and the operations  of  its  subsidiaries.   The  Company  intends  to fund its
requirements through the issuance of debt obligations and, to a lesser  extent.
the  issuance  of  Common  Stock   The Company is currently in discussions with
institutional  investors  to  finance  the  Company  through  the  issuance  of
convertible debentures.  No assurance can  be  given that these discussions and
negotiations will lead to the financing of the Company.   In the event that the
Company  is  unable to obtain adequate financing, there will be  a  material
adverse effect on the Company's ability to meet its business objectives.

     Net cash  used  in  operating  activities totaled approximately $7,106,000
during fiscal 1997 and  $1,970,000 during  fiscal  1996.   Net cash used during
fiscal 1997 and 1996 primarily related to the Company's losses of approximately
$10,823,000 and $8,193,000, respectively.  The net loss during  1997 was offset
by  non-cash items  relating  to interest expense from the discount resulting 
from the beneficial conversion feature of the credit facility compensation 
expense recognized  upon  the  issuance  of Common Stock and  stock  options,
and  the acquisition of technology for Common Stock  expensed.   The  net  loss
during fiscal  1996  was  offset  by compensation  expense related to the 
issuance of Common  Stock  and  stock options  for compensation  and  the  
acquisition  of technology for Common Stock expensed.

     Net cash flows provided from financing  activities  totaled  approximately
$9,217,000  during  fiscal 1997 as compared to approximately $2,269,000  during
1996.  During fiscal  1997,  the  Company  received approximately $2,917,000 in
connection  with the acquisition of Sierra Vista  Entertainment,  approximately
$665,000 from  the  sale  of  Common  Stock to an investor, $4,609,000 upon the
issuance of debentures and $3,982,000 drawn  down  from  the  credit  facility.
This cash received was offset by  the acquisition of property and equipment  of
approximately  $768,000.   During  fiscal 1996, the Company received $2,224,000
from the sale of its Common Stock, offset  by  an advance to a related party of
approximately  $94,000  and  the  acquisition  of  property  and  equipment  of
approximately $205,000.

     As of December 31, 1997, the Company's debts consisted of advances against
a $5,000,000 credit facility granted by a shareholder  with a principal balance
of  approximately  $3,982,000  and accrued interest of approximately  $101,000.
This note matures on June 30, 1998,  bears  interest  at  10%  per annum and is
secured  by  a  first-priority  security  interest  in essentially all  of  the
Company's assets.  The principal and interest on this  credit  facility  can be
converted  at  the  lender's  option  into Common Stock of the Company at a 20%
discount to the market price of the stock  at the date that individual advances
were made to the Company under this credit facility.

<PAGE>19

     In addition, as of December 31, 1997, the  Company  issued   $5 million in
the aggregate of  convertible debentures receiving approximately $4,609,000 in
net  proceeds.  The  convertible  debentures bear interest at 7% and are due
December 22,  2002.  The debentures are  convertible  into  Common Stock in 
increments of one-third; one-third  may be convertible upon the earlier of the
effective date of a registration  statement or after the 120th day after the 
original  issue  date; one-third after  the  120{th}  day  of the original issue
date but prior to the 150{th} day from the original issue date;  and  one-third
after the 150{th} day from the original issue date.  In connection with  the  
private  placement, the Company issued warrants to purchase 250,000 shares of 
Common Stock at $2.43 per share.

     In  July 1997, the Company retained the services of an investment  advisor
to assist  in  the  raising  of  up  to $15 million in a private placement.  In
connection with these services, the Company granted options to purchase 400,000
shares  of  Common  Stock at $2.50 per share.   200,000  of  the  options  were
exercisable upon grant,  the  remaining will be exercisable upon the completion
of a $15 million private placement.   In March 1998, the Company terminated the
relationship with the advisor.

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

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

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

ITEM 7. FINANCIAL STATEMENTS.

     The financial statements for the Company are attached beginning on page F-
1.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
FINANCIAL DISCLOSURE.

     Subsequent  to  the  reverse  merger  between  InnovaCom,  Inc., a Florida
corporation,  and  Jettson,  on June 4, 1997, the Company's Board of  Directors
approved  to  retain  Hein  +  Associates  LLP  as  the  Company's  independent
accountants and Michael Hoffer, Jettson's  former  accountant, was not retained.
During  the  relationship  between Jettson and Michael  Hoffer,  there  were  no
disagreements regarding any  matters  with  respect to accounting principles or
practices, financial statement disclosure, or  audit  scope or procedure, which
disagreements, if not resolved to the satisfaction of the  former   accountant,
would have caused Michael Hoffer to make reference to the subject matter  of the
disagreement  in  connection  with  its  report.   Michael  Hoffer's  report for
Jettson's financial position as of December 31, 1995, July 9, 1996 and July 31,
1996  and the results of its operations and cash flows for the periods July 10,
1996,  to  July 31, 1996, January 1, 1996, to July 9, 1996, for the year  ended
December 31,  1995  and  from  October 3, 1990 (inception) to July 31, 1996 are
not a part of the financial statements  of  the Company included in this Annual
Report.    Such  report did not contain an adverse  opinion  or  disclaimer  of

<PAGE>20

opinion or qualification  of  modifications  as  to uncertainty, audit scope or
accounting  principles under generally accepted auditing  standards.   However,
such report includes  comments  by the former accountant  that cast substantial
doubt on Jettson's ability to continue  as a going concern.  Prior to retaining
Hein + Associates LLP, the Company had not consulted with Hein + Associates LLP
regarding accounting principles.


                                   PART III

ITEM  9.   DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS   AND  CONTROL  PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

EXECUTIVE OFFICERS AND DIRECTORS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
                                                                                  Held Position
         NAME                     AGE                   POSITION                      SINCE
<S>                             <C>              <C>                             <C>
Mark C. Koz                       43             President, Chief Executive           1993
                                                 Officer, Director
F. James Anderson                 49             Secretary, Executive Director,     May 1997
                                                 Corporate Strategy and Finance,
                                                 Director
Rand E. Shrader                   43             Chief Operating Officer            May 1997
Stanton Creasey                   44             Chief Financial Officer           April 1997
Simone Anderson                   34             President, Sierra Vista            May 1997
Tony Low                          44             Director                         October 1996
Robert Sibthorpe                  48             Director                           May 1997
John Champlin, M.D.               42             Director                         October 1997
</TABLE>

     The following sets forth the principal occupations during  the  past  five
years   of  the  directors  and  executive  officers  of  the  Company  and  it
subsidiaries.

     MARK  KOZ   (AGE  43)  has  been  Chairman,  Chief  Executive  Officer and
President of the Company since March 3, 1993.  Mr. Koz was also Chief Executive
Officer, Chief Technical Officer and a Director of FutureTel from 1993 to 1995,
and  has  been  Chief  Executive Officer of Intelligent Instruments Corporation
since  1993.   Mr.  Koz has  five  years  of  technical  education  at  Florida
Technological University (University of Central Florida).  In addition, he is a
voting  member  of  the   Moving   Picture  Experts  Group,  the  international
standards-setting body for MPEG.

     F.  JAMES  ANDERSON  (AGE 49)  has  been  Secretary,  Executive  Director,
Corporate Strategy and Finance,  and  Director  of  the Company since May 1997.
Mr.  Anderson is also and has been a director of  Sierra  Vista  since  January
1997.   Prior to forming Sierra Vista in January 1997, Mr. Anderson was engaged
in reviewing  and  pursuing  business  opportunities.  From January 1993 to the
present, Mr. Anderson served as Director  General of the Moscow Country Club, a

<PAGE>21

Russian-American joint venture formed to develop  a  country  club  in  Moscow,
Russia,  and  from  February  1992  to  May 1995 Mr. Anderson was President and
Chairman of the Board  of  the Moscow Country  Club,  Inc.("MCCI" ) which owned
50% of that joint venture.  From December 1991 to April  1993  Mr  Anderson was
CEO  and  Director  of Brush Creek Mining and Development, Co., Inc., a  Nevada
corporation, which was  engaged  in  exploration  and  development  of precious
mineral  properties in the US and other countries.  Mr. Anderson is the  spouse
of Simone Anderson.

     As previously  discussed,   Mr.  Anderson  was  an  executive  officer and
Chairman of the Board of MCCI  which entered into joint venture with  an agency
of the Russian Government ("Russian Partner").  MCCI believes that the  Russian
Partner illegally seized the assets of the joint venture which is currently the
subject of an arbitration proceeding in accordance with the terms of the  joint
venture  agreement.   As a result of the Russian Partner's seizure of the joint
venture's assets, MCCI  was  unable to pay its obligations when they became due
and, as a result, certain creditors  of  MCCI  filed  an involuntary bankruptcy
action  against  MCCI  (Case No. 95-22770-C-7 and 95-24391-C-11  United  States
Bankruptcy Court Eastern  District  of  California).   The Bankruptcy Court has
approved a plan of reorganization for MCCI allowing all  creditors to be repaid
from the potential judgment proceeds in the arbitration proceeding.

     RAND E. SHRADER (AGE 43) has been Chief Operating Officer  since May 1997.
Prior to joining the Company, Mr. Shrader was employed with ITT Automotive (now
part of ITT Industries) for 12 years.  Mr. Shrader was Quality Manager  at  one
of  Dayton-Walther's   (now  part  of  Lucas-Varity)  plants for 6 years before
joining ITT.

     STANTON RICHARD CREASEY (AGE 44) has been Chief Financial  Officer since  
April  1997.  From  March  1996 through April 1997, Mr. Creasey  was  an
independent consultant and from September  1994  through March 1996, he  was at
Purus Inc.  Mr. Creasey was Chief Financial Officer  and  President  of  Sixty-
Eight  Thousand,  Inc.  from  September  1989 through March 1994, and left that
company in April 1994.  In June 1994, Sixty-Eight  Thousand,  Inc.,  a  company
which  made  Macintosh compatible workstations, filed for bankruptcy protection
in San Jose, California  (Case  No.:  94-54123).   Mr. Creasey is a CPA with 19
years of experience in finance, first with Arthur Andersen & Co., and then with
a  number  of  high  technology  manufacturing  companies,  including  National
Semiconductor Corporation.  He has served as chief financial officer of several
Silicon Valley start-up companies during the past ten years.

     SIMONE ANDERSON (AGE 34) was a Director of the  Company  from  May 1997 to
March 1998, and has been  the Marketing Director and President of Sierra  Vista
since January 1997.  She has been a director and officer  of MCCI from February
1992  until  May 1995 and was previously a director and chief financial officer
of Brush Creek  Mining  and  Development  Co., Inc. from April 1989 to February
1993.  Prior to forming Sierra Vista, Ms. Anderson,  along with her husband, F.
James  Anderson,  was  engaged  in  the  review  and pursuit  of  new  business
opportunities.   As  discussed  above,  certain  creditors  of  MCCI  filed  an
involuntary  bankruptcy  action  against  MCCI.  MCCI  is  still  currently  in
bankruptcy.

     TONY LOW (AGE 44) has been a Director  of  the Company since October 1996.
Since July 1997, Mr. Low has been Chief Operating  Officer of Darwin Digital, a
newly  formed  Saatchi  &  Saatchi  Vision  Company  involved   in  interactive
advertising  and  media buying.  Prior to that, from January 1996 through  June
1997, Mr. Low  was  director  of  business  affairs  at  the  Los Angeles based
Saatchi Entertainment Group, a division of Saatchi & Saatchi, the multinational
advertising  agency.  From June 1993 through January 1996 he was  President  of
Tercer Mundo, Inc., a company marketing sound recordings, and from October 1983
through June 1993  he  was  Partner  and  Business  Manager of Oberman, Tivoli,
Miller  and  Low,  an  accounting  company  specializing in  the  entertainment
industry.

<PAGE>22

     ROBERT ALAN SIBTHORPE (AGE 49) has been  a  Director of the Company since
May 1997.  Mr. Sibthorpe has been owner of Mag South Research,  Inc.,  a 
geological and financial consulting firm since October 1996. From June 1986 
through  April 1996  Mr.  Sibthorpe was  with Yorkton Securities, Inc. involved
in  investment banking  Mr. Sibthorpe has an MBA in Finance and a Bachelor of 
Science in Earth Sciences both from the University of Toronto.

     JOHN JOSEPH  CHAMPLIN,  M.D.  (AGE 42) has been a  Director of the Company
since  October 1997.  He has been owner and president of the Med Center Medical
Clinic in Carmichael, California, since  1993.   Prior  to  founding Med Center
Medical Clinic, he was a  medical director of Madison Center from 1988 to 1993.
He is also associate clinical professor, family practice, at  the University of
California at Davis since 1986.  Mr. Champlin earned his M.D. at the University
of Florida.

COMMITTEES OF THE BOARD.

     The Board has an Audit Committee and a Compensation Committee.   The Audit
Committee consists of Messrs. Low and Sibthorpe, and the Compensation Committee
consists of Messrs. Koz and Sibthorpe.

     The  primary functions of the Audit Committee are to review the scope  and
results of audits by the Company's independent auditors, the Company's internal
accounting  controls,  the  non-audit  services  performed  by  the independent
accountants, and the cost of accounting services.

     The  Compensation  Committee administers the Company's 1996 Incentive  and
Nonstatutory Stock Option  Plan  and  approves  compensation, remuneration, and
incentive arrangements for officers and employees of the Company.

     The board has also established a litigation  committee  consisting  of Mr.
Anderson, who serves as chairman, and Messrs. Low and Sibthorpe.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Based  on  the  Company's information, none of the directors, officers and
beneficial owners of more than 10% of any class of equity securities have filed
their initial report on Form 3.  The Company has informed such persons of their
obligations who intend to file the reports as soon as practicable.

<PAGE>23

ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION.

     The following table sets forth the Compensation of the Company's President
and Chief Executive Officer and the Executive Director, Corporate Strategy and 
Finance  during  1997.   No  other  officer received annual compensation in 
excess of $100,000 during 1997.

<TABLE>
<CAPTION>
SUMMARY
COMPENSATION TABLE
<S>                <C>      <C>         <C>          <C>             <C>                     <C>
                                                                       Long Term Compensation
                        Annual Compensation                Awards                             Payouts

                                            Other                          Securities
                                           Annual            Restricted    Underlying
                                          Compensa-             Stock        Options           LTIP      All Other
                                            tion              Award(s)         (#)            Payouts    Compensa-
Name and Principal  Year      Salary         ($)                 ($)                            ($)        tion
Position

Mark C. Koz         1997     $241,500    $10,500{(1)}            $0        300,000{(2)}         $0          $0
President and CEO   1996     $120,000        $0                  $0       2,000,000{(2)}        $0          $0

F. James Anderson   1997     $112,500    $37,500{(3)}                      300,000{(4)}
Executive
Director,
Corporate Strategy
and Finance
</TABLE>

(1)  Represents a car allowance of $1,500 per month.

(2)   Represents incentive stock options to acquire 192,770  shares  of  Common
Stock at  $2.85  per  share  and  non-qualified stock option to acquire 107,230
shares of Common Stock at $2.59 per  share.   Also  includes options to acquire
2,000,000 shares of Common Stock at $3.00 per share.

(3)  Represents a $3,500 per month housing allowance and a $1,500 per month car
allowance.

(4)  Represents options to acquire 300,000 shares of Common Stock at $2.59.

     On  May  15,  1997,  the  Company and Mr. Koz entered  into  a  five  year
employment contract.  Under the terms of Mr. Koz's employment contract, Mr. Koz
shall receive a salary of $240,000  per  annum  subject  to a 7% cost of living
increase  and  other  increases  as determined by the Board of  Directors.   In
addition, pursuant to Mr. Koz's employment  contract, in the event that Mr. Koz
is terminated in connection with a change in control, Mr. Koz shall be entitled
to receive a lump sum payment equal to three  times  his  then  annual  salary.
Finally,  pursuant to his contract, Mr. Koz shall be indemnified by the Company
for serving as an officer and director.

     On May  15,  1997,  the  Company and Mr. Anderson entered into a five year
employment contract.  Under the  terms  of  Mr. Anderson's employment contract,
Mr. Anderson shall serve as Director of Strategic Planning and President of the
Company's Entertainment Division and his salary  shall  be  $180,000  per annum
subject  to  a  7%  cost of living increase and increases as determined by  the
Board  of Directors.   In  addition,  pursuant  to  Mr.  Anderson's  employment
contract,  in  the  event  that Mr. Anderson is terminated in connection with a
change in control, Mr. Anderson shall be entitled to receive a lump sum payment
equal  to  three  times his then  annual  salary.   Finally,  pursuant  to  his
contract, Mr. Anderson  shall  be  indemnified  by  the  Company for serving as
Director  of  Strategic  Planning and President of The Company's  Entertainment
Division.

<PAGE>24

FUTURE PRESIDENT AND CHIEF EXECUTIVE OFFICER

     On March 23, 1998, the  Company   hired  Thomas  E. Burke as President and
Chief Executive Officer of the Company and as a member  of  the  Board  of  the
Directors  of  the  Company  to  commence May 1, 1998.  As discussed below, Mr.
Burke's employment is subject to certain  conditions.   For  the past 17 years,
Mr.  Burke  has been employed by TRW, most currently as Director  of  Strategic
Requirements  which  is responsible for identifying and evaluating major trends
and issues that can affect  TRW's  Space and Electronics Group.  Prior to being
Director of Strategic Requirements,  Mr.  Burke was with TRW's automotive group
where he was vice president of advanced products and systems for the Automotive
Electronic Group.   From 1981 to 1991 Mr. Burke held positions with TRW's Space
and Technology and the Electronic Systems Groups  in  Los  Angeles.   Mr. Burke
received  a  doctorate in chemistry form the California Institute of Technology
and his bachelor's degree in chemistry for the University of Minnesota.

     Pursuant  to  his employment contract, Mr. Burke shall receive a salary of
$250,000 per year, a  signing  bonus  equal  to  $200,000  net  of taxes, a car
allowance equal to $1,000 per month net of taxes, a housing allowance  equal to
$7,500  per  month  net of taxes, a  life insurance policy equal to $1,500,000,
and other benefits granted to employees of the Company.  Mr. Burke's employment
is  for  a term of five  years  and,  upon  each  anniversary  date,  shall  be
automatically extended by an additional one year term unless either party gives
prior notice  not  to extend.  Mr. Burke shall be eligible to receive an annual
bonus of up to two times  Mr.  Burke's annual salary based on achieving certain
targets as mutually agreed upon  by  Mr. Burke and the Board of Directors.  Mr.
Burke shall also receive options to acquire  during  a  ten  year  term  up  to
1,000,000  shares  of Common Stock of the Company at an exercise price equal to
$1.75 per share.  The  options  shall  vest  in  one-third  increments with one
increment   vesting  immediately  and  the  remaining  two increments  on  each
anniversary  date  thereafter.  In the event of a change of  control,  all  the
options shall vest immediately.

     Mr. Burke's employment contract may be terminated for cause by the Company
or for good reason by Mr. Burke.  In general, the term "for cause" includes the
conviction of a felony,  consistent  willful  failure to substantially  perform
stated duties, a willful act of fraud, or a willful  act  of   misconduct.   In
general,  the  term good reason includes assignment of duties inconsistent with
Mr. Burke's position,  failure  to  comply  with  or  breach  of   Mr.  Burke's
employment  agreement, relocation of principal place of employment, failure  to
extend the employment  term,  or an occurrence of a  change of control.  In the
event of termination without cause  or  for  good reason, the Company shall pay
Mr.  Burke an amount equal to his salary due for  the  remaining  term  of  his
contract  and  any  bonuses due, such an amount not to exceed $1,000,000 unless
the Company has earnings before deduction of any interest, taxes, depreciation,
amortization in excess  of $2,000,000.  In addition, all unvested options shall
immediately vest.  In the event Mr. Burke's employment contract is terminated 
for cause or without good reason,  Mr.  Burke  shall be entitled to all accrued
but unpaid amounts and unvested options shall be forfeited.

     Mr. Burke's obligations under the employment  contract  are  contingent on
the Company obtaining financing in an amount of not less than $5,000,000  on or
before April 15, 1998.  The failure of the Company to secure such financing  or
the  occurrence  of  any  material  adverse changes in the business affairs and
financial prospects of the Company, prior  to  May  1,  1998,  could  result in
termination of the employment contract by Mr. Burke.  Further, the Company must
secure its performance under the employment contract for a period of two  years
by the issuance of a letter of credit in the aggregate amount of $1,000,000 for
the benefit of Mr. Burke.

DIRECTOR COMPENSATION.

     Directors  do not receive cash compensation for serving as such.  However,
during the year ended  December  31,  1997, Messrs. Sibthorpe, Low and Champlin
each received options to acquire 200,000  shares of Common Stock at $2.59 which
represented the closing price of the Company's  Common  Stock  at  the  date of

<PAGE>25

grant.   The  options  are  for  a  period  of five years and vest in one-third
increments beginning on November 18, 1998.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

PRINCIPAL STOCKHOLDERS

     The following  table sets forth, as of March 31, 1998, certain information
with respect to the beneficial ownership of the  Company's  Common Stock by (i)
each stockholder known by the Company to be the beneficial owner  of  more than
5%  of  the  Company's  Common  Stock,  (ii)  each  officer and director of the
Company,  and (iii) directors and executive officers of  the  Company  and  its
subsidiary as a group.

     As of  March  31,  1998,  there  were  20,561,897  shares  of Common Stock
outstanding.

COMMON STOCK
                                                                    Percentage
                                            Number of              Beneficially
NAME AND ADDRESS                          SHARES{(1)}                   OWNED

Mark C. Koz                               5,463,000{(2)}                26.55%
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

507784 BC Ltd.                            5,463,000{(3)}                26.55%
10th Fl., Four Bentall Centre
P.O. Box 49333
1055 Dunsmuir Street
Vancouver BC V7X 1L4
Canada

Rand E. Shrader                              402,000{(4)}                 1.9%
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

Stanton Creasey                               200,000{(5)}                   *
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

John Champlin, MD                             100,000{(6)}                   *
4373 Meadow Circle
Rescue, CA 95672

James Anderson                                      -0-                    -0-
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

<PAGE>26

Simone Anderson                                     -0-                    -0-
Sierra Vista Entertainment
9350 Wilshire Blvd., Suite 100
Beverly Hills, CA 90212

Robert Sibthorpe                                    -0-                    -0-
6311 E. Naumann Dr.
Paradise Valley, AZ 85253

Tony Low                                            -0-                    -0-
The Saatchi Entertainment Group
37 26th Avenue
Venice, CA 90291

All officers and directors as a group     6,165,000{(7)}                28.97%
(7 persons)

*Less than one percent


(1)   Except  as otherwise indicated, the Company believes that the  beneficial
      owners of  Common  Stock  listed above, based on information furnished by
      such owners, have sole investment  and  voting power with respect to such
      shares, subject to community property laws  where applicable.  Beneficial
      ownership is determined in accordance with the  rules  of  the Securities
      and Exchange Commission and generally includes voting or investment power
      with respect to securities.  Shares of Common Stock subject to options or
      warrants currently exercisable, or exercisable within 60 days, are deemed
      outstanding  for  purposes of computing the percentage ownership  of  the
      person holding such  options  or warrants, but are not deemed outstanding
      for purposes of computing the percentage ownership of any other person.

(2)   Includes 1,000,000 shares of Common  Stock  owned  by  507784 BC Ltd. and
      4,463,000  shares  beneficially owned by Mark C. Koz, all  of  which  are
      subject to a Voting  Agreement  by and between 507784 BC Ltd. and Mark C.
      Koz, wherein Mr. Koz has the right  to  nominate three (3) members of the
      six (6) member board of directors of the  Company  and  507784  BC Ltd, a
      former  Sierra Vista shareholder, has the right to nominate the remaining
      three (3)  members  of  the  six  (6)  member  board  of directors of the
      Company, and all the shares subject to the voting agreement shall vote in
      favor of the six (6) nominees.  The voting agreement is  for  a period of
      five  years  ending  on  February 27, 2002.  The voting agreement may  be
      extended for an additional  five years.  The owners of 507784 BC Ltd. are
      unaffiliated with either the  Company  or Mr. Koz.  Also includes options
      to purchase 15,000 shares of Common Stock  at  $0.50  per  share expiring
      August 7, 2001, held by Mr. Koz's wife.

(3)   Includes  1,000,000  shares of Common Stock owned by 507784 BC  Ltd.  and
      4,478,000 shares beneficially  owned  by  Mark  C.  Koz, all of which are
      subject to a Voting Agreement by and between 507784 BC  Ltd.  and Mark C.
      Koz, wherein Mr. Koz has the right to nominate three (3) members  of  the
      six  (6)  member  board  of directors of the Company and 507784 BC Ltd, a
      former Sierra Vista shareholder,  has the right to nominate the remaining
      three  (3)  members  of the six (6) member  board  of  directors  of  the
      Company, and all the shares subject to the voting agreement shall vote in
      favor of the six (6) nominees.

(4)   Includes options to purchase 400,000 shares of the Company's Common Stock
      at $2.75 per share, expiring May 27, 2002.

(5)   Includes options to purchase 200,000 shares of the Company's Common Stock
      at $1.75 per share, exercisable within sixty days.

<PAGE>27

(6)   Includes options to purchase 100,000 shares of the Company's Common Stock
      at $3.375 per share, exercisable within sixty days.

(7)   Includes 715,000 options  to acquire shares of Common Stock and 1,000,000
      share subject to a voting agreement  discussed  in  footnotes (2) through
      (6).

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     MICRO  TECHNOLOGY CREDIT FACILITY.  In July 1997, a promissory  note  (the
"Note") was issued  to  Micro  Technology  in connection with a credit facility
agreement (the "Credit Facility").  The Credit Facility and Note provide for an
aggregate amount not to exceed $5 million.   The Credit Facility terminates and
the Note is due on June 30, 1998 and bears interest  at the lower of 10% or the
maximum rate allowed by law (Federal Reserve Bank of San  Francisco's rate plus
5%) The Company has the right to prepay the Note.  The principal  and  interest
on  the  Note  may  be  converted,  at the option of the holder, into shares of
Common Stock in an amount equal to 80%  of  the  trading  price  of  a share of
Common  Stock  on the date an advance of funds was made pursuant to the  Credit
Facility.  Advances  made  under  the Credit Facility are secured by all of the
assets  of  the Company including, but  not  limited  to,  receivables,  goods,
equipment, inventory, contract rights and other property interests.

     As of March  31,  1998,  the  aggregate  amount  of  principal and accrued
interest  outstanding  on the Credit Facility was $4,181,421  million  with  an
average conversion price  of  $2.40  per share.  Through the merger with Sierra
Vista, Micro Technology received 2,500,000 shares of Common Stock which, at the
time, represented approximately a 14%  interest in the Company.  Prior to their
investment in Sierra Vista, the owners of  Micro  Technology  were unaffiliated
with Sierra Vista and the Company.

     ACQUISITION   OF  INTELLIGENT  INSTRUMENTS  CORPORATION.   The  Board   of
Directors   has agreed  to  acquire  Intelligent  Instruments  Corporation,  an
intellectual  property  holding  company owned by Mark Koz, in exchange for two
million  shares  of  the  Company's  Common   Stock.   Intelligent  Instruments
Corporation  holds the patent for a proprietary  set-top  box  design  and  has
applied for a  patent for a proprietary server design, both of which complement
and enhance the  technology being developed by the Company.  The acquisition of
the intellectual property  of Intelligent Instruments Corporation is subject to
both parties analyzing structure, tax and accounting issues and entering into a
definitive agreement.  During  the  negotiations,  Mr. Anderson represented the
Company.

     FUTURETEL.  The Company has a license ("FutureTel License Agreement") from
FutureTel to manufacture, use, distribute, sell and  otherwise  deal  with  the
video  compression  technology  which is the subject of docket numbers 2056 and
2057  for patent applications.  Under  the  FutureTel  License  Agreement,  the
Company  has  the  rights to use, duplicate, distribute, modify and enhance the
technology for the development,  manufacture  and  distribution of its products
and  to sublicense the technology to others for the  enhancement,  development,
manufacture  and  distribution  of its products.  The term of the license  from
FutureTel to the Company is in perpetuity.

     From 1993 to 1996, Mr.  Mark  C.  Koz was a substantial shareholder of and
Chief Executive Officer and Chairman of the Board of  FutureTel.  In connection
with his departure from FutureTel, Mr. Koz exchanged  his interest in FutureTel
for the remaining interest held by a third  party  in  Intelligent  Instruments
Corporation.   In  addition,  FutureTel  granted  the Company rights under  the
FutureTel  License Agreement. The Company, with Mark  C.  Koz  and  Intelligent
Instruments  Corporation, filed a lawsuit against FutureTel and others claiming
fraud by the defendants  in  the  formation of a business venture involving the
development  and  marketing  of multimedia  technology.   This  litigation  was
settled by the Company paying  FutureTel  $100,000 and the parties amending the
FutureTel License Agreement to make it irrevocable.

<PAGE>28

     SETTLEMENT  AGREEMENT  WITH MARK KOZ.  The  Company  has  entered  into  a
Settlement Agreement with Mark  C.  Koz  which  was  adopted  by  the Company's
Litigation  Committee  of  the  Board  of  Directors.  The Settlement Agreement
concerns  the lawsuit recently filed by the Company  regarding  Jettson  Realty
Development  Corporation  and  concerns  transactions  and contracts, including
stock options and consulting agreements, entered into by  the Company while Mr.
Koz was an officer and director of the Company.  The parties  enter  into  this
settlement  in  light of their desire to resolve any issues and in light of the
Company's dependence on Mr. Koz for future technology.   Under the terms of the
Settlement Agreement,  Mr.  Koz  has  agreed  to  return  to  the  Company  for
cancellation  500,000  shares of Common Stock in exchange for a mutual release.
See  "Legal  Proceedings"   for  a  discussion  regarding  the  Jettson  Realty
litigation.

     DIGITAL  HOLLYWOOD, INC.   Beginning  in  March  1996,  the  Company  made
advances to Digital  Hollywood,  Inc.  in the aggregate amount of approximately
$139,000. Digital Hollywood is a corporation  owned  by  Mr.  Mark  C. Koz, the
Company's  president,  and  was  formed to make and distribute a musical  video
recorded on a digital video disk ("DVD") utilizing MPEG-2 compliant compression
technology.  Digital Hollywood was  unable to sell its video and because all of
Digital Hollywood's assets were secured  by  another lender, the Company wrote-
off its advances.  Digital Hollywood, Mark Koz, the Company and Decorah Company
are currently in litigation.

     With respect to each transaction between  the  Company and an affiliate of
the Company, the Company believes that such transactions were on terms at least
as favorable to the Company as they would have been had  they  been consummated
with unrelated third parties under similar circumstances.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits

     3.1   Certificate of Incorporation, as amended, of the Company (originally
           filed  as exhibit 2.1){(1)}
     3.2   Amended  and  Restated  Bylaws of the Company (originally  filed  as
           exhibit 2.2){(1)}
     10.1  Plan and Agreement of Reorganization,  dated  February  27, 1997, as
           amended  April  1,  1997  and May 14, 1997, between the Company  and
           Sierra Vista (originally filed as exhibit 6.1){(1)}
     10.2  License Agreement, dated as  of  March  7, 1996, between the Company
           and FutureTel (originally filed as exhibit 6.2){(1)}
     10.3  Employment Agreement with Mark C. Koz, dated  as  of  May  15,  1997
           (originally filed as exhibit 6.3){(1)}
     10.4  Employment  Agreement  with  F.  James Anderson, dated as of May 15,
           1997 (originally filed as exhibit 6.4){(1)}
     10.5  Escrow Agreement and Instructions  between the Company, Sierra Vista
           and  Bartel  Eng Linn & Schroder, dated  as  of  February  27,  1997
           (originally filed as exhibit 6.5){(1)}
     10.6  Lease  between   Cooperage-Rose   Properties   II  and  the  Company
           (originally filed as exhibit 6.6){(1)}
     10.7  Credit Facility Agreement between the Company and  Micro  Technology
           S.A.,  dated  as  of  July  1,  1997  (originally  filed  as exhibit
           6.7){(1)}
     10.8  Security  Agreement  between the Company and Micro Technology  S.A.,
           dated as of July 1, 1997 (originally filed as exhibit 6.8){(1)}
     10.9  Convertible Debenture  Purchase  Agreement, dated as of December 22,
           1997, with JNC (originally filed as exhibit 6.9){(2)}
     10.10 7% Convertible Debentures, due December  22,  2002,  payable  to JNC
           (originally filed as exhibit 6.10){(2)}

<PAGE>29

     10.11 Registration  Rights  Agreement, dated as of December 22, 1997, with
           JNC (originally filed as exhibit 6.11){(2)}
     10.12 Escrow Agreement, dated  December 22, 1997, between the Company, JNC
           and Robinson Silverman Pearce Aronsohn & Berman LP (originally filed
           as exhibit 6.12){(2)}
     10.13 Warrants dated December 22,  1997,  to purchase up to 500,000 shares
           of Common Stock held by JNC (originally filed as exhibit 6.13){(2)}
     10.14 Warrants dated December 22, 1997, to  purchase  up to 250,000 shares
           of  Common  Stock  held  by  Cardinal (originally filed  as  exhibit
           6.14){(2)}
     10.15 Addendum to Credit Facility, dated  December  18,  1997,  with Micro
           Technology S.A. (originally filed as exhibit 6.15){(2)}
     10.16 Settlement  Agreement  between  the Company and Mark Koz (originally
           filed as exhibit 6.16){(3)}
     10.17 Joint Venture contract between the  Company and CRI, dated September
           13, 1997 {(3)}
     10.18 Accord and satisfaction and Release Agreement  between  the  Company
           and Technical Systems Associates, Inc., dated January 16, 1998 {(3)}
     10.19 Employment  Agreement  with  Thomas  E.  Burke, dated March 23, 1998
           {(3)}
     10.20 1996 Incentive and Nonstatutory Stock Option  Plan (originally filed
           as exhibit 3.1){(1)}
     10.21 Voting Agreement of InnovaCom, Inc., dated February  27,  1997,  and
           amended  as  of  April  1,  1997,  May  14, 1997, June 10, 1997, and
           December 1, 1997, between Mark Koz and 507784  BC  Ltd.  (originally
           filed as exhibit 5.1){(1)}
     16.1  Letter regarding change in certifying accountant{(3)}
     21.1  Subsidiary of the small business issuer{(3)}
     27.1  Financial Data Schedule

     (1)   Previously filed with the Company's Form 10-SB on December 12, 1997
     (2)   Previously filed with the Company's Registration Statement  on  Form
           SB-2 filed on February 9, 1998.
     (3)   Previously filed with the Company's Pe-Effective Amendment No. 1  to
           Registration Statement on form SB-2 filed o April 15, 1998.

     (b) Reports on Form 8-K.

     None

<PAGE>30

                              SIGNATURES

In  accordance  with  Section  13  or 15(d) of the Exchange Act, the registrant
causes  this report  to be signed on  its  behalf by the undersigned, thereunto
duly authorized.

                                 InnovaCom, Inc.

                                     MARK C. KOZ

                                 By:  Mark C. Koz, President


In accordance with the requirements of the Exchange  Act, this report has  been
signed below by the following persons on behalf  of  the registrant and in  the
capacities and on the dates indicated.



March 31, 1998                   MARK C. KOZ

                                 Mark C. Koz, President  and  Chairman  of  the
                                 Board   of   Directors   (Principal  Executive
                                 Officer)


March 31, 1998                   STANTON R. CREASEY

                                 Stanton  R.  Creasey, Chief Financial  Officer
                                 (Principal Financial and Accounting Officer)


March 31, 1998                   TONY LOW

                                 Tony Low, Director


March 31, 1998                   F. JAMES ANDERSON

                                 F. James Anderson, Director


March 31, 1998                   ROBERT SIBTHORPE

                                 Robert Sibthorpe, Director


March 31, 1998                   JOHN CHAMPLIN

                                 John Champlin, Director


<PAGE>F-1

                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                          PAGE

INDEPENDENT AUDITOR'S REPORT                                               F-2

CONSOLIDATED BALANCE SHEET - December 31, 1997                             F-3

CONSOLIDATED  STATEMENTS  OF OPERATIONS - For the 
Years Ended December 31, 1997 and 1996, and For the
Period from March 3, 1993 (inception) to December 31, 1997                 F-4

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) - 
For the Period from March 3, 1993 (inception) to December 31, 1997         F-5

CONSOLIDATED STATEMENTS OF  CASH  FLOWS - For the Years Ended 
December 31, 1997 and 1996, and For the Period from March 3, 1993 
(inception) to December 31, 1997                                           F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                F-11

<PAGE>F-2

                        INDEPENDENT AUDITOR'S REPORT



The Stockholders and Board of Directors
InnovaCom, Inc. and Subsidiaries (a Development Stage Enterprise)
Santa Clara, California

We have audited the accompanying consolidated  balance sheet of InnovaCom, Inc.
and subsidiaries (a Development Stage Enterprise)  as of December 31, 1997, and
the  related  consolidated  statements  of  operations,   stockholders'  equity
(deficit), and cash flows for the years ended December 31,  1997  and 1996, and
for  the  period  from  March 3, 1993 (inception) to December 31, 1997.   These
financial statements are  the  responsibility of the Company's management.  Our
responsibility  is  to  express an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally  accepted  auditing
standards.  Those standards require  that  we  plan  and  perform  the audit to
obtain reasonable assurance about whether the financial statements are  free of
material  misstatement.  An audit includes examining, on a test basis, evidence
supporting  the  amounts and disclosures in the financial statements.  An audit
also  includes  assessing   the  accounting  principles  used  and  significant
estimates made by management,  as  well  as  evaluating  the  overall financial
statement presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InnovaCom, Inc. and
subsidiaries (a Development Stage Enterprise) as of December 31, 1997, and  the
results  of  their operations and their cash flows for the years ended December
31, 1997 and 1996,  and  for  the  period  from  March  3,  1993 (inception) to
December 31, 1997 in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been  prepared assuming
that the Company will continue as a going concern.  As discussed  in  Note 3 to
the  financial  statements,  the  Company  has  suffered  recurring losses from
operations,  and  as  of  December  31,  1997 has negative working  capital  of
$1,454,500,  and  has  a  stockholders  deficit   of   $2,900,434,  that  raise
substantial doubt about the Company's ability to continue  as  a going concern.
Management's plans with regard to these matters are also described  in  Note 3.
The  financial  statements  do  not  include  any  adjustments  relating to the
recoverability and classification of reported asset amounts or the  amounts and
classification  of  liabilities  that  might  result  from  the outcome of this
uncertainty.


HEIN + ASSOCIATES LLP
Certified Public Accountants

Orange, California
February  6,  1998, except for the last paragraph of Note 14, which  is  as  of
March 23, 1998

<PAGE>F-3

                     INNOVACOM, INC. AND SUBSIDIARIES
                     (A DEVELOPMENT STAGE ENTERPRISE)

                        CONSOLIDATED BALANCE SHEET


                                                                  DECEMBER 31,
                                                                        1997
                          ASSETS
CURRENT ASSETS:
  Cash                                                            $  4,148,434
  Cash - restricted                                                      8,480
  Prepaid and other expenses                                           176,627
                                                                 -------------
  Total current assets                                               4,333,541

PROPERTY AND EQUIPMENT, net                                            772,457
FILM RIGHTS AND FILM COST INVENTORY                                    277,500
DEBT ISSUANCE COSTS, net of accumulated 
  amortization of $3,295                                               664,815
ACQUISITION COSTS                                                       68,364
DEPOSITS                                                                89,879
                                                                   -----------
TOTAL ASSETS                                                       $ 6,206,556
                                                                   ===========
              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
  Notes payable - related parties                                  $ 4,091,174
  Accounts payable                                                     691,247
  Accrued liabilities                                                1,005,620
                                                                   -----------
  Total current liabilities                                          5,788,041
LONG-TERM DEBT, less unamortized discount of 
  $1,681,051                                                         3,318,949
                                                                    ----------
  Total liabilities                                                  9,106,990
                                                                    ----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 9)                                -
STOCKHOLDERS' EQUITY (DEFICIT):
  Common stock, $.001 par value, 50,000,000 shares
  authorized, 21,061,897 shares issued and 20,561,897                   
  outstanding                                                           20,562
  Warrants                                                             968,578
  Additional paid-in capital                                        15,129,201
  Deficit accumulated during development stage                     (19,018,775)
                                                                  -------------
  Total stockholders' (deficit)                                     (2,900,434)
                                                                  -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)              $  6,206,556
                                                                  =============

    SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>F-4

                     INNOVACOM, INC. AND SUBSIDIARIES
                     (A DEVELOPMENT STAGE ENTERPRISE)

                   CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                 MARCH 3, 1993
<S>                                   <C>                      <C>             <C>   
                                                   FOR THE YEARS ENDED          (INCEPTION) TO
                                                      December 31,               DECEMBER 31,
                                             1997                   1996             1997

REVENUES                                $    149,000              $         -   $    149,000
                                        ------------              ------------  ------------
COSTS AND EXPENSES:
  Costs of goods sold                         52,538                        -         52,538
  Research and development                 4,388,180                 2,711,028     7,099,208
  Production expenses                         36,235                        -         36,235
  Selling, general and administrative      5,285,493                 5,441,088    10,726,581  
                                        ------------               -----------  ------------
    Total costs and expenses               9,762,446                 8,152,116    17,914,562 
                                        ------------               ------------ ------------
OPERATING LOSS                            (9,613,446)                (8,152,116) (17,765,562)
                                        ------------               ------------ -------------
OTHER INCOME (EXPENSE):
  Interest income                            10,462                      1,622        12,084
  Interest expense                       (1,214,237)                   (10,611)   (1,224,848)
  Loss on disposal of
  property and equipment                     (2,559)                         -        (2,559)
  Other income (expense)                         -                     (31,490)      (31,490)
                                        -----------                  ----------- ------------
                                         (1,206,334)                   (40,479)   (1,246,813)
                                        -----------                  ----------- ------------
LOSS BEFORE INCOME TAX EXPENSE          (10,819,780)                (8,192,595)  (19,012,375)

INCOME TAX EXPENSE                            3,200                        800         6,400 
                                        -----------                 -----------  ------------
NET LOSS                               $(10,822,980)              $ (8,193,395) $(19,018,775)
                                       ------------                 -----------  ------------
BASIC AND DILUTED NET LOSS PER SHARE   $       (.60)              $       (.98)
                                       ============                 ===========  
WEIGHTED AVERAGE NUMBER OF SHARES
 OUTSTANDING                             17,895,305                  8,361,597
                                       ============                  =========
</TABLE>

 SEE   ACCOMPANYING  NOTES  TO  THESE  CONSOLIDATED  FINANCIAL STATEMENTS.

<PAGE>F-5

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                   CONSOLIDATED    STATEMENT   OF   STOCKHOLDERS'   EQUITY
                                             (DEFICIT)

<TABLE>
<CAPTION>
                                                                                                      DEFICIT
<S>                     <C>                <C>             <C>              <C>                <C>               <C>
                                                                                                    ACCUMULATED          TOTAL
                                                                                  ADDITIONAL          DURING         STOCKHOLDERS'
                            COMMON STOCK                                            PAID-IN         DEVELOPMENT         EQUITY
                              SHARES            AMOUNT           Warrants           CAPITAL            STAGE           (Deficit)
COMMON STOCK, issued to
form company at   
$0.0017 per share 
(March 1993)                 5,100,000        $     5,100       $  -              $     3,400       $      -          $    8,500
Net loss                           -                    -          -                       -            (800)               (800)
                             ---------        -----------       ----------        ------------      ----------        -----------
BALANCES, December 31,
1993                         5,100,000              5,100          -                    3,400           (800)              7,700
Net loss                           -                    -          -                       -            (800)               (800)
                             ---------        -----------       -----------       -------------     ----------        ----------- 
BALANCES, December 31, 
1994                         5,100,000              5,100          -                    3,400         (1,600)              6,900
Net loss                           -                    -          -                       -            (800)               (800)
                             ---------         ----------        -----------      -------------     ----------        -----------
BALANCES, December 31, 
1995                         5,100,000              5,100          -                    3,400         (2,400)              6,100

Issuance of common stock
at $0.50 per share to 
directors for services
performed (March 1996)         900,000                900          -                  449,100             -              450,000

Acquisition of Jettson
Realty Development
Inc. at $0.30 per
share (June 1996)              561,069                561           -                 168,184             -              168,745

Sale of common stock,
net of expenses at
$0.16 per share 
(July 1996)                 4,620,015               4,620          -                  715,380             -               720,000

Issuance of common
stock at $0.50 per
share to employees
for services performed
(July 1996)                  500,000                  500          -                  249,500             -               250,000

<PAGE>F-6

Issuance of common
stock at $1.36 per
share for consulting
services performed
(July 1996)                 250,000                   250          -                  388,960             -               389,210

Sale of common stock
at $5.00 per share,
net of expenses
(October 1996)              280,000                   280          -                 1,399,720            -             1,400,000

Compensation
recognized upon
issuance of stock
options                          -                      -           -                2,493,873            -             2,493,873

Contribution of
Product License                  -                      -            -               1,275,000             -            1,275,000

Net loss                         -                      -            -                      -        (8,193,395)       (8,193,395)
                         -----------               --------      --------           -----------    --------------     -------------
BALANCES, December 31, 
(1996)                   12,211,084                 12,211            -              7,143,117       (8,195,795)       (1,040,467)

Issuance of common
stock in exchange
for technology at
$5.00 per share
(January 1997)             100,000                     100            -                499,900             -              500,000

Sale of common 
stock, net of 
expenses at $2.90
per share
(February 1997)            229,310                      229            -               664,771              -             665,000

Acquisition of 
Sierra Vista
net of expenses
at $0.37 per share
(May 1997)               8,514,500                    8,515             -            3,158,283              -           3,166,798

<PAGE>F-7

Issuance of common
stock at $2.43 per 
share for legal 
services rendered
(June 1997)                  7,003                        7              -              16,976              -              16,983

<PAGE>F-8

Shares returned per
settlement agreement
at par value              (500,000)                    (500)             -                 500              -              -

Warrants issued with
sale of convertible
debentures
(December 1997)                 -                         -         968,578                  -              -             968,578

Allocation of proceeds
from notes payable and
long-term liabilities
due to beneficial
conversion features             -                         -              -            2,086,988             -           2,086,988
            
Compensation recognized
upon issuance of stock
options                         -                         -              -            1,558,666             -           1,558,666

Net loss                        -                         -              -                   -      (10,822,980)      (10,822,980)
                          ----------               ----------     ----------         -----------    ------------      ------------
BALANCES, December 31,
1997                      20,561,897               $    20,562    $  968,578         $15,129,201    $(19,018,775)     $(2,900,434)
                          ==========               ===========    ==========         ============   =============     ============

</TABLE>

SEE  ACCOMPANYING  NOTES  TO  THESE  CONSOLIDATED  FINANCIAL STATEMENTS.

<PAGE>F-9
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        MARCH 3, 1993
<S>                               <C>                      <C>                       <C> 
                                                 FOR THE YEARS ENDED                   (INCEPTION) TO
                                                      DECEMBER 31,                     DECEMBER 31,
                                               1997                1996                    1997
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                               $  (10,822,980)     $   (8,193,395)        $  (19,018,775)
                                         ---------------     ---------------        --------------- 
 Adjustments to reconcile net 
   loss to net cash used in
   operating activities:

   Depreciation and amortization                173,656              21,175                194,831
   Loss on disposal of property and
     equipment                                    2,559                  -                   2,559 
   Interest related to beneficial
     conversion features of notes
     payable and long-term liabilities        1,101,107                  -               1,101,107
   Compensation recognized upon               3,648,083
     issuance of stock or stock options       1,575,649           3,648,083              5,223,732
   Contribution of product license                   -            1,275,000              1,275,000
   Write down of purchased incomplete                                
     research and development                   500,000                  -                 500,000
   Write-off of related party
     receivable                                  45,532             94,062                 139,594
   Changes in operating assets and
     liabilities:
     Cash-restricted                              1,026             (9,507)                 (8,481)
     Prepaid and other expenses                (173,427)             5,300                (176,627)
     Film rights and film cost inventory        (27,500)                -                  (27,500)
     Deposits                                   (70,581)           (19,298)                (89,879)
     Accounts payable                           296,961            394,286                 691,247
     Accrued liabilities                        291,680            814,100               1,108,180
                                            ------------       ------------           -------------
     Net adjustments                          3,716,662          6,223,201               9,933,763
                                            ------------       ------------           -------------
       Net cash used in operating            (7,106,318)        (1,970,194)             (9,085,012)
                                            ------------       -------------          --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Cash received in acquisition of 
      Sierra Vista Entertainment              2,916,798                -                 2,916,798
    Cost incurred for organization of 
      joint venture                             (68,364)               -                   (68,364)
    Advance to related party                    (45,532)           (94,062)               (139,594)
    Purchases of property and
      equipment                                (768,181)          (205,166)               (973,347)
    Proceeds from sale of assets                  3,500                -                     3,500
                                            -------------        -----------          -------------- 
       Net cash provided by (used in)
         inveseting activities                2,038,221            (299,228)             1,738,993
                                            -------------        -----------          --------------
<PAGE>F-10

CASH FLOWS FROM FINANCING ACTIVITIES:
  Bank overdraft                                (38,574)             38,574                      -
  Proceeds from sale of common stock            665,000           2,224,170              2,897,670
  Proceeds from notes payable                 3,981,512             106,478              4,087,990
  Net proceeds from sale of debenture
    with detachable warrants                  4,608,593                  -               4,608,593
  Principal payments on notes payable               -              (99,800)               (99,800)
                                             ----------           ----------          --------------
      Net cash provided by financing
        activities                            9,216,531           2,269,422             11,494,453
                                             ----------           ----------          ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS     4,148,434                   -              4,148,434

CASH AND CASH EQUIVALENTS,
  beginning of period                                -                    -                      -
                                          -------------            ----------         -------------
CASH AND CASH EQUIVALENTS,
  end of period                           $  4,148,434           $        -           $  4,148,434
                                          =============           ===========         =============
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash payments for:
    Interest                              $          -            $    9,079          $      9,079
                                          =============           ===========         ============
    Income taxes                          $      4,800            $        -          $      4,800
                                          =============           ===========         =============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Net assets acquired, net of cash,
     through acquisition of Sierra       
     Vista Entertainment                  $    250,000             $        -         $    250,000
                                          =============            ===========        =============
   Return of 500,000 shares of
     common stock per settlement       
     agreement                            $        500             $        -         $        500
                                          =============            ===========        =============
   Acquisition of technology
     for stock                            $    500,000             $        -         $    500,000
                                          =============            ===========        =============
</TABLE>

     SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>F-11

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       NATURE OF OPERATIONS:

         InnovaCom,  Inc.  ("the  Company")  was formed to develop, manufacture
         and/or supply Very Large Scale Integrated  Circuits ("VLSI") and other
         related  products for the specific application  of  broadcast  quality
         encoded video  using  the  Second  Generation  Standard  of the Motion
         Picture Experts Group standard for video and audio compression ("MPEG-
         2").   The  Company  employs  VLSI  to create an MPEG-2 digital  video
         encoding system on a chip.

         The Company was formed pursuant to a business reorganization effective
         July  10, 1996 between Jettson Realty  Development,  Inc.  ("JRD"),  a
         Nevada  corporation  formed  in  1990  and  InnovaCom Corp. (InnovaCom
         Florida),   a   Florida  corporation  formed  in  1993.    Under   the
         reorganization, JRD  issued  6,000,000  previously unissued restricted
         common shares in exchange for all of the issued and outstanding common
         stock of InnovaCom Florida.  JRD's board of directors then changed the
         name of JRD to InnovaCom, Inc. and InnovaCom Florida became its wholly
         owned subsidiary.  Prior to the reorganization, JRD had no operations.
         This transaction was accounted for as a reverse  acquisition of JRD by
         InnovaCom Florida.

         On  May  14,  1997,  the  Company  acquired  100%  of the  issued  and
         outstanding  shares  of  Sierra  Vista Entertainment, Inc.,  a  Nevada
         Corporation ("Sierra Vista"), solely  in  exchange for common stock of
         the Company.  Sierra Vista was originally incorporated  under the name
         of Simone Anderson Productions under the laws of the state  of  Nevada
         on  April  3,  1996.   Simone Anderson Productions changed its name to
         Sierra Vista Entertainment,  Inc.  on February 21, 1997.  Sierra Vista
         was  formed  to produce, acquire, and  distribute  low-budget  feature
         films.   The  Company   agreed  to  acquire  all  of  the  issued  and
         outstanding shares of common  stock  of  Sierra  Vista  for  8,514,500
         previously  unissued  shares  of  common  stock  of  the Company.  The
         agreement between the Company and Sierra Vista obligates  the  Company
         to  use  its  best  efforts  to  register  the  shares  issued  in the
         acquisition  with  the  SEC.  The  agreement  calls  for  the Board of
         Directors  to  consist  of six members; three to be nominated  by  the
         Company and three to be nominated by Sierra Vista, and the nominations
         approved by all shareholders.   The transaction was accounted for as a
         purchase.  Management believes that  this  transaction  is  a  capital
         transaction   in   substance   rather  than  a  business  combination.
         Therefore,  no  goodwill  has been  recorded.   Sierra  Vista  had  no
         material activity  prior  to  the  merger,  therefore,  the statements
         presented  for  the  year ended December 31, 1997 resemble those  that
         would be shown in a proforma.


2.       SIGNIFICANT ACCOUNTING POLICIES:

         PRINCIPLES OF CONSOLIDATION   -  The consolidated financial statements
         include the accounts of the Company and its wholly owned subsidiaries.
         All  significant  intercompany accounts  and  transactions  have  been
         eliminated in consolidation.

         STATEMENT OF CASH FLOWS  -  For  purposes  of  the  statements of cash
         flows,  the  Company  considers  all  highly  liquid  debt instruments
         purchased with an original maturity of three months or less to be cash
         equivalents.

<PAGE>F-12

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         PROPERTY  AND EQUIPMENT - Property and equipment are stated  at  cost.
         Depreciation  is  calculated  using  the straight-line method over the
         estimated useful lives (3 years) of the  respective  assets.  The cost
         of  normal  maintenance  and  repairs  is  charged  to  operations  as
         incurred.  Material expenditures which increase the life  of  an asset
         are  capitalized  and  depreciated over the estimated remaining useful
         life of the asset.  The  cost  of  fixed  assets  sold,  or  otherwise
         disposed  of, and the related accumulated depreciation or amortization
         are removed  from  the accounts, and any gains or losses are reflected
         in current operations.

         FILM RIGHTS AND FILM  COST  INVENTORY  - Film rights are stated at the
         fair  market  value  of  the  stock issued upon  contribution  to  the
         Company, which has become the cost  of  the  assets,  and  consists of
         screen plays, foreign films, and other materials related to  the  film
         industry.   Such  amounts  will  be  amortized  to  expense over their
         estimated  useful  lives.   In  compliance  with Financial  Accounting
         Standards  Board  (FASB) Statement Number 53 "Financial  Reporting  by
         Producers and Distributors  of  Motion Picture Films," the Company has
         capitalized production costs as film  cost  inventory.   Such  amounts
         will be amortized using the individual - film - forecast - computation
         method.   Currently  the  Company  has  only incurred costs related to
         story rights and scenarios.

         DEBT ISSUANCE COSTS - Debt issue costs represent  the  offering  costs
         associated  with the sale of the debentures (See Note 7) and are being
         amortized using the interest method over the life of the debentures.

         ACQUISITION COSTS  -  Acquisition costs represent the cost incurred to
         date for the organization  of  the  joint  venture.  (See Note 9) Such
         costs  will  be  considered  additional  purchase price if  the  joint
         venture is ultimately formed, or otherwise charged to expense.

         RESEARCH AND DEVELOPMENT COSTS - Research  and  Development  costs are
         charged to operations in the period incurred.

         INCOME  TAXES  -  The  Company  accounts  for  income  taxes under the
         liability  method, which requires recognition of deferred  tax  assets
         and liabilities  for  the  expected  future tax consequences of events
         that have been included in the financial  statements  or  tax returns.
         Under this method, deferred tax assets and liabilities are  determined
         based on the difference between the financial statements and tax basis
         of  assets  and liabilities using enacted tax rates in effect for  the
         year in which the differences are expected to reverse.

         ACCOUNTING ESTIMATES  -  The  preparation  of  financial statements in
         conformity  with  generally  accepted  accounting principles  requires
         management to make estimates and assumptions  that  affect the amounts
         reported in the financial statements and the accompanying  notes.  The
         actual results could differ from those estimates.

         The  Company's  financial  statements  are  based  upon  a  number  of
         significant  estimates,  including the estimated useful lives selected
         for property and equipment,  amortization  of  film cost inventory and
         other assets, and the adequacy of valuation allowances.   Due  to  the
         uncertainties  inherent  in  the  estimation  process,  it is at least
         reasonably  possible that these estimates will be further  revised  in
         the near term and such revisions could be material.

<PAGE>F-13

                              INNOVACOM, INC. AND SUBSIDIARIES
                              (A DEVELOPMENT STAGE ENTERPRISE)

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         IMPAIRMENT OF  LONG-LIVED  ASSETS  -  In  the  event  that  facts  and
         circumstances  indicate  that  the  cost  of  long-lived assets may be
         impaired, an evaluation of recoverability would  be  performed.  If an
         evaluation is required, the estimated future undiscounted  cash  flows
         associated  with  the  asset would be compared to the asset's carrying
         amount to determine if a write-down to market value or discounted cash
         flow value is required.

         STOCK-BASED  COMPENSATION   -   The  Company  has  elected  to  follow
         Accounting Principles Board Opinion  No.  25,  "Accounting  for  Stock
         Issued to Employees" (APB25) and related interpretations in accounting
         for  its  employee stock options.  In accordance with FASB123 entitled
         "Accounting  for  Stock-Based Compensation", the Company will disclose
         the impact of adopting  the  fair  value  accounting of employee stock
         options.  Transactions in equity instruments  with  non-employees  for
         goods  or services have been accounted for using the fair value method
         prescribed by FASB123.

         CONCENTRATIONS  OF CREDIT RISK - Credit Risk represents the accounting
         loss that would be  recognized at the reporting date if counterparties
         failed completely to  perform as contracted.  Concentrations of credit
         risk (whether on or off  balance  sheet)  that  arise  from  financial
         instruments  exist for groups of customers or groups of counterparties
         when they have similar economic characteristics that would cause their
         ability to meet  contractual  obligations  to be similarly effected by
         changes in economic or other conditions.  In  accordance  with FASB105
         entitled  "Disclosure of Information about Financial Instruments  with
         Off-Balance-Sheet  Risk  and Financial Instruments with Concentrations
         of Credit Risk," the credit  risk amounts shown in Note 10 do not take
         into account the value of any collateral or security.

         FAIR VALUE OF FINANCIAL INSTRUMENTS  -  The  estimated fair values for
         financial instruments, under FASB107 entitled  "DISCLOSURES ABOUT FAIR
         VALUE OF FINANCIAL INSTRUMENTS", are determined  at discrete points in
         time  based on relevant market information.  These  estimates  involve
         uncertainties  and cannot be determined with precision.  The estimated
         fair values of the Company's financial instruments, which includes all
         cash, accounts payable,  long-term  debt, and other debt, approximates
         the  carrying  value  in  the  consolidated  financial  statements  at
         December 31, 1997.

         EARNINGS PER SHARE - In February  1997,  the  FASB issued Statement of
         Financial   Accounting  Standards  No.  128,  "Earnings   per   Share"
         (FASB128).  FASB128  provides  for  the  calculation  of  "basic"  and
         "diluted" earnings per share versus primary and fully diluted earnings
         per share.  Basic earnings per share excludes dilution and is computed
         by  dividing  income  available to common stockholders by the weighted
         average number of shares  of  common stock outstanding for the period.
         Diluted earnings per share reflects  the potential dilution that could
         occur if securities or other contracts  to  issue  common  stock  were
         exercised  or  converted into common stock or resulted in the issuance
         of common stock  that  then shared in the earnings of the entity.  The
         Company has implemented  this  statement  for the current year and has
         appropriately reflected the adoption in the  statement  of operations.
         The  results  of operations and financial position were unaffected  by
         this implementation.

         IMPACT  OF RECENTLY  ISSUED  STANDARDS  -  The  FASB  recently  issued
         Statement   of   Financial   Accounting   Standards   130   "Reporting
         Comprehensive  Income" (FASB130) and Statement of Financial Accounting
         Standards 131 "Disclosures About Segments of an Enterprise and Related
         Information" (FASB131).   FASB130  establishes standards for reporting

<PAGE>F-14

                                INNOVACOM, INC. AND SUBSIDIARIES
                                (A DEVELOPMENT STAGE ENTERPRISE)
  
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         and display of comprehensive income,  its  components  and accumulated
         balances.  Comprehensive income is defined to include all  changes  in
         equity   except   those  resulting  from  investments  by  owners  and
         distributions to owners.   Among  other  disclosures, FASB130 requires
         that all components of comprehensive income  shall be classified based
         on their nature and shall be reported in the financial  statements  in
         the   period  in  which  they  are  recognized.  A  total  amount  for
         comprehensive  income  shall  be displayed in the financial statements
         where  the  components  of other comprehensive  income  are  reported.
         FASB131 supersedes Statement  of  Financial  Accounting  Standards  14
         "Financial  Reporting for Segments of a Business Enterprise."  FASB131
         establishes  standards   on  the  way  that  public  companies  report
         financial information about  operating  segments  in  annual financial
         statements  and  requires  reporting  of  selected  information  about
         operating  segments  in  interim  financial statements issued  to  the
         public.   It  also  establishes standards  for  disclosures  regarding
         products and services,  geographic areas and major customers.  FASB131
         defines operating segments  as  components  of  a  company about which
         separate   financial  information  is  available  that  is   evaluated
         regularly by  the  chief  operating  decision maker in deciding how to
         allocate resources and in assessing performance.

         FASB130 and FASB131 are effective for  financial  statement for period
         beginning after December 15, 1997 and require comparative  information
         for  earlier years to be restated.  Because of the recent issuance  of
         these  standards,  management  has  been  unable to fully evaluate the
         impact,  if  any,  the  standards  may  have on the  future  financial
         statement disclosures.  Results of operations  and financial position,
         however, will be unaffected by implementation of these standards.


3.       BASIS OF PRESENTATION:

         The financial statements have been prepared on a  going concern basis,
         which contemplates, among other things, the realization  of assets and
         the  satisfaction  of  liabilities  in  the normal course of business.
         However, there is substantial doubt about  the  Company's  ability  to
         continue  as  a  going concern because of the magnitude of its loss of
         $10,822,980 for the  year  ended  December  31, 1997, and its negative
         working  capital  of  $1,454,500  and  its  stockholder's  deficit  of
         $2,900,434 as of December 31, 1997.  The Company's continued existence
         is  dependent  upon  its  ability  to  raise substantial  capital,  to
         generate revenues and to significantly improve operations.

         Management has taken several actions in  response to these conditions.
         In May 1997, the Company acquired Sierra Vista  in exchange for shares
         of its common stock (See Note 1).  As a condition  of  completing  the
         transaction, Sierra Vista raised approximately $3,000,000 in a private
         placement  of  its  common stock, of which in excess of $2,000,000 was
         allocated for the Company's  operations.   In  June  1997, the Company
         obtained  a  $5,000,000  convertible debt facility from a  shareholder
         (See Note 6).  In December  1997,  the  Company  sold $5,000,000 of 7%
         convertible debentures through a private placement
         (See Note 7).  Management believes that these actions  will  allow the
         Company to continue as a going concern.

         Accordingly,  the  financial statements do not include any adjustments
         relating to the recoverability  and  classification  of recorded asset
         amounts or the amount and classification of liabilities  or  any other
         adjustment  that  might  be necessary should the Company be unable  to
         continue as a going concern.

<PAGE>F-15

                              INNOVACOM, INC. AND SUBSIDIARIES
                              (A DEVELOPMENT STAGE ENTERPRISE)

                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.       PROPERTY AND EQUIPMENT:

         Property and equipment consists of the following:

                                                  DECEMBER 31,
                                                     1997
                                                     ----
Computer and equipment                            $ 897,079
Office equipment and furniture                       69,233
                                                  ---------
                                                    966,213
   Accumulated depreciation                         193,855
                                                  ---------
                                                  $ 772,457
                                                  =========
5. ACCRUED LIABILITIES:

   Accrued liabilities consists of the following:

                                                  DECEMBER 31,
                                                     1997
                                                     ----

Accrued payroll and benefits                    $   377,841
Accrued consulting                                  216,402
Other                                               411,378
                                                -----------
                                                $ 1,005,621
                                                ===========

6. NOTES PAYABLE - RELATED PARTIES:

Note payable - shareholder bearing
interest at 10%, secured by all assets
of the Company.                                   $ 4,083,247

Note payable - related party in the
original amount of $50,000 bearing
interest at 18%, collateralized by
certain stock of the Company, due on                    7,927
demand (See Note 9)
                                                  -----------
                                                  $ 4,091,174
                                                  ===========
<PAGE>F-16


                        INNOVACOM, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Note  payable  - shareholder is related  to  a  revolving  convertible  debt
   facility with a  shareholder  that  calls  for maximum outstanding principal
   balance  not to exceed $5,000,000, bearing interest  at  10%.   The  balance
   includes all  borrowing  and  accrued  interest  outstanding.   The  debt is
   convertible  into  common  stock  at  80% of the market price for a share of
   common  stock  at  the  time a draw is funded.   The  Company  has  recorded
   interest expense and additional paid-in capital totaling $1,020,812 equal to
   the  intrinsic value of the  beneficial conversion feature of the debt.  The
   principal and any unpaid interest are due June 1998.


7. LONG-TERM DEBT:

   In  December  1997,  the  Company   issued   $5,000,000  of  7%  convertible
   debentures,  with  two  detachable  warrants  due December  2002.   The  net
   proceeds  from  the  issuance  totaled $4,608,593 and  are  being  used  for
   operations.

   The sales price of the debenture  was  allocated between the debt securities
   and  the  detachable  warrants  based on their  relative  fair  values.   In
   addition to the $391,407 of offering  costs paid, a third warrant was issued
   as a finders fee.  The third warrant entitles the holder to purchase 250,000
   shares of the Company's common stock at  a  price  of  $2.43  per  share and
   expires  December  2002.   The  total  offering  costs  have  been allocated
   proportionately between the debentures and detachable warrants.

   Each of the two warrants attached to the debt securities entitle  the holder
   to  purchase  up  to  250,000  shares  of  the  Company's common stock.  The
   exercise price of warrant one is $3.00 per share  and  for  warrant  two  is
   $4.00 per share.  Both warrants expire December 2002.

   The debentures are convertible into shares of common stock as follows:

        1)  33%  of  the  aggregate  principal  amount  upon the earlier of (a)
            effective date of registration of the shares  or  (b) the 120th day
            after the Original Issue Date;

        2)  33%  of  the  aggregate principal amount at any time prior  to  the
            150th day after the Original Issue Date; and

        3)  The balance any  time  after the 150th day after the Original Issue
            Date and prior to the closing on the maturity date.

   The conversion price to be used to  determine the number of shares of common
   stock into which the debentures can be  converted is the lesser of (1) $3.47
   per share or (2) the applicable percentage  multiplied by the average market
   price calculated on the conversion date.  The  applicable percentages are as
   follows:

        1)  85% of the average market price for any  conversion  prior to 120th
            day after the Original Issue Date;

<PAGE>F-17

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        2)  82.5%  of the average market price for any conversion on  or  after
            the 120th day and prior to 150th day after the Original Issue Date;
            and

        3)  80% of the  average market price for any conversion after the 150th
            day after the Original Issue Date.

   The Company must maintain  a  minimum trading volume of its common stock and
   must register the shares of common  stock  issuable  upon  conversion of the
   debentures, payment of interest thereon and exercise of the warrants.

   Interest is payable quarterly and may be paid with cash or registered shares
   of  common stock.  Accrued interest in the amount of $8,069 is  included  in
   accrued liabilities at December 31, 1997.

   The outstanding  balance  of the debentures of $3,318,949 as of December 31,
   1997 has been reduced from the face amount due to allocation of the relative
   fair value of the detachable warrants and the beneficial conversion feature.
   The discount totalled $1,758,051  and  is being amortized using the interest
   method. Amortization of the discount totalled  $77,000  for  the year ending
   December 31, 1997 and is included in interest expense. The amount related to
   the warrants ($691,875) is being amortized over the life of the debenture of
   5   years.  The  discount  related  to  the  beneficial  conversion  feature
   ($1,066,176) is being amortized over the conversion period.


8. STOCKHOLDERS' EQUITY:

   In March  1996,  the  Company  granted 900,000 shares of common stock to two
   directors  for services performed  in  1996.   The  Company  has  recognized
   $450,000 in  compensation  expense  related  to  their services for the year
   ended December 31, 1996. The shares were valued by  the  Board of Directors,
   and  the  900,000  shares  of  common  stock  are  the  subject  of  current
   litigation. (See Note 9)

   In March 1996, a company controlled by the Company's president contributed a
   license  to  the  Company.  The  Company  recorded  the  license at the cost
   recorded  by  the  contributing  company  of  $1,275,000.   (See    Note  9,
   Commitments and Contingencies, Product License.)

   In  July  1996, the Company issued 500,000 shares of common stock to certain
   officers and  directors  of  JRD  for  services  rendered.   The Company has
   recognized  $250,000  in compensation expense related to these services  for
   the year ended December  31,  1996.  The  shares were valued by the Board of
   Directors, and the 500,000 shares of common stock are the subject of current
   litigation (See Note 9).

   In October, 1996, the Company adopted the 1996  Incentive  and  Nonstatutory
   Stock Option Plan (the 1996 Plan) covering 1,500,000 shares.  In  1997  this
   was  increased  to 3,000,000 shares pending shareholder approval.  Under the
   plan, the Company  can  grant  to  key employees, directors, and consultants
   either incentive, non-statutory, or  performance  based  stock options.  The
   price  of the options granted pursuant to the plan shall not  be  less  than
   100% of the fair market value of the shares on the date of grant.  The board
   of directors  will  decide the vesting period of the options, if any, and no
   option will be exercisable  after  ten  years from the date granted.  Prices

<PAGE>F-18

                          INNOVACOM, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE ENTERPRISE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   for incentive options granted to employees  who  own  10%  or  more  of  the
   Company's stock are at least 110% of market value at date of grant.

   During  1996,  the Company issued 380,000 shares of common stock and options
   to purchase 1,099,500  shares  of  common  stock to consultants for services
   rendered.  The options were granted with exercise prices ranging from $0.001
   to $3.00 per share, vesting throughout 1999  and  expire  from  one  to five
   years after the date of grant. The majority of these options were granted as
   a  form  of  compensation  to  the  consultants,  and the exercise price was
   determined by the then Board of Directors. Of the options  granted,  369,500
   were  granted  under  the  1996  Plan  and 700,000 were granted for services
   rendered  in connection with a private placement  of  the  Company's  common
   stock.  Certain of these options are the subject of litigation (See Note 9).
   The Company  has  recognized  $2,292,406  in compensation expense related to
   these services for the options and $389,210 for the stock for the year ended
   December 31, 1996. The 369,500 options granted under the Plan were forfeited
   during 1997.

   In October 1996, the Company granted non-plan  options to purchase 3,500,000
   shares of common stock to three individuals who  are officers, directors and
   shareholders  of  the Company.  The options were granted  with  an  exercise
   price of $3.00 per  share  and  expire in October 2001.  The options vest as
   follows:   1,166,666  vest  if  fiscal  1997  revenues  exceeds  $5,000,000,
   1,166,667 vest if fiscal 1998 revenue exceeds $25,000,000 and 1,166,667 vest
   if fiscal 1999 revenue exceeds $50,000,000.   The  1,166,666 options related
   to 1997 expired due to lack of performance. These options are the subject of
   litigation. (See Note 9)

   In  January  1997, the Company purchased the rights to  certain  proprietary
   technology from  a  third  party  in  exchange  for  100,000  shares  of the
   Company's common stock.  This technology was valued at $500,000 or $5.00 per
   share which was the current market value of the Company's common stock.   At
   December  31,  1997,  the  $500,000  of  the  technology cost is included in
   research and development costs.

   During 1997 and 1996, the Company granted options  under  the  1996  plan to
   purchase  1,278,640  shares  of common stock to employees who were hired  in
   1997 and 1996.  The options were  granted  with exercise prices ranging from
   $0.50 to $3.75 per share, expire in 2002 and  vest over three years from the
   date  of  hire.   The  Company  has  recognized  $509,354  and  $201,467  in
   compensation  expense  related to services provided  for  the  years  ending
   December 31, 1997 and 1996,  respectively.  During  1997,  171,050  of these
   options were forfeited.

   In  April  1997,  the Company granted options to purchase 100,000 shares  of
   common stock for $3.375  per share for a term of three years in exchange for
   consulting services.  Compensation  expense  in  the  amount of $272,480 was
   recognized during the year ended December 31, 1997 for services provided.

   In  May  1997, the Company granted options to purchase 1,000,000  shares  of
   common stock  under  the  1996 Plan to an officer.  The options were granted
   with exercise prices ranging from $2.75 to $4.75 per share.  200,000 options
   vested upon grant, the remainder vest upon attainment of certain performance
   criteria.

<PAGE>F-19


                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   In July 1997, the Company granted  122,160  options to purchase common stock
   for  prices ranging from $0.50 to $3.00 per share  for  consulting  services
   rendered.  Consulting expense in the amount of $374,295 was recorded for the
   year ending December 31, 1997.

   In July  1997, the Company retained the services of an investment advisor to
   assist in  raising  up to $15,000,000 in a private placement.  In connection
   with these services,  the Company granted options to purchase 400,000 shares
   of common stock under the  Plan  at $2.50 per share.  200,000 of the options
   were exercisable upon grant, the remainder  will  be  exercisable  upon  the
   successful completion of a $15,000,000 private placement.

   In  October  1997, the Company granted options to purchase 261,233 shares of
   common stock to employees under the 1996 Plan. The options were granted with
   an exercise price equal to market, $3.0625 per share.  The options expire in
   2002 and vest  over  three  years  or upon attainment of certain performance
   criteria.  As of December 31, 1997, 65,500 of these options were forfeited.

   In November 1997, the Company granted  options to purchase 105,000 shares of
   common stock to employees under the 1996  Plan.   The  options  were granted
   with  an  exercise  price  equal  to market, $2.5938 per share.  The options
   expire in 2002 and vest over three years or upon a specific date.

   In November 1997, the Company granted non-plan options to purchase 1,500,000
   shares  of common stock to directors  of  the  Company.   The  options  were
   granted with  an  exercise  price  equal  to  market, $2.5938 per share, and
   expire in 2002.  The options vest evenly over three years.

   In December 1997, the president of the Company  returned  500,000  shares of
   common  stock  originally  issued  at  par value. The stock was returned  to
   settle any potential claims the Company may hold against him relating to the
   November 10, 1997 legal action described  in  Note  9.  The  return of these
   shares was recorded based on their original issue cost.

<PAGE>F-20

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   The  following table sets forth activity for all options granted  under  the
   Plan:

                                                              AVERAGE
                                                          EXERCISE PRICE
                                   Number                    PER SHARE
                                   ------                 ---------------
OUTSTANDING, from
inception                               -                $         -
                                ----------               ----------------  
  through December 31,1995
  Granted                          369,500                       1.62
  Forfeited                             -                          -
  Exercised                             -                          -
                                ----------                ---------------
BALANCE, December 31, 1996         369,500                       1.62
  Granted                        3,044,873                       2.60
  Forfeited                       (606,050)                      1.84
  Exercised                              -                         -
                                ----------                ---------------
BALANCE, December 31, 1997       2,808,323                 $      2.63
                                ==========                ===============

   Presented  below  is a comparison of the weighted average exercise price and
   market price of the Company's common stock on the grant date for all options
   granted under the 1996 Plan during the year ended December 31, 1997.

                                                     1997
                                  NUMBER            EXERCISE          MARKET
                                  of Shares          Price             Price
Market price equal to
   exercise price               1,064,533          $   3.00          $   3.00
Market price greater than
   exercise price                 940,340          $   1.37          $   3.39
Exercise price greater than 
   market price                 1,040,000          $   3.29          $   2.53

<PAGE>F-21

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   At December 31, 1997  options to purchase 958,557 shares were exercisable at
   prices ranging from $0.50  to  $3.375  per  share.  The  remaining 1,849,766
   options outstanding become exercisable as follows:

                                                                    WEIGHTED
                                          NUMBER OF                  AVERAGE
 YEAR ENDING DECEMBER 31,                  SHARES               EXERCISE PRICE
           1998                          1,337,647                 $ 3.04
           1999                            340,666                   1.44
           2000                            171,453                   2.99
                                         ---------                 ------
                                         1,849,766                 $ 2.74
                                         =========                 ======
   If not previously exercised, all options outstanding will  expire during the
   year ended December 31, 2002.

   The following is a summary of all of the activity for non-plan options:

                                                                  WEIGHTED
                                          NUMBER OF             AVERAGE PRICE
                                           Shares                 Per Share
OUTSTANDING, from inception
   through December 31, 1995                     -                 $        -
   Vested options granted to
       consultants                         730,000                       2.90
   Performance options
       granted to officers               3,500,000                       3.00
   Vested options exercised by
       consultants                         (30,000)                      0.50
                                         ----------                ----------
BALANCE, December 31, 1996               4,200,000                       3.00
   Vested options granted to
       consultants                         217,500                       2.89
   Options granted to consultants            4,660                        .50
   Options granted to directors          1,500,000                       2.59
   Expired/cancelled options            (1,171,667)                      3.00
                                        -----------                -----------
BALANCE, December 31, 1997               4,750,493                 $     2.86
                                        ===========                ===========
<PAGE>F-22

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Presented below is a comparison of the weighted average exercise  price  and
   market  price  of  the Company's common stock on the grant date for all non-
   plan options granted during the year ended December 31, 1997:

                                                 1997
                                     NUMBER            EXERCISE        MARKET
                                    of Shares            Price         Price
Market price equal to
  exercise price                   1,602,500          $    2.64      $    2.64
Market price greater than
  exercise price                     119,660          $    2.43      $    4.19
Exercise price greater than
  market price                          -             $     -        $     -

   At December 31, 1997  options to purchase 914,220 shares were exercisable at
   prices ranging from $0.50  to  $3.37  per  share.  The  remaining  3,836,273
   options outstanding become exercisable as follows:

                                                             WEIGHTED
      YEAR ENDING                    NUMBER OF                AVERAGE
      DECEMBER 31,                    Shares               Exercise Price
         1998                       1,668,888             $    2.87
         1999                       1,667,387                  2.88
         2000                         499,998                  2.59
                                    ---------             ---------
                                    3,836,273             $    2.84
                                    =========             =========

   If  not previously exercised, all options will expire during the year  ended
   December 31, 2002.

   As stated  in  Note 2, the Company has not adopted the fair value accounting
   prescribed by FASB123 for employees. Had compensation cost for stock options
   issued to employees  been  determined  based on the fair value at grant date
   for awards in 1997 and 1996 consistent with  the  provisions of FASB123, the
   Company's net loss and net loss per share would have  been  adjusted  to the
   proforma amounts indicated below:

                                       1997                       1996

Net loss                           $ (12,352,083)            $ (8,229,908)
                                   ==============            =============
Net loss per common share          $        (.69)            $       (.98)
                                   ==============            =============

   The  fair  value  of each option is estimated on the date of grant using the
   present value of the exercise price and is pro-rated based on the percent of
   time from the grant  date  to  the end of the vesting period.  The weighted-

<PAGE>F-23      

                               INNOVACOM, INC. AND SUBSIDIARIES
                               (A DEVELOPMENT STAGE ENTERPRISE)

                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


   average fair value of the options  on  the  grant date for 1997 and 1996 was
   $2.10  and $3.22 per share, respectively.  The  following  assumptions  were
   used for  grants  in  1997  and  1996: risk-free interest rates of 6.22% and
   6.17%, respectively; expected lives  of  three  years; dividend yield of 0%;
   and expected volatility of 144.0% and 164.7%, respectively.


9. COMMITMENTS AND CONTINGENCIES:

   In June 1997, the Company entered into an agreement with a foundry company in
   anticipation of manufacturing the Company's single chip MPEG-2 encoder.  The
   agreement  calls for payment of $225,000 for design and manufacture  of  the
   chip.  As of  December  31,  1997, the Company made a $90,000 non-refundable
   deposit to this entity for the  start of design work.  The remaining amounts
   are due upon shipment of the prototypes.

   In July 1997, the board of directors  approved  the Company entering into an
   agreement  to  obtain  a  66%  interest  in  a  joint  venture   with  China
   International  Radio  Development.   As  part of this agreement, the Company
   will have to fund up to $200,000 of expenses.   The  purpose  of  the  joint
   venture is to develop an exhibition center in China to display new high-tech
   products.   In  connection  with  obtaining  the joint venture interest, the
   Company will be issuing 100,000 shares of common stock to a third party as a
   finder's fee upon close of the agreement.  As  of  December  31,  1997,  the
   Company had not made this investment.

   In  July  1997, the Company entered into an interim agreement to acquire all
   of the issued and outstanding shares of Technical Systems Associates ("TSA")
   in exchange  for  100,000  shares  of  common  stock.   In October 1997, the
   Company  rescinded  the  interim  agreement and entered into  an  Option  to
   Purchase and Mutual Release Agreement.  Under the new agreement, the Company
   had the option to purchase TSA under  the  terms  of  the  interim agreement
   through  November  30,  1997  in  exchange  for $300,000.  In addition,  the
   Company agreed to provide up to $150,000 in debt financing if TSA obtained a
   certain purchase order. The debt financing was  never  provided.  In January
   1998,  the  Company  entered  into  an  Accord  and Satisfaction and Release
   Agreement which stated that the Company would make  a  final  payment in the
   amount of $58,000 to TSA for full release from any prior agreements  entered
   into.  This amount is included in accrued liabilities at December 31, 1997.

                                  LEASES

   The  Company  leases office space in California and certain office equipment
   under long-term  operating leases.  The Company's leases include the cost of
   real property taxes  and  maintenance expenses.  Insurance and utilities are
   the Company's responsibility.  Future  minimum  lease  payments for all non-
   cancelable operating leases are as follows:

<PAGE>F-24

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     YEARS ENDING DECEMBER 31,                          AMOUNT
         1998                                         $  549,387
         1999                                            490,615
         2000                                            401,685
         2001                                            349,306
         2002                                            348,688
                                                     -----------
                                                     $ 2,139,681
                                                     ===========
   Rent expense was $193,214 for 1997.

                           EMPLOYMENT AGREEMENT

   In connection with the acquisition of Sierra Vista Entertainment,  Inc. (See
   Note  1), the Company entered into five year employment agreements with  its
   president and the president of Sierra Vista which provide for minimum annual
   salaries  totaling  $420,000  and  other  incentives,  as  well as severance
   payments equal to one year's salary for termination without cause, and three
   years salary for termination without cause in connection with  a  change  in
   control.

                                LITIGATION

   On  October  7,  1996,  the Company filed a complaint for declaratory relief
   against a former employee.   The  lawsuit  states that the person breached a
   written employment agreement between the two  parties.   In  response to the
   action, the employee filed a similar cross-complaint, which was subsequently
   amended  after  an  unsuccessful  mediation  process.   The  amended   cross
   complaint  seeks  damages  in  excess  of $5,000,000 and 2% of the Company's
   stock outstanding as of April 1996.  Management intends to pursue and defend
   this lawsuit vigorously and believes, based  on current information, that no
   material adverse impact will arise as a result of the litigation.

   On December 27, 1996, the Company issued a purchase  order to Compass Design
   Automation  (Compass)  in the amount of $1,021,300 for software  tools.   On
   March 18, 1997, the Company canceled this purchase order because it believes
   Compass reneged on certain commitments.  In July 1997, Compass made a demand
   for payment.  Company management has had discussions with Compass to resolve
   this issue, however, no  agreement  has  been  reached. Management believes,
   based on current information, that any settlement  would not have a material
   adverse impact on the Company.

   On June 18, 1997, the Decorah Company and Edwin Reedholm,  a shareholder and
   former  director  and  officer,  commenced a lawsuit seeking to  recover  in
   excess of $900,000 on a promissory  note  given to the plaintiffs by Digital
   Hollywood,  Inc.,  a  company controlled by the  Company's  president.   The
   Company's president allegedly  guaranteed  the  note through the pledging of
   approximately six million shares of the Company's stock.  In addition to the
   original note amount, the Decorah Company and Edwin Reedholm seek to recover
   the pledged shares as well as a $7,225 balance on a promissory note

<PAGE>F-25

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   including interest and $69,746 in accrued wages and  other expenses, both of
   which are accrued as of December 31, 1997.  Management  believes,  based  on
   current  information,  that  this  lawsuit  will have no additional material
   adverse impact on the Company.

   Future Tel, Inc., filed claims amounting to $123,000 against the Company for
   recovery of unpaid lease payments and wages under  an  alleged reimbursement
   agreement.  The parties have reached an agreement whereby  the  Company will
   pay $100,000.  The Company has accrued this amount as of December 31, 1997.

   On  November  10, 1997 the Company filed a suit against former officers  and
   directors of the  Company for breach of fiduciary duty and third parties who
   were involved in the  initial  merger between the Company and Jettson Realty
   Development as well as private placements  of the Jettson Realty Development
   stock.   The  suit  claims fraud, breach of fiduciary  duty  and  negligence
   surrounding the acquisition.  As  part  of  this  lawsuit, a director of the
   Company  has  filed  a counterclaim asserting approximately  $11,000,000  in
   damages. In addition,  the  suit also seeks to remove restrictive legends on
   the stock currently owned. The  Company has accrued $75,000 for unpaid wages
   as of December 31, 1997. Management believes that this lawsuit will not have
   any material adverse impact on the Company. The litigation is in its initial
   stages and no discovery has commenced.  Management  intends  to  pursue this
   lawsuit  vigorously  and  believes,  based  on current information, that  no
   material  adverse  impact  will arise as a result  of  the  litigation.  The
   Company has entered into a settlement agreement with the Company's president
   related  to this suit whereby  the  Company's  president  agreed  to  return
   500,000 shares of common stock. (See Note 8)

   On December  10,  1997, certain employees filed suit against the Company for
   compensation  and waiting  time  penalties.  The  parties  have  reached  an
   agreement whereby  the  Company  will  pay $34,370.  The Company has accrued
   this amount at December 31, 1997.

   A  former consultant has asserted claims  against  the  Company  for  unpaid
   compensation  of  approximately  $30,000  and  stock option rights involving
   169,500  shares.  Settlement  discussions  are  now  underway.   The  unpaid
   compensation has been accrued as of December 31, 1997.  Management believes,
   based on current information, that this lawsuit will not have any additional
   material adverse impact on the Company.

                              PRODUCT LICENSE

   In March 1996, a company controlled by the Company's president contributed a
   license  to  the  Company.  The Company  recorded the license  at  the  cost
   recorded by the contributing  company of $1,275,000.  The license grants the
   Company rights to use and grant sublicenses to use proprietary technology to
   develop the MPEG-2 video encoding  systems  on  a  chip.  In accordance with
   Statement of Financial Accounting Standards 2, the cost  of intangibles that
   are  acquired from others for a particular research and development  project
   and that  have  no alternative future use are research and development costs
   at the time the costs  are  incurred.   As  stated  in  Note 2, research and
   development  costs  are  charged  to  operations  in  the  period  incurred.
   Consequently, the cost of acquiring the license was charged  to research and
   development expense during 1996.

<PAGE>F-26

                             INNOVACOM, INC. AND SUBSIDIARIES
                             (A DEVELOPMENT STAGE ENTERPRISE)

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         

   The Company is committed under the license to pay royalties to a third party
   for a percentage of gross revenue on sublicenses and for a percentage of the
   Foundry price for silicon in connection with sales to end users as follows:

         12- MONTH PERIOD
         Ending March 26,                              Percentage
               1998                                       15%
               1999                                       8%
               2000                                       5%
               2001                                       3%
               2002                                       1%
               2003                                       1%

   The  maximum  amount  of  royalties  to be paid under the license shall  not
   exceed $3,000,000.  No royalties  have  been earned or paid through December
   31, 1997.

10. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:

   As  of  December 31,1997, the Company maintained  cash  in  banks  that  was
   approximately $3,648,000 in excess of the federally insured limited.


11. RELATED PARTY TRANSACTION:

   During 1997  and  1996, the Company made advances to a company controlled by
   the  Company's  president   totaling   $45,532  and  $94,062,  respectively.
   Management does not believe that the advances  made are realizable and, as a
   result, has written off the receivable as of December 31, 1997, and 1996.

   In  October  1997,  the  Company agreed to acquire certain  patents  from  a
   company controlled by the  Company's  president  in  exchange  for 2,000,000
   shares of common stock.  As of February 6, 1998, the exchange had  not taken
   place.

<PAGE>F-27

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. INCOME TAXES:

   Income tax expense is comprised of the following:

                                                              MARCH 3, 1993
                            FOR THE YEAR ENDED               (INCEPTION) TO
                                DECEMBER 31,                   DECEMBER 31,
                       1997                    1996                1997
Current
  Federal          $       -               $       -                 $      -
  State                 3,200                     800                   6,400
                   ----------              ----------                ---------
                        3,200                     800                   6,400
                   ----------              ----------                ---------
Deferred
  Federal                   -                       -                      -
  State                     -                       -                      -
                   ----------              ----------                 -------
Income tax expense $    3,200              $      800                 $ 6,400
                   ==========              ==========                 =======

        Deferred income tax assets (liabilities) are comprised of the following
        at December 31, 1997:

Current deferred income tax assets
(liabilities):
    Accounts receivable allowance                      $      13,767
    Accrued vacation                                          42,648
    Accrued wages                                            102,813
    Stock based compensation                               1,626,689
    Accrued settlement                                        74,002
    Other                                                      2,193
                                                       -------------
                                                           1,862,112
Valuation allowance                                       (1,862,112)
                                                       -------------
    Net current deferred tax asset                     $        -
                                                       =============
Long-term deferred tax assets (liabilities):
   Depreciation/amortization                           $     217,720
   Net operating loss carryforward                         4,801,223
   Research and development credit                           521,364
                                                       -------------
                                                           5,540,307
     Valuation allowance                                  (5,540,307)
                                                       -------------
      Net long-term deferred tax asset                 $          -
                                                       ============= 

<PAGE>F-28

                           INNOVACOM, INC. AND SUBSIDIARIES
                           (A DEVELOPMENT STAGE ENTERPRISE)

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Total income tax expense differed from the amounts computed by applying  the
   U.S. federal statutory tax rates to pre-tax income as follows:

                                                                 MARCH 3, 1993
                                           FOR THE YEARS ENDED   (INCEPTION) TO
                                               DECEMBER 31,       DECEMBER 31,
                                           1997        1996            1997
Total expense (benefit) computed 
  by applying the U.S. statutory rate    (34.0%)      (34.0%)         (34.0%)
   statutory rate
Nondeductible license costs                 -           5.3             2.3
Effect of valuation allowance             34.0         28.7            31.7
                                         ------       ------          ------
                                            - %          - %              - %
                                         ======       ======          =======

As  of  December  31,  1997,  the  Company  has  available  net  operating loss
carryforwards  for  income  taxes  of  $11,052,533  for  federal  purposes  and
$11,218,948 for California purposes which begin to expire in the year  2011 and
2001,  respectively.   The  benefit  of the net operating loss to offset future
taxable income may be subject to limitation  as  a  result  of changes in stock
ownership as prescribed in Internal Revenue Code Section 382.


13. BUSINESS SEGMENTS:

   The  Company's  operations have been classified into two business  segments:
   technology  and  motion   picture.   The  technology  segment  includes  the
   development, manufacture, and/or supply of MPEG-2 video encoding systems and
   other related products.  The motion picture segment includes the production,
   acquisition and distribution of feature films.

<PAGE>F-29

                                    INNOVACOM, INC. AND SUBSIDIARIES
                                    (A DEVELOPMENT STAGE ENTERPRISE)

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Summarized financial information  by segment for the year ended December 31,
   1997 is as follows:

<TABLE>
<CAPTION>
                                                          ADJUSTMENTS
                                                              AND
                       TECHNOLOGY      MOTION PICTURE     ELIMINATIONS     CONSOLIDATED
<S>                <C>              <C>                <C>               <C>
Revenues             $   149,000       $        -         $       -        $    149,000
Interest income            6,080            4,382                 -              10,462
Interest expense      (1,214,237)               -                 -          (1,214,237)
Loss before income
  tax expense        (10,304,250)        (515,530)                -          (10,819,780)
Depreciation and
  amortization           169,259            4,397                 -              173,656
Capital expenditures     715,151           53,030                 -              768,181
Identifiable assets    7,393,890        2,685,089           (3,872,423)        6,206,556

</TABLE>

   During 1997, the Company acquired the  motion  picture  segment,  therefore,
   there are no segments to report for the year ended December 31, 1996.


14. SUBSEQUENT EVENTS:


   In  January 1998, the Company established the InnovaCom, Inc. 401(K)  Profit
   Sharing  Plan (the Plan) covering substantially all of its employees and the
   employees  of  its  subsidiaries.  Management determines, at its discretion,
   the amount of any matching or other contributions to the Plan.

   In February 1998, the Company granted 142,500 options to employees under the
   1996 Plan. The options  were  granted at market of $2.50 per share, and vest
   over 3 years at 30% for the first  year, 30% for the second year, and 40% in
   the third year.

   In February 1998, the Company established a Gecko Chip Release Bonus whereby
   if a prototype of the Gecko chip is  functioning  by  April  30,  1998,  the
   design  team  will  be  eligible  for a cash payment of $60,000 plus 100,000
   options, with the distribution to be determined by the design team manager.

   In February 1998, the Company established  a  bonus pool for the design team
   working  on the Gecko chip. The team members employed  on  January  1,  1998
   would be eligible for 2% of the 1998 revenue generated by the Gecko chip and
   1% of the 1999 revenue generated by the Gecko chip. The 1999 bonus shall not
   exceed $600,000. Eligibility will be determined based on employment status.

   On March 23,  1998,  the Company hired a new individual to become President,
   Chief Executive Officer  and  a  member  of  the  Board  of Directors of the
   Company effective May 1, 1998.  The Company has entered into  an  employment
   agreement  with  this  individual  which  provides  for  a  signing bonus of
   $200,000  and  an  annual salary of $250,000 and other incentives  including
   options to purchase up to 1,000,000 shares of the Company's common stock for
   $1.75 per share and  severance  payments  up  to  $1,000,000 for termination
   without cause.  The options expire in ten years.  One  third  of the options
   vest immediately, one third vest in one year and the remainder  vest  in two
   years.   The  initial  term  of the employment agreement is five years.  The
   employment agreement is contingent  on the Company's obtaining $5,000,000 in
   financing on or before April 15, 1998,  and  securing  its performance under
   the agreement by the issuance of a $1,000,000 letter of credit.