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

(MarkOne)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934 For the fiscal year ended December 31, 1999

[ ]  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, 1999, were approximately $507,000.

As of March 15, 2000, the aggregate market value of the voting common stock held
by non-affiliates was $70,343,486 based on the average closing bid and ask price
of $2.02 per share.

As of March 15,  2000,  the  number of shares of common  stock  outstanding  was
36,359,408.

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,  are  the  Company's  operating  losses,  need  for
additional capital,  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 is in  transition  from a  development  stage  company to a
manufacturing   stage   company,   focusing   on  digital   video   compression,
transmission,  and processing technology compliant with MPEG-2 standards. It 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"),  including development of a
single-chip  encoder  termed the "Gecko" chip.  Development  of the  single-chip
encoder was  terminated in June 1998,  but  development  of other MPEG-2 related
products continued.

        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
was 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.  As  discussed  below,  Sierra  Vista's
operations were discontinued as part of the Company's  re-ordering of priorities
in June 1998.

        On May 1, 1998,  Thomas E. Burke  became the  Company's  new  president,
replacing Mark Koz. On June 5, 1998, Mr. Burke resigned.  Both Mr. Burke and the

<PAGE>3


Company alleged breach of Mr. Burke's employment  contract and additional claims
against the other. On December 14, 1998, the Company and Mr. Burke settled their
respective  claims against each other,  such  settlement  including a payment by
each party to the other.  The amount of these  payments  was not material to the
Company.

        On June 23, 1998, Frank J. Alioto was elected President and appointed to
the Company's board of directors.  In December 1998 Mr. Alioto replaced Mark Koz
as the Chairman of the Board of Directors.

        Concurrent  with the  election of Mr.  Alioto as President in June 1998,
the Board of Directors  decided to focus the Company on those  projects that had
the greatest short-term promise,  and that were closest to market.  Accordingly,
essentially  all  development  effort was  focused on the  development  of video
compression  technology  products in the areas of video transmission and digital
video disks (DVD) mastering.  See "Company's  Products and Technology" below. At
the same time the  Company  terminated  or  suspended  all  non-core  activities
including the Gecko chip development and Sierra Vista's activities.  At the same
time the  Company  took  other  steps to  reduce  expenses  and  conserve  cash,
including  termination of approximately half of its workforce.  One result was a
reduction in the loss reported by the Company in its  statements of  operations.
The reported loss in the second half of 1998 was  approximately  21% of the loss
reported in the first half. In addition,  development of shippable  products was
enhanced.  In the fourth quarter of 1998,  the Company  shipped the first of its
MPEG-2 transmission systems to a customer.

        In 1999,  the Company  continued to develop the products  identified  in
1998  and to  expand  the  functionality  of those  products  to  address  newly
identified market opportunities.  Operational expense levels continued at levels
comparable to those  experienced in the second half of 1998. Volume shipments of
products  began  to  ship in the  last  quarter  of  1999  to  fill  large-scale
installation  orders.  The Company received  $4,950,00 to fund its operations in
1999 from the investors who had previously  funded a total of $9,000,000 in 1997
and 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 below:

        Limited  Operating  History.  Since  inception,  the  Company's  primary
activities have been the research and development of MPEG-2 products for digital
video compression and processing  technology.  Revenues in the fourth quarter of
1999 totaled  approximately  $335,000,  but prior to that quarter,  revenues had
been only minor. The Company's  success is dependent upon sustained or increased
shipments of its current products, and development and marketing of its proposed
products,  as to  which  there  can  be no  assurance.  Unanticipated  problems,
expenses,  and  delays  are  frequently  encountered  in ramping up sales and 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,  manufacturing
difficulties,  market  acceptance,  product quality  problems that require sales
returns  or  allowances,  and the  success  or  failure  of sales and  marketing
activities.  The Company has limited  experience in bringing  products to market
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 be or ever will be profitable.

        Losses.  Since its inception,  the Company has incurred losses.  For the
years ended  December  31, 1998 and 1999,  the  Company  incurred  net losses of
approximately  $16,466,000 and $7,140,000,  respectively,  and has accumulated a
deficit of approximately  $42,867,000 since inception.  Operating losses for the

<PAGE>4


years  ended  December  31,  1998 and 1999,  were  approximately $10,469,000 and
$4,569,000,  respectively, and the accumulated operating loss since inception is
approximately  $32,318,000.  The Company expects to continue to incur losses and
to continue to increase its deficit  until the Company  develops and markets its
products and gains significant  market acceptance.  Management  anticipates that
the Company's  operating losses will decline in 2000 relative to 1999 as revenue
grows, but does not anticipate  actual operating profits before the end of 2000.
No assurances can be given that the Company will ever 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.  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 sufficient  revenues to support its
activities,  the Company will be required to raise  additional  capital  through
equity or debt offerings to fund its operations.  Traditionally, the Company has
relied on the sale of debt to meet its capital requirements. Debt financing will
result in interest  expense,  and if convertible into equity,  could also dilute
then-existing shareholders. Any equity financing could result in dilution to the
Company's  then-existing  stockholders.  If  the  Company  is  unable  to  raise
additional  funds,  the  Company  may be  required  to  reduce  or  suspend  its
operations.  There can be no assurance that additional funding will be available
when required on terms acceptable to the Company.

        Litigation  Involving the Company.  In 1997, the Company filed an action
against numerous parties including former directors and officers of the Company,
alleged  financial  consultants  to the Company,  the Company's  prior  transfer
agent,  and other  parties for,  among other things,  breach of fiduciary  duty,
fraud,  breach of contract,  and RICO.  There is currently no active  litigation
with any of the original  parties  under this suit. In all instances the Company
settled with the original parties,  dropped them from the complaint, or received
judgments  against  them.  The Company has amended  this action  twice and named
additional  defendants,  four  of  which  remain  in the  action.  Discovery  is
continuing in this action with respect to these additional defendants.

        Subsequent  to December  31,  1999,  the Company  filed  another  action
against six stockbrokers or  clearinghouses  who were involved in the trading of
the company's stock in 1996 and early 1997,  alleging  negotiation of improperly
endorsed stock  certificates.  The Company's claims in this action were assigned
to the Company by the  Company's  former  transfer  agent in a settlement of the
litigation  discussed in the prior  paragraph.  This action is in an early stage
and discovery has not yet begun.

        In 1998, the Company filed a separate  action against its former auditor
and its prior attorneys alleging malpractice and conflict of interest. This suit
was  dismissed  in 1999.  In 1999,  the Company  re-filed  its suit  against the
Company's former auditor. This action is in an early stage and discovery has not
yet begun.

        In  August  1998,  the  Staff  of the  Division  of  Enforcement  of the
Securities and Exchange  Commission  advised the Company that the Commission had
issued a formal order for private investigation.  The investigation addresses in
large part the same issues that the  Company  raised in its RICO suit  discussed
above. The Company is cooperating with the SEC in this investigation. If the SEC

<PAGE>5

determines  that the Company's  actions in this matter in 1996 and 1997 were not
proper, the Company might be subject to SEC actions that could negatively affect
its business.

        In 1998 and  1999,  numerous  alleged  creditors  of the  Company  filed
actions for the payment of monies.  As of March 15, 2000, all of these suits had
been  settled or  otherwise  dismissed,  but the  Company  continues  to carry a
significant balance of unpaid trade payables mostly from the first half of 1998.

        As a result of  litigation,  the Company has had to spend a  substantial
amount of time and fees in  prosecuting  and defending  itself in these matters,
and will continue to do so in the future.  The potential also exists that one or
more  of the  items  of  litigation  initiated  by the  Company  could  generate
counterclaims against the Company that might be successful,  or that the Company
might be forced to settle,  which in either case could cause  financial  loss to
the Company.  As of March 15 2000,  there were no active claims or counterclaims
against the Company under the litigation  discussed  above,  but there can be no
assurance that claims or counterclaims will not arise in the future.

        Security Interest in the Company's Assets and Current Default Status. In
December  1997,  the  Company  issued   $5,000,000  face  value  of  Convertible
Debentures  (the  "Debentures,"  or  "Convertible  Debentures").  An  additional
$4,750,000 of Debentures  with similar  terms were issued  periodically  through
January 1999.  Twelve Demand Notes (the "Demand  Notes") with a total  principal
balance of  $4,825,000  were issued  between  March 1999 and March of 2000.  The
outstanding principal and interest of the Debentures and Demand Notes is secured
by all of the  assets of the  Company.  Therefore,  in the event the  Company is
unable  to repay  the  Debentures  or  Demand  Notes,  the  holders  will hold a
first-priority  security  interest  in the  Company's  assets upon  default.  No
assurances  can be made that the  Company  will be able to repay all amounts due
under the  Debentures and Demand Notes when required or that an event of default
will not occur prior to repayment.

        Since 1998 the  Company  has been in default on certain  elements of the
Debenture  agreements.  If the holders of the Debentures were to demand that the
Company  cure these  defaults,  and if the  Company  was  unable to comply,  the
holders of the Debentures could demand immediate repayment of the Debentures. If
the Company were not able to find replacement financing to satisfy the Debenture
holders  and to  continue  the  operations  of the  Company,  it would  face the
prospect of essential  shutdown of all operations.  See also "Possible Change of
Control and Dilution from Convertible Debentures and Warrants."

        Competition.  The digital  video and audio  industry  contains  numerous
small and large competing companies. See "Competition" below. Additionally,  the
Company  competes  in an industry  segment in which  numerous  competitors  have
substantially  greater  resources  than the Company.  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,  aside from final assembly and test, and does not intend to do so in
the foreseeable future. The Company anticipates that major sub-assemblies of 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.  Because the
Company  does  not have  any  licensing  or  other  supply  agreements  with its
manufacturers  and suppliers,  they could terminate their  relationship with the

<PAGE>6

Company at any time.  In the event the  Company  was  required  to  replace  its
manufacturers  and suppliers,  the Company could experience  delays in supplying
products to its customers.

        Uncertainty  of Market  Acceptance.  The Company  has sold only  limited
quantities of its products. The Company's success will depend upon continued and
increased  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 at sufficient levels to support the operations of the Company.

        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
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  by
competing companies 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 Integrators,  Distributors, and OEM Customers. The Company's
success  will  depend to a  significant  extent  upon its  ability  to develop a
distribution  system  with  integrators,   resellers,   and  original  equipment
manufacturers  ("OEMs") 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 sales  channel it requires to market and sell its
products successfully.

        Protection  of  Intellectual  Property.  The Company has been issued one
patent,  but this patent by itself does not provide  significant  protection for
the  technology  in the  Company's  current  products,  or for the  products  in
advanced  stages of  development.  The Company is documenting  its  intellectual
properties  so that it can file for  additional  patents,  but  currently has no
active patent  applications.  No assurances can be given that additional patents
will be awarded.  The Company does hold 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.

<PAGE>7

        Concentration  of Stock  Ownership.  As of March 15,  2000,  the present
directors,  executive  officers,  and  stockholders  owning  more than 5% of the
outstanding  Common  Stock  and their  respective  affiliates  beneficially  own
approximately 47.08% 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.

        Possible  Dilution from Employee,  Director,  and Other  Options.  As of
March 15,  2000,  there were  options  outstanding  to acquire an  aggregate  of
4,849,000 shares of the Company's Common Stock. These options, which are held by
current and former  employees,  directors,  and consultants,  are exercisable at
prices ranging from $0.16 to $3.375 per share with a weighted  average  exercise
price of  approximately  $0.40 per share.  If these options are exercised,  they
could  dilute  the  value  of  other  shareholders'   stock,  and  increase  the
concentration  of stock  ownership in the hands of directors and  officers.  The
presence of these options could depress the market price of the Company's  stock
and  affect  the cost and  terms of  future  stock  placements,  if any,  by the
Company.

        Possible Change of Control and Dilution from Convertible  Debentures and
Warrants. As of March 15, 2000, the principal balance outstanding of Convertible
Debentures plus the related interest due was approximately $5,237,000. Under the
terms of the Convertible Debenture  agreements,  at that date, the balance could
have been converted into  approximately  22,000,000  shares of Common Stock. The
price at which the Convertible  Debentures can be converted into Common Stock in
most part depends upon the current  market price of the stock,  and is below the
market  price of the Common  Stock at March 15,  2000.  In addition at March 15,
2000, the holders of the  Convertible  Debentures also held Warrants to purchase
3,500,000  shares of the  Company's  Common Stock at fixed  prices  ranging from
$0.25 to $1.00 per share.  If these  Convertible  Debentures  are converted into
Common  Stock,  or the  Warrants are  exercised,  they could dilute the value of
other  shareholders'  stock.  The presence of these  Convertible  Debentures and
Warrants  could depress the market price of the  Company's  stock and effect the
cost and terms of future stock placements, if any, by the Company.

        Conversion  of all or a major part of the  Convertible  Debentures  into
stock  could  give the  holders  of the  Debentures  ownership  of an  effective
controlling  interest  in the  Company,  and  effective  control of all  matters
requiring  stockholder  approval.  As of March 15,  2000,  if the holders of the
Convertible  Debentures  had converted  their  Debentures  and  exercised  their
Warrants,  they would have owned approximately 43% of the Company's  outstanding
Common Stock.

        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 could 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

<PAGE>8


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.  Competition  between high
technology companies for qualified personnel is very high, and opportunities for
key employees to move to other  companies,  including  direct  competitors,  are
continually present. The loss of any of the Company's key personnel 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.  An inability to locate and hire
additional  qualified  employees  could  have a material  adverse  effect on the
Company's business,  financial condition and operating results. 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 almost exclusively
in 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,  and can be duplicated and  transmitted
without  significant  loss  of  quality.  Digital  video  also  allows  editing,
indexing,  distribution,  and storage  features not available in analog formats.
With the recent growth of high  bandwidth  network  capacity,  broadcast-quality
real-time video over networks using compressed digital video is rapidly becoming
available and cost effective.

        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."  The
MPEG  committee  determined  that a higher  quality  digital video  standard was
needed for broadcast quality video and eventually adopted the  second-generation
standard of MPEG for video and audio  compression  ("MPEG-2").  The MPEG-2 video
compression standard defines the standards applicable to broadcast quality video
for compression,  storage and  transmission,  and is the standard  worldwide for
video  compression at the professional  level. It is the chosen standard for the
FCC-mandated migration to digital video broadcast, for all DVD applications, for
future  HDTV and will  appear on  computing  and  networking  and  communication
platforms of all types.

The Company's Products and Technology

         The Company develops core technologies and methodologies and integrates
complimentary third party products for digital video compression,  transmission,
and  processing   technology   applications.   The  Company  adheres  to  MPEG-2
non-proprietary  "open  standards" to enhance  flexibility and market appeal for
the  Company's  products.  The  Company  has  several  products  that are either
currently  released for shipping,  or that are in advanced stages of development
and are  scheduled  for release in 2000.  In addition  the Company has  multiple

<PAGE>9

development  projects in process or under  consideration to enhance the features
of products  already released or to develop products in complimentary or closely
related applications.

        TransPEG(TM).  Until  recently,  video  transmission  over  network  was
restricted to low frame counts,  small  viewable  windows,  and low pixel counts
because of data rate limitations  within the carriers.  Alternatively,  carriers
with the  bandwidth  to achieve  higher  quality  video were too  expensive  for
widespread  usage.  The  management  of the  Company  believes  that the rapidly
increasing  data  bandwidth now  available and becoming  available in affordable
networks,  including  both  intranet  and  internet,  has  created a demand  and
opportunity  for  substantial  growth in video  transmission  products to supply
real-time, broadcast-quality video.

        The Company is currently  marketing four such  transmission  products in
its TransPEG  product  line.  These are  interchangeable  digital  multi-channel
transmissions systems that compress video, transmit in standard carrier formats,
and decompress at the viewer's  location.  TransPEG products are available for a
variety of standard carriers (ATM, T1/E1, etc.), support unicast,  multicast and
broadcast transmission, and feature web based controls.

        DVD Impact(TM).  DVD Impact is a DVD premastering suite which integrates
MPEG-2  video  compression  developed  by the Company  with a number of software
tools developed by third parties and targets  corporate and "prosumer" users for
the design of custom DVD's.  DVD Impact is currently  shipping.  This product is
intended  to be a  price/performance  leader with most of the  functionality  of
competing high-end systems, but at a much lower price.

        DV-2110.  Currently under development,  the DV-2110 is an MPEG-2 encoder
board, designed to act as the system interface,  I/O manager, and host for third
party  MPEG-2  encoder  chips.  The  Company  intends  to imbed the  DV-2110  in
subsequent  versions of its  TransPEG and DVD Impact  products,  and to sell the
board as a stand-alone  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.

Sales and Marketing

        The Company markets its system-based solutions (TransPeg and DVD Impact)
to the professional video industry through direct sales calls from the Company's
sales force, through professional video dealerships, through system integrators,
and by attendance at national and  international  trade shows.  At such time, if
any, as the DV2110 is completed,  the Company  intends to add selected  OEM's to
its sales channel.  Because the Company's  products have been in the development
stage until  recently,  the Company has not  achieved  significant  revenue from
sales.

Market for the Company's Products

        The markets for the Company's currently shipping products can be divided
into two areas. The TransPEG  products target users of digital video who wish to
transmit this video over standard  network  carriers.  The DVDImpact is intended
for  producers  of digital  video  content who need to edit and master  video in
preparation  for end-user  consumption of the video.  Additional  products under
development  or under  consideration  would  address  the  needs  of  users  and
producers of broadcast  quality video who are replacing  their analog video with

<PAGE>10

digital  video,  and  who  require  new  tools  to  replace  their  analog-based
equipment.

Video Transmission

        With the increase in bandwidth in the internet,  in many intranets,  and
in a variety of available  standard  point-to-point  carriers,  applications  in
transmission  of  broadcast  quality  digital  video are emerging  rapidly.  The
Company's target applications  include:  movement of video within multi-location
video  production  houses or between  multiple  contributors  to the creation of
video content (video collaboration); real time medical diagnosis or consultation
between multiple locations; deposition or arraignment by video to avoid prisoner
transportation  and to reduce  costs;  education  or  training  from one central
location  dispersed  to  satellite  classrooms;   surveillance  or  security  in
applications  where  video  quality  is  essential;  and a wide  range  of other
situations.  In general,  as available  carrier bandwidth  increases,  users are
finding  ways to  utilize  broadcast  quality  digital  video to  improve  their
operations,  and providers are discovering that broadcast  quality digital video
is good quality content to fill their pipelines and help justify the pipeline to
potential new users.

Video Content Creation

        As the demand for broadcast  quality  digital  video grows,  so will the
demand for tools to produce it. The Company's first offering into this market is
the DVDImpact,  an integrated  suite of tools intended for a professional  level
customer who plans to edit digital  video  content into a completed  piece ready
for end-user consumption.  The target customer includes not only the established
trade shop that is  converting  from analog  based video  technology  to digital
technology,  but also corporate,  government, and institutional users who create
their own content for  internal  uses.  The Company  believes  that  creation of
digital video  content by corporate,  government,  and  institutional  users for
internal  consumption  could  increase  sharply with the wide  acceptance of DVD
format and the rapid  decline in the costs  associated  with the  production  of
close-to-professional-quality digital video content that is seen currently.

        The conversion of the video market from analog to digital is expected to
create  demand for a wide range of products  to replace  software  and  hardware
tools that were built to service  analog-based  video. The Company is developing
or considering a number of potential  products that are intended to address this
demand,  with a user look and feel that  mimics  that of the analog  tools being
replaced.

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, customer support, and user productivity.

        The market for the Company's  products is 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.  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.  Competition to supply the markets  identified by the Company
can be expected to grow as the markets mature.

<PAGE>11

        The Company's  competitors  include  Spruce  Technologies,  Inc.,  Sonic
Solutions,  and Minerva  Systems,  Inc., which market products that compete with
the DVD Impact, and FVC.COM,  Inc. and Lucent  Technologies,  Inc., which market
products  that compete  with the  Company's  TransPEG  products.  Several  other
companies  market  specialized  professional  video  production  boards that are
expected  to  compete  with the  DV-2110  board at such time,  as any,  that the
Company begins to ship this as an OEM product.  Numerous other  companies  offer
products that do or will compete with the Company's products,  and the number of
competing solutions can be expected to grow. This growth will come both from new
companies founded to participate in the markets, and from established  companies
in related markets widening their product offerings into the markets  identified
by the Company.

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

Research and Development

        For the past two years, the majority of the Company's  efforts have been
devoted  toward the  research  and  development  of digital  video  compression,
transmission,  and processing.  Product  development is performed  mostly at the
Company's  headquarters  in California by engineering  and technical  employees,
assisted  in certain  specialized  areas by  consultants.  The  Company's  total
expenditures  for research and  development  were  approximately  $1,823,000 and
$3,400,000 for the years ended December 31, 1999 and 1998, respectively.

Sierra Vista Entertainment, Inc.

        Sierra Vista Entertainment, Inc. ("Sierra Vista") was incorporated under
the  laws of  Nevada  on April 3,  1996,  for the  purpose  of  engaging  in the
production of television or  theatrical  feature  films.  The Company and Sierra
Vista entered into a Plan and Agreement of  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 and Sierra Vista became a
wholly-owned  subsidiary of the Company. In June 1998, the Company's  operations
were reduced to concentrate on a few products deemed by management to be closest
to market  release.  As part of the steps taken to reduce the  Company's  use of
cash,  Sierra  Vista  was  closed,  its  employees  terminated,  and its  assets
liquidated.  There  are  no  plans  to  re-activate  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
intended to establish an exhibition  facility in China in cooperation  with NATV
Marketing  ("NATV").  In June 1998, the Company initiated steps to terminate the
contracts with both CRI and NATV. In April 1999, the Company  reached  agreement
with both CRI and NATV to terminate the contracts between those entities and the
Company.  As part of the termination,  the Company agreed to issue an additional
100,000 shares of the Company's  Common Stock to the principal of NATV, and made
cash payments to both CRI and NATV.  The amount of the payments was not material
to the Company.

<PAGE>12

Intelligent Instruments Corporation

        In 1997,  the  Company's  Board of  Directors  tentatively  approved the
acquisition of Intelligent  Instruments,  a company wholly-owned by Mark C. Koz,
the Company's former President and Chief Executive Officer, for 2 million shares
of Common Stock of the Company,  subject to certain  conditions.  In 1998,  this
tentative approval was withdrawn and the acquisition did not occur. There are no
plans to resume this acquisition effort.

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.  In  October  1997,  the  Company  entered  into an
agreement for a release from the interim agreement. In January 1998, the Company
fully terminated the relationship with TSA. Payments by the Company to TSA under
the interim agreement and the subsequent release totaled approximately $358,000.

Employees

        As of March 15, 2000, the Company had 27 full-time employees.

Item 2.  Description of Property

        The Company is currently  renting  approximately  18,000  square feet of
space in Santa Clara,  California,  which  includes  offices and research  space
under a lease  agreement that runs through  December 2002,  with an option for a
three-year  extension.  The monthly base rent was $28,800 at lease  inception in
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). The offices house all of the Company's operations including the
assembly and final testing required for shipment of the Company's products.

        Sierra  Vista  previously  occupied  approximately  2,800 square feet of
office space in Beverly Hills, California under a three (3) year lease agreement
effective  October 1, 1997, at a rate of $5,882 per month for the first eighteen
months and $6,162 per month thereafter.  This lease was guaranteed by InnovaCom,
Inc. This space was vacated by Sierra Vista in 1998 and was subsequently  re-let
by the landlord to an independent  third party without adverse  financial impact
to the Company.

        Sierra Vista had also  previously  leased a  single-family  residence of
approximately 2,500 square feet in Beverly Hills, California at a cost of $7,000
per month. This lease was terminated in 1998.

Item 3.  Legal Proceedings

        Haynes,  et. al. On November  10,  1997,  InnovaCom  filed suit  against
Michael D.  Haynes,  David S.  Jett,  Manhattan  West,  Inc.,  Marketing  Direct
Concepts, Inc., Checkers Foundation, Silicon Software International, Atlas Stock
Transfer Corporation  ("Atlas"),  Arun Pande, Edwin Reedholm,  and others in the
Superior  Court  of the  County  of San  Francisco  (Case  Number  990965).  The
complaint  alleged that in connection  with the reverse merger of Jettson Realty
Development Corporation 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  representations.  Further, the Company
alleged, that Manhattan West, Marketing Direct Concepts, and Checkers Foundation
and Silicon  Software  International,  two entities  alleged to be controlled by

<PAGE>13

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 also alleged
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  alleged that Mr. Pande, a former director and officer of InnovaCom,
violated his fiduciary duty by receiving  shares of InnovaCom Common Stock 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  alleged  RICO  (Racketeer   Influenced  Corrupted
Organizations Act) violations against all defendants. The Company sought damages
in excess of $26 million plus punitive damages.

     Settlements  have been  reached with Mr.  Pande,  Mr.  Reedholm,  Marketing
Direct Concepts,  Manhattan West, Inc.,  Atlas, and with one other defendant for
payments of cash by the defendants and relief of a debt  previously  owed by the
Company to two  defendants,  all in the  amount of  approximately  $725,000.  In
addition as a part of the settlements,  options to purchase  1,099,999 shares of
the Company's Common Stock held by the defendants were cancelled. The settlement
with Mr.  Reedholm  included  release of his claims  against  the Company in the
Decorah Company lawsuit, discussed below. The settlement with Atlas included the
assignment  by Atlas to the  Company of  certain  claims  that Atlas  might have
against  other  parties  for their  actions  in  accepting  and  processing  the
Company's stock certificates.

     A number of defendants have defaulted and InnovaCom has received entries of
judgment against them. As a result,  the Company  cancelled  1,010,329 shares of
its Common Stock,  options to purchase  700,000 shares of its Common Stock,  and
liabilities  of  $247,000,  and seized a cash  balance  held by a third party of
approximately  $12,000.  The  Company is pursuing  efforts to fully  collect its
judgment from the defaulted defendants.

     There is currently no active  litigation  with any of the original  parties
under this suit.  In all  instances  the Company has settled  with the  parties,
dropped them from the suit, or received judgments against them.

     In 1999 and  2000,  the  Company  amended  its  complaint  and  named  four
additional  defendants.  Additional  defendants may be named shortly.  These new
defendants  and  potential  defendants  are  brokers  whom the  Company  alleges
accepted for deposit or negotiated  fraudulent  stock  certificates  in 1996 and
1997.  The amended  litigation  is still in its initial  stages and discovery is
continuing.

     Swiss American  Securities,  Inc., et. al. On February 25, 2000,  InnovaCom
filed suit  against  Swiss  American  Securities,  Inc.,  and five  other  stock
brokerages in the San Jose Division of the United  States  District  Court (Case
Number  C-0020214).  The  complaint  alleges that the  defendants in this action
guaranteed  improper  endorsements of stock  certificates  issued as part of the
reverse  merger of Jettson  Realty  Development  Corporation  and  InnovaCom,  a
Florida corporation,  in 1996. The Company's claims in this action were assigned
to  InnovaCom  by  Atlas as part of the  settlement  with  Atlas  in the  Haynes
litigation  discussed  above.  The  litigation  is in  its  initial  stages  and
discovery has not yet begun.

     Hoffer,  et. al. On September  24, 1998,  InnovaCom  filed suit against its
former  auditor and its former  attorney in Santa Clara  County  Superior  Court
(Case CV 776606),  which matter was  subsequently  transferred  to Orange County
Superior Court No. 803328.  This case was dismissed in 1999. On November 1, 1999
the complaint was refiled  against the Company's  former auditor  (Orange County
Superior Court No. 816504). The 1999 complaint alleges malpractice and conflict

<PAGE>14

of interest with respect to the  auditor's  actions in the time frame covered by
the allegations in the Haynes suit, discussed above. This litigation is still in
its initial stages and discovery has not yet commenced.

     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. The Company had filed suit against
Mr. Reedholm for breach of fiduciary duty in the Haynes, et. al. litigation. The
Company's  involvement  with  this  suit was  settled  in  conjunction  with the
settlement discussed above of Mr. Reedholm's  involvement in the Haynes, et. al.
Lawsuit.  Mr. Koz and Digital  Hollywood have also settled with Mr. Reedholm and
Decorah Company.

     Securities  and  Exchange  Commission.  In  August  1998,  the Staff of the
Division of Enforcement of the  Securities and Exchange  Commission  advised the
Company that the Commission had issued a formal order for private investigation.
The investigation  involves  allegations that, since January 1, 1995, certain of
the  Company's  present  or  former  officers,  directors,  employees,  business
consultants,  investment  bankers,  and/or  certain  other  persons or  entities
associated with the Company, may have employed devices, schemes, or artifices to
defraud,  by,  among  other  things,  making  undisclosed  payments  to  certain
registered representatives relating to sales of the Company's securities, and by
manipulating  the  Company's  stock price.  The  Company's  management  does not
believe that any sanctions the Company is likely to receive from the  Securities
and Exchange Commission based upon this investigation will materially affect the
Company's financial position or operations. Discovery has been initiated.

     Collection.  Since 1998,  the Company has had a number of overdue  accounts
payable to vendors. Several of these vendors have filed suit against the Company
to enforce collection. As of March 15, 2000, all of these suits had been settled
or otherwise dismissed.

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  19,  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:

        Quarter                          High              Low
        --------                         -----            -----
        March 31, 1998                   $2.80            $1.53
        June 30, 1998                    $2.80            $0.22
        September 30, 1998               $0.39            $0.08
        December 31, 1998                $0.19            $0.08
        March 31, 1999                   $0.50            $0.08
        June 30, 1999                    $0.84            $0.19
        September 30, 1999               $0.45            $0.16
        December 31, 1999
                                         $0.36            $0.14
<PAGE>15

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 in  transition  from a  development  stage  company to a
manufacturing   stage   company,   focusing   on  digital   video   compression,
transmission,  and processing  technology  compliant with MPEG-2 standards.  The
Company  was founded in 1993,  and began  significant  development  efforts on a
number of chip,  board,  and system level products in 1996. In 1997, the Company
merged with Sierra Vista,  a Nevada  corporation  in the  development  stages of
production and distribution of feature length films.

        In  June  1998,   the  Company's   management   and  direction   changed
significantly.  The Company  discontinued its chip development  efforts,  closed
Sierra Vista, laid off approximately half of its employees, and took substantial
steps to reduce all  expenses.  At the same time the  Company's  resources  were
focused on the completion of those board and system level product  projects that
management  deemed most  promising and closest to market.  In the second half of
1998,  the first of the Company's  products were released to production  and the
first  deliveries  were made to  customers.  In 1999,  the Company  continued to
emerge from development  stage into full production with a significant  increase
in shipments in the last quarter of the year.

        Management  expects  that revenue in 2000 will be  significantly  higher
than in  1999,  but  that  the  Company  will  not  achieve  profitability  from
operations before the end of 2000. Modest staffing  increases are planned in all
departments  of the Company to  accommodate  this  growth.  The Company  will be
required  to raise  additional  capital  in 2000 to fund its  losses and to fund
anticipated increases in accounts receivable and inventory. No assurances can be
given that the Company's  revenues will increase in 2000,  that the Company will
become  profitable,  or  that  additional  funding  will  be  available  or,  if
available, that it will be on terms favorable to the Company.

        Product   development  in  2000  will   concentrate  on  increasing  the
functionality  of existing  products and expanding  their  application  into new
markets  in both  the  TransPeg  and the DVD  Impact  products.  Release  of the
DV-2110,  which was scheduled for 1999, was delayed due to design changes but is
now scheduled for mid 2000.

        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.

<PAGE>16


Year Ended December 31, 1999 Compared to December 31, 1998

Revenues

        Revenues increased to approximately $507,000 for the year ended December
31, 1999,  from  approximately  $108,000  for the year ended  December 31, 1998.
Approximately  66% of the revenue in 1999 was  recognized in the last quarter of
the year. This reflects the first volume shipments of the Company's  products to
customers for installation in large-scale projects.  The majority of the revenue
reported in 1998 was for shipments of pre-production and sample products.

Cost of goods sold

        Cost of  goods  sold  was  approximately  $492,000  for the  year  ended
December  31,  1999,  as compared to  approximately  $339,000 for the year ended
December  31,  1998.  The  increase  from 1999 to 1998 is  primarily a result of
increased  shipments  but  also  reflects  cost  increases  attributable  to the
transition from a development stage to manufacturing  stage enterprise.  Cost of
good  sold as a  percentage  of  sales  as seen in  both  1999  and  1998 is not
necessarily  representative  of the level that the Company  might  experience in
2000 or later  at such  time,  as any,  that  volume  production  levels  become
commonplace.

Research and development

        Research and development expense declined to approximately $1,823,000 in
the year ended  December 31, 1999,  from  approximately  $3,400,000 for the year
ended December 31, 1998. This reduction results primarily from the actions taken
in June of 1998 to reduce the Company's spending in all areas including research
and development. Partially offsetting this reduction was an increase in research
and development  spending recognized as some costs previously allocated to other
departments were  reclassified into research and development in the last quarter
of 1999.

Selling, general and administrative

        Selling,  general and administrative expenses decreased to approximately
$2,762,000 for the year ended December 31, 1999, from  approximately  $5,902,000
during the same period in 1998. The decrease from 1998 to 1999 results primarily
from the substantial cuts in spending made in June 1998.

Impairment loss on property and equipment

        In June 1998, the Company abandoned its chip development efforts,  which
reduced  the  value of the  development  equipment  and  software  that had been
purchased  for this work.  The Company  recognized  an expense of  approximately
$937,000 at that time to write these assets down to their  realizable  value. No
corresponding expense occurred in 1999.

Interest expense, net of interest income

        Interest  expense,  net of interest  income  decreased to  approximately
$2,832,000  during  the  year  ended  December  31,  1999,  from   approximately
$4,761,000 for the year ended December 31, 1998. The largest single component of
interest  expense in both years  relates to  interest  imputed  from  conversion
features  of the debt,  and from  warrants  issued in  connection  with the debt
placement recognized at the time new debt was issued. In 1998, most new debt was
in the form of debentures that could convert into stock at a price below market,
which generated large amounts of imputed interest.  Most new debt in 1999 was in

<PAGE>17

the form of  demand  notes,  which  were not  convertible  and did not cause the
recognition of imputed interest.  The decline in imputed interest resulting from
new debt  issuance,  and from the issuance of  associated  warrants from 1998 to
1999,  was  approximately  $2,357,000.  This decline was partially  offset by an
increase in stated interest of approximately $559,000 resulting from an increase
in overall debt levels from 1998 to 1999.

        Interest income was not material in either 1999 or 1998.

Income Tax Expense

        Income tax  expense  was  approximately  $2,000 for the two years  ended
December 31, 1999 and 1998. This represents the minimum franchise tax payable to
the  State  of  California  for  the  Company  and  its  non-operating   Florida
subsidiary.

Loss from discontinued operations

        On  June  15,  1998,  the  Company's  Board  of  Directors   decided  to
discontinue  the  operations of Sierra Vista,  its  wholly-owned  subsidiary and
entertainment  segment of the  business.  At that date,  the Company  wrote down
Sierra  Vista's  assets to disposal  value and  recognized a loss on disposal of
discontinued operations of approximately  $1,155,000.  Sierra Vista's operations
lost approximately $400,000 in 1998.

Gain from early extinguishments of debt

        In 1999 and  1998,  the  Company  settled  a number  of  liabilities  at
discounts to face amount. The total of these discounts declined to approximately
$235,000 in 1999 from approximately  $573,000 in 1998. This decline reflects the
reduction  in  creditor  claims for past due  liabilities  pressed  against  the
Company in 1999 relative to 1998.

Liquidity and Capital Resources

        As of December 31, 1999,  the Company had  negative  working  capital of
approximately  $17,309,000.  In 1999, the Company's revenues were not sufficient
to support its  operations,  and  revenues  will not be large  enough to support
operations  until such time,  as any, that the  Company's  current  products and
future products, if any, attain substantial market acceptance. Historically, the
Company has funded its  operations  through sale of equity and debt. The Company
expects to continue to finance its  operations  in this manner for the immediate
future.  The Company is  currently  in  discussions  with  several  investors to
finance the Company through the issuance of stock or convertible debentures, but
no assurance can be given that these discussions and negotiations will culminate
in  adequate  funding,  or any  funding at all. 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 from continuing operations totaled
approximately  $4,905,000  during fiscal 1999 and $7,182,000 during fiscal 1998.
Discontinued  operations used additional cash of approximately $319,000 in 1998.
This  cash  usage  resulted  primarily  from  the net  losses  of  approximately
$7,140,000  in 1999 and  $16,466,000  in 1998.  The net loss in 1999 was  offset
principally by non-cash interest expense imputed on the issuance of debt in 1999
and by interest and penalties  accrued on the Convertible  Debentures and Demand
Notes  outstanding  during  the  year.  The net  loss  during  1998  was  offset
principally by non-cash  interest expense imputed on the Convertible  Debentures
issued in 1997 and 1998,  increase in accounts payable and accrued  liabilities,

<PAGE>18

write down of the  discontinued  assets of Sierra  Vista,  and the write down of
assets impaired when the Company closed its chip development efforts.

        Net  cash  flows  from  financing   activities  rose  to   approximately
$5,158,000 in fiscal 1999 from approximately $4,603,000 in 1998. During 1999 the
Company  received  $4,200,000  from the sale of Demand Notes,  and an additional
$750,000  from the  sale of  Convertible  debentures.  During  1998 the  Company
received  $4,000,000 from the sale of Convertible  Debentures.  Also in 1998 the
Company  received  approximately  $778,000  from  four  other  lenders  of which
approximately  $174,000 was repaid,  and approximately  $468,000  converted into
Common Stock.

        In 1999 the  Company  purchased  approximately  $9,000 of  property  and
equipment as compared to approximately $1,217,000 in 1998.

        Between  December 1997 and  January 1999, the Company  issued a total of
$9,750,000 face value of Convertible Debentures to two investors who are related
to each other.  The convertible  debentures bear interest at 7% and are due five
years after issuance.

        At  the  end  of  1999,  the  Company  owed  $9,440,000  on  Convertible
Debentures, which is net of $310,000 converted into Common Stock during 1998 and
1999, $4,200,000 on secured promissory notes, and another $100,000 on short term
notes to related parties.  Accrued liabilities included approximately $2,486,000
in accrued interest and penalties related to these debts.

        On December 22, 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  shares of the  Company's  Common  Stock at a
conversion  price  equal to the lesser of (i) $3.47 and (ii) 80% of the  average
closing  market  price  for the  five  trading  days  prior  to  conversion.  In
connection with the private placement,  the Company issued five-year warrants to
purchase  250,000  shares of Common  Stock at $3.00 per share and for 250,000 at
$4.00 per share.  These  warrants  were  replaced by warrants with similar terms
except for an exercise price of $0.50 in August 1998. Through February 29, 2000,
the holders of these Debentures converted a total of $2,900,000 face value, plus
approximately $418,000 of accumulated interest,  into 8,422,644 shares of Common
Stock.  In March 2000 the  remaining  $2,100,000  face value of the December 22,
1997 Debenture  plus  approximately  $330,000 of accrued  interest was converted
into 1,988,947 shares of Common Stock.

        On June 29,  1998,  the Company  issued $2 million in the  aggregate  of
Convertible  Debentures  that bear interest at 7% and are due June 29, 2003. The
debentures are convertible into the Company's Common Stock at a conversion price
of $.35 per share.  In  connection  with the issuance of these  Debentures,  the
Company  issued the  Debenture  holder  five-year  warrants to purchase  500,000
shares of Common Stock at $.50 per share.

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

<PAGE>19

holders  five-year  warrants to purchase up to 75,000  shares of Common Stock at
$.50 per share. Also in this transaction, the Company canceled previously issued
warrants to purchase up to 250,000 shares of Common Stock at $3.00 per share and
up to 250,000  shares at $4.00,  replacing  the  canceled  warrants  with a like
number of  five-year  warrants to purchase  Common  Stock at a price of $.50 per
share.

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

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

        The Company is obligated under the terms of all the Debenture agreements
to register the Common  Stock  underlying  the  conversion  provisions  with the
Securities  Exchange  Commission so that upon conversion,  the Debenture holders
would received unrestricted stock. As of February 29, 2000 such registration had
not been  accomplished  for the Debentures  issued in June 1998 through  January
1999.  Registration  has been  obtained  for the  Common  Stock  underlying  the
conversion feature of the Debenture issued in December 1997.

        In 1999,  the Company  borrowed a total of $4,200,000  from the investor
who had  purchased the majority of the  Debentures  evidenced in the form of ten
separate notes.  An additional  $375,000 was borrowed on another note in January
2000. The notes bear interest at 13% and are due on demand.  In conjunction with
this funding,  the Company issued the holder of the notes five-year  warrants to
purchase up to 2,487,500  shares of Common Stock at prices ranging from $0.25 to
$0.60 per share.

        In connection with the sales of the Debentures and notes in 1997 through
January  2000,  the  Company  issued  five-year  warrants  to  purchase up to an
aggregate total of 2,365,000 shares of common stock at prices ranging from $0.11
per share to $2.43 per share to two investment brokers.

Impact of the Year 2000 Issue

        The  Company has  experienced  no  disruptions  in its  operations  that
management can attribute to Year 2000 software issues. In addition,  the Company
has seen no Year 2000  related  problems  itself or received any reports of such
problems from its customers related to the Company's products.

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

        None.

<PAGE>20

                                    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 as of March 15,
2000, are as follows:

                                                                Held Position
   Name                 Age            Position                     Since
   ----                 ---            --------                 -------------
Frank J. Alioto          51      President, Chief Executive     June 1998
                                 Officer, Director
James D. Casey           56      Chief Financial Officer,       November 1999
                                 Director
Mark C. Koz              44      Director                       March 1993
Tony Low                 45      Director                       October 1996
Robert Sibthorpe         50      Director                       May 1997
John Champlin, M.D.      43      Director                       October 1997

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

        Frank J. Alioto (age 51) has been President and a Director since July 1,
1998, and Chairman  since  December  1998.  From 1993 until 1997, Mr. Alioto was
Chief Operating Officer of Alamar Electronics,  a broadcast television equipment
manufacturer that he joined as part of a successful financial turnaround project
that  led  to  eventual  acquisition  by  Philips  NV in  1995.  Previously,  he
co-founded  ALTA Group,  a  manufacturer  of advanced  digital video systems for
professional  use, and served as Vice President of Marketing and Sales until the
company was acquired by Dynatech.  Mr. Alioto has over 25 years of experience in
broadcast  television,  and  in  management  of  advanced  electronic  equipment
manufacturers who service the broadcast and video markets.

        James D. Casey (age 56) has been Chief Financial  Officer since November
1999 and was  appointed to the Board of Directors  in February  2000.  From 1994
until 1999,  Mr. Casey was the Chief  Financial  Officer and VP Finance of Rebus
Software,  a privately held company in the field of CAD/Process Design software.
Previously  he held  similar  positions  with a number of other high  technology
semiconductor,  software, and  telecommunications  companies including Macronix,
OmniTel and Forte Communications, Inc. Mr. Casey is a CPA and holds a BS degree,
cum laude, from Northeastern University, and an MBA from the Amos Tuck School of
Business at Dartmouth College.

        Mark Koz (age 44) has been a Director  since March 3, 1993.  Previously,
at various times, he was also Chairman,  Chief Executive  Officer and President,
and Chief  Technical  Officer of the Company.  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.  Currently  he is  employed  as an  independent  consultant  in the
telecommunication  industry.  Mr. Koz has five years of  technical  education at
Florida Technological  University  (University of Central Florida). In addition,

<PAGE>21

he is a voting member of the Moving  Picture  Experts Group,  the  international
standards-setting body for MPEG.

     Tony Low (age 46) has been a Director of the Company  since  October  1996.
Since July 1997, Mr. Low has been Chief Operating  Officer of Darwin Digital,  a
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  at  Oberman,   Tivoli,   Miller  and  Low,  an
entertainment industry accounting firm.

     Robert Alan Sibthorpe (age 51) 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 44) 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 audit committee did not
meet in 1999,  but is scheduled to do so in the first half of 2000 to review the
results of the years  ended  December  31, 1998 and 1999,  and to  consider  the
performance and results of the audits.

     The  Compensation  Committee  administers  the Company's 1996 Incentive and
Nonstatutory  Stock Option Plan,  the 1999  Nonstatutory  Stock Option Plan, and
approves compensation, remuneration, and incentive arrangements for officers and
employees of the Company.

                                    1999 PLAN

Section 16(a) Beneficial Ownership Reporting Compliance

     Based on the  Company's  information,  all 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.

<PAGE>22

Item 10. Executive Compensation

Executive Compensation

        The following table sets forth the  Compensation  of the President,  and
all other officers who received annual compensation in excess of $100,000 during
1999. As of December 31, 1999, Mr. Alioto had deferred  receipt of approximately
$39,000 of  compensation,  and Mr. Bennett had deferred  approximately  $31,000.
These deferred amounts are not included in the table below.

<TABLE>
<CAPTION>


                           SUMMARY COMPENSATION TABLE
                                                                             Long Term Compensation
                                  Annual Compensation                   Awards              Payouts
                               ------------------------         -----------------------    ---------


                                               Other           Restricted   Securities
                                               Annual            Stock      Underlying        LTIP
Name and Principal                          Compensation        Award(s)     Options        Payouts    All Other
Position                 Year     Salary        ($)               ($)          (#)            ($)     Compensation
-----------------        ----     ------    ------------       ----------   ----------      --------  ------------
<S>                      <C>     <C>        <C>                <C>         <C>              <C>       <C>
Frank Alioto             1999    $ 95,625        -                 -            -              -           -
President and CEO        1998    $ 67,500    $51,171(1)            -       1,300,000(2)        -           -

Donald Bennett           1999    $118,750        -                 -          50,000(3)        -           -
Vice President           1998    $ 79,038        -                 -         150,000(4)        -           -

Deborah McDonald         1999    $117,757    $ 4,525(5)            -         200,000(6)        -           -
Vice President

Janek Kaliczak           1999    $150,000    $ 5,000(7)            -         50,000(3)         -           -
Vice President           1998    $122,500        -                 -        150,000(4)         -           -

Steven Levine            1999    $150,000    $25,000(7)            -         50,000(3)         -           -
Vice President           1998    $107,292    $15,000(7)            -        150,000(4)         -           -

</TABLE>


(1) Effective  June 23, 1998,  Mr. Alioto was elected  president of the Company.
Prior to this date,  Mr.  Alioto  served as a  consultant  to the  Company.  The
$51,171 represents consulting fees paid to Mr. Alioto.

(2) Represents  options to acquire 1,000,000 shares of Common Stock at $0.26 per
share and 300,000 shares at $0.16 per share.

(3)  Represents options to acquire shares of Common Stock at $0.17 per share.

(4)  Represents options to acquire shares of Common Stock at $0.26 per share.

(5) Represents sales commissions.

(6)  Represents  options to acquire  150,000 shares of Common Stock at $0.25 per
share and 50,000 shares of Common Stock at $0.17 per share.

(7) Represents a bonus.

<PAGE>23


Employment Contract

        On June 23, 1998, the Company hired Mr. Frank Alioto to become President
effective July 1, 1998. Pursuant to his employment contract, Mr. Alioto receives
a salary of $135,000 per year along with other benefits  granted to employees of
the Company. Additionally, Mr. Alioto received options to acquire, during a five
(5) year  term,  up to  1,000,000  shares of Common  Stock of the  Company at an
exercise  price equal to $0.26 per share.  On June 26, 1998,  options to acquire
166,667  shares of Common  Stock  vested  and  became  immediately  exercisable.
Options to acquire  166,667  shares of Common Stock shall vest on June 26, 1999,
and  options to acquire  166,666  shares of Common  Stock shall vest on June 26,
2000. Options to acquire the remaining 500,000 shares of Common Stock shall vest
on June 26, 2003, or earlier as determined by the  Compensation  Committee based
on  performance  goals.  These options shall remain  exercisable  until June 26,
2003,  and in addition shall not expire earlier than two (2) years from the date
of any change of control.  Finally,  pursuant to his  employment  contract,  Mr.
Alioto shall be indemnified  and held harmless by the Company in connection with
his serving as President and Chief Executive Officer of the Company.

        Mr. Alioto's  employment is on an "at-will" basis. Either the Company or
Mr. Alioto may terminate the employment at any time for any reason.  However, in
the event of  termination  without  "cause," the Company  shall pay Mr. Alioto a
minimum  severance  salary,  which is equal to three months pay at Mr.  Alioto's
then-existing  salary as well as twelve  (12)  additional  months of medical and
dental  insurance  coverage for Mr. Alioto and his dependents.  In general,  the
term  "cause"  means a willful  breach of the duties Mr.  Alioto is  required to
perform under the terms of the  employment  contract,  or the commission of such
acts of dishonesty, fraud, or other acts of moral turpitude as would prevent the
effective  performance  of Mr.  Alioto's  duties.  Mr. Alioto was elected to the
Board of  Directors  on June 13,  1998,  and  became  Chairman  of the  Board on
December 15, 1998.

Options Granted in Last Fiscal Year

The  following  table sets forth  options  granted by InnovaCom  during the last
fiscal year to the executives listed in the summary compensation table.

<TABLE>
<CAPTION>

                      Option/SAR Grants in Last Fiscal Year

                                                  Percentage of
                                                     Total
                                                  Options/SARs
                                                   Granted to
                              Options/SARs        Employees in   Exercise Price
  Name                          Granted           Fiscal Year        $/sh          Expiration Date
-----------------------------------------------------------------------------------------------------


<S>                           <C>                <C>             <C>              <C>
Frank Alioto                         -                  -                 -                  -

Donald Bennett                  50,000              4.93%              0.17           11/15/04

Deborah McDonald               150,000                                 0.25           03/08/04
                                50,000             19.71%              0.17           11/05/04

Janek Kaliczak                  50,000              4.93%              0.17           11/15/04

Steven Levine                   50,000              4.93%              0.17           11/15/04

</TABLE>


<PAGE>24

Aggregate Option Exercise in Last Fiscal Year and Fiscal Year-End Option Values

The following  table sets forth the value of exercised and  unexercised  options
and SARs held by the  executives  listed in the  summary  compensation  table at
fiscal year end.


<TABLE>
<CAPTION>

               Aggregated Option/SAR Exercises in Last Fiscal Year
                      and Fiscal Year-End Option/SAR Values

                                                                                   Value of
                                                                                  Unexercised
                                                                                 in-the Money
                                                           Options/SARs at     Options/ SARs at
                                                           Fiscal Year-End      Fiscal Year-End
                                                             Exercisable       Exercisable (E)/
                      Shares Acquired    Value Realized    (E)/ Subject to        Subject to
       Name             on Exercise            ($)          Repurchase (U)      Repurchase (U)
       ----           ----------------   --------------    ---------------     ---------------
<S>                     <C>                <C>          <C>       <C>      <C>        <C>
Frank Alioto               None               None        633,334 / 666,666  $102,200 / $77,667

Donald Bennett             None               None         45,000 / 155,000    $5,175 / $22,230

Deborah McDonald           None               None              0 / 200,000        $0 / $28,905

Janek Kaliczak             None               None         45,000 / 155,000    $5,175 / $22,230

Steven Levine              None               None         45,000 / 155,000    $5,175 / $22,230

</TABLE>

Director Compensation

        Each  director  receives,  on the  date of  appointment  as a  director,
options to acquire shares of Common Stock of the Company.  The exercise price of
the option is equal to the  trading  price of a share of Common  Stock as of the
date of grant.  A director who also serves as an officer of the Company shall be
entitled  to options  to  purchase  300,000  shares of Common  Stock.  All other
directors receive options to purchase 200,000 shares of Common Stock.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

                             PRINCIPAL STOCKHOLDERS

        The  following  table  sets  forth,  as  of  March  15,  2000,   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  named in the
compensation table, (iii) each director of the Company as of March 15, 2000, and
(iv) directors and executive officers of the Company, as of March 15, 2000, as a
group.

        As of March 15,  2000,  there  were  36,359,408  shares of Common  Stock
outstanding.

                                                                   Percentage
                                            Number of             Beneficially
      Name and Address                      Shares(1)                Owned
      ----------------                      ---------             ------------

JNC                                       26,786,389(2)              43.16%
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM 11, Bermuda

<PAGE>25
                                                                   Percentage
                                            Number of             Beneficially
      Name and Address                      Shares(1)                Owned
      ----------------                      ---------             ------------

Frank Alioto                                 633,334(3)               1.87%
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95053

James D. Casey                               390,450(3)               1.16%
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

John Champlin, MD                            200,900                    *
4373 Meadow Circle
Rescue, CA 95672

Robert Sibthorpe                             200,000                    *
6311 E. Naumann Dr.
Paradise Valley, AZ 85253

Tony Low                                     200,000(3)                 *
The Saatchi Entertainment Group
37 26th Avenue
Venice, CA 90291

Mark C. Koz                                1,400,000(4)               4.17%
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

Donald Bennett                                45,000(3)                 *
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

Deborah McDonald                              65,000(5)                 *
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

Janek Kaliczak                                45,000(3)                 *
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

Steven Levine                                 45,000(3)                 *
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054

<PAGE>26

All officers and directors as a
group (10 persons)                         3,236,984(6)               9.20%
----------------------------

*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  22,204,745  shares of Common Stock that may be acquired  upon the
     conversion of outstanding Debentures,  and 3,500,000 shares of Common Stock
     that may be acquired upon the exercise of outstanding Warrants.

(3)  Represents  shares of Common  Stock that may be acquired  within sixty days
     upon exercise of options.

(4)  Includes  options to acquire  300,000  shares of Common  Stock  exercisable
     within 60 days.

(5)  Includes  options  to acquire  30,000  shares of Common  Stock  exercisable
     within 60 days and 35,000  shares of Common  Stock owned by Ms.  McDonald's
     spouse.

(6)  Includes options to acquire  1,901,084  shares of Common Stock  exercisable
     within 60 days.

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 provided for an
aggregate  amount not to exceed $5 million.  The Credit Facility  terminated and
the Note was due on June 30, 1998,  and bore 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 had the right to prepay the Note.  The principal and interest on
the Note might 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 were secured by all of the assets of the
Company including, but not limited to, receivables, goods, equipment, inventory,
contract rights and other property interests.

        In May 1998,  Micro  Technologies  converted  $4,181,421  of its line of
credit to the Company in exchange for 1,742,362 shares of Common Stock.

        On June 26, 1998, Micro Technologies  converted its remaining balance on
the credit  facility of $317,357  into common  stock and  terminated  the credit
facility.  As an inducement to Micro  Technologies to make this conversion,  the
Company  allowed Micro  Technology to convert into 1,220,608  shares at the then
market price of the stock,  $.26 per share,  as opposed to the conversion  price
under the credit  facility,  which would have averaged  approximately  $2.40 per
share.

<PAGE>27

        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.   In  1997,  the
Company's Board of Directors tentatively approved the acquisition of Intelligent
Instruments,  a  company  wholly-owned  by Mark C.  Koz,  the  Company's  former
President and Chief  Executive  Officer for 2 million  shares of Common Stock of
the Company, subject to certain conditions.  In 1998 this tentative approval was
withdrawn and the acquisition  did not occur.  There are no plans to resume this
acquisition effort.

        FutureTel.  The Company has a license  ("FutureTel  License  Agreement")
from FutureTel to  manufacture,  use,  distribute,  sell and otherwise deal with
certain video  compression  technology which was incorporated into the Company's
design of its single chip MPEG-2 Gecko encoder chip,  and when the design effort
on this chip was  suspended in 1998,  the Company  ceased using the  technology.
Aside from a sale or license by the  Company to another  party of the  Company's
encoder chip design, an event not considered likely by the Company's management,
the  Company  has  no  plans  to  resume  use of the  technology  licensed  from
FutureTel.

        In 1998, the Company rented certain items of engineering  test equipment
from Mark Koz,  or from his wife,  for a total  rental  amount of  approximately
$13,000. These rental arrangements were terminated in December 1998.

        Robert  Sibthorpe.  In 1998,  the Company  borrowed  $50,000 from Robert
Sibthorpe on an unsecured  demand note at an interest rate of 10% per annum.  As
of December 31, 1999, the principal balance outstanding on this note was $5,000.

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)

<PAGE>28


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)

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)

10.22 Convertible Debenture Purchase Agreement dated as of June 29, 1998 between
      InnovaCom, Inc. and JNC Strategic Fund Ltd.(4)

10.23 Convertible Debenture  Purchase  Agreement  dated  August 28, 1998 between
      InnovaCom, Inc. and JNC Strategic Fund Ltd. (4)

10.24 Form of Debenture(4)

10.25 Waiver Agreement dated as of September 18, 1998(4)

10.26 Convertible Debenture  Purchase  Agreement dated December 15, 1998 between
      InnovaCom, inc. and JNC Strategic Fund Ltd.(5)

10.27 The Second Amended and Restated Security Agreement between the Company and
      JNC Strategic Fund Ltd., dated as of December 15, 1998(5)

10.28 Employment Agreement with Frank Alioto, dated March 15, 1998(5)

10.29 Asset Purchase Agreement with John Champlin,  MD(5)

10.30 Amended Employment Agreement with Mark Koz, dated April 20, 1998(5)

16.1  Letter regarding change in certifying accountant(3)

21.1  Subsidiary of the small business issuer(3)

23.1  Consent of Independent Accountants

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  Pre-Effective  Amendment  No. 1 to
     Registration Statement on form SB-2 filed on April 15, 1998.

<PAGE>29


(4)  Previously  filed with the Company's  Form 10-QSB for the quarterly  period
     ended March 31, 1998, filed on September 24, 1998.

(5)  Previously filed with the Company's Form 10-KSB for the year ended December
     31, 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.

                                       FRANK ALIOTO

                                       By: Frank Alioto, 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 22, 2000                         FRANK ALIOTO

                                       Frank Alioto, President and Chairman of
                                       the Board of Directors
                                       Principal Executive Officer)


March 22, 2000                         JAMES J. CASEY

                                       James J. Casey, Chief Financial Officer
                                       and Director (Principal Financial and
                                       Accounting Officer)


March 22, 2000                         MARK KOZ

                                       Mark Koz, Director


March 22, 2000                         TONY LOW

                                       Tony Low, Director


March __, 2000                         ______________________________________
                                       Robert Sibthorpe, Director


March 21, 2000                         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, 1999..............................F-3

Consolidated  Statements of  Operations - For the Years
  Ended  December 31, 1999 and 1998, and For the Period From
  March 3, 1993  (inception) to December 31, 1999...........................F-4

Consolidated Statement of Stockholders' Equity (Deficit) -
  For the Period From March 3, 1993 (inception) to December 31, 1999........F-5

Consolidated  Statements  of Cash Flows - For the Years Ended
  December 31, 1999 and 1998, and For the Period From
  March 3, 1993  (inception) to December 31, 1999...........................F-10

Notes to Consolidated Financial Statements..................................F-12

<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, 1999, and
the  related  consolidated   statements  of  operations,   stockholders'  equity
(deficit),  and cash flows for the years ended  December 31, 1999 and 1998,  and
for the period  from March 3, 1993  (inception)  to  December  31,  1999.  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 audits 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, 1999, and the
results of their operations and cash flows for the years ended December 31, 1999
and 1998, and for the period from March 3, 1993 (inception) to December 31, 1999
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, 1999 has negative working capital of $17,309,248, and has
a stockholders'  deficit of $17,128,098,  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.


/S/HEIN + ASSOCIATES LLP

HEIN + ASSOCIATES LLP
Certified Public Accountants

Orange, California
January 28, 2000, except for Note 14 which is as of March 15, 2000

<PAGE>F-3

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

                           CONSOLIDATED BALANCE SHEET


                                                                DECEMBER 31,
                                                                    1999
                                                                ------------
                                     ASSETS

CURRENT ASSETS:
    Cash                                                        $    302,701
    Accounts receivable,
       less: allowance for doubtful accounts of $10,000              149,075
    Other receivables                                                  6,750
    Inventory, net                                                   210,536
    Prepaid expenses                                                  49,044
                                                                ------------
          Total current assets                                       718,106

PROPERTY AND EQUIPMENT, net                                          143,950
DEPOSITS                                                              37,200
                                                                ------------
TOTAL ASSETS                                                    $    899,256
                                                                ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
   Notes payable - related parties                              $    100,000
   Secured promissory notes                                        4,200,000
   Convertible debentures                                          9,440,000
   Accounts payable                                                1,222,312
   Accrued liabilities                                             3,002,110
   Liabilities in excess of assets of discontinued
      operations                                                      62,932
                                                                ------------
          Total current liabilities                               18,027,354

COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and 11)

STOCKHOLDERS' EQUITY (DEFICIT):
   Common stock, $.001 par value, 150,000,000 shares
     authorized, 25,784,238 shares issued and outstanding             25,785
   Warrants                                                        2,329,325
   Additional paid-in capital                                     23,383,626
   Deficit accumulated during development stage                  (42,866,834)
                                                                ------------
          Total stockholders' (deficit)                          (17,128,098)
                                                                ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)            $    899,256
                                                                ============

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
                                                          FOR THE YEARS ENDED          (INCEPTION) TO
                                                              DECEMBER 31,               DECEMBER 31,
                                                 ----------------------------------
                                                       1999               1998              1999
                                                 --------------      --------------    --------------

<S>                                              <C>                 <C>               <C>
REVENUES                                         $      507,076      $      107,632    $      763,708
                                                 --------------      --------------    --------------
COSTS AND EXPENSES:
    Costs of goods sold                                 491,633             338,763           882,934
    Research and development                          1,822,603           3,399,715        12,321,526
    Selling, general and administrative               2,762,173           5,901,604        18,940,730
    Impairment loss on property and equipment                 -             937,000           937,000
                                                 --------------      --------------    --------------
          Total costs and expenses                    5,076,409          10,577,082        33,082,190
                                                 --------------      --------------    --------------
OPERATING LOSS                                       (4,569,333)        (10,469,450)      (32,318,482)
                                                 --------------      --------------    --------------
OTHER INCOME (EXPENSE):
    Interest income                                           -              10,025            22,109
    Interest expense                                 (2,831,589)         (4,761,319)       (8,822,139)
    Debt conversion expense                                   -            (260,645)         (260,645)
    Other income                                          1,781                   -             1,781
                                                 --------------      --------------    --------------
          Total other income (expense)               (2,829,808)         (5,011,939)       (9,058,894)
                                                 --------------      --------------    --------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE AND DISCONTINUED OPERATIONS              (7,399,141)        (15,481,389)      (41,377,376)

INCOME TAX EXPENSE                                        1,600               1,600             8,000
                                                 --------------      --------------    --------------
LOSS FROM CONTINUING OPERATIONS:                     (7,400,741)        (15,482,989)      (41,385,376)
                                                 --------------      --------------    --------------
    Gain/(loss) on disposal of discontinued
      operations                                         25,789          (1,155,823)       (1,130,034)
    Loss from operations of discontinued
      operation, net of income tax expense                    -            (400,000)       (1,159,452)
                                                 --------------      --------------    --------------
GAIN/(LOSS) FROM DISCONTINUED OPERATIONS                 25,789          (1,555,823)       (2,289,486)

GAIN ON EXTINGUISHMENT OF LIABILITIES                   235,093             572,935           808,028
                                                 --------------      --------------    --------------
NET LOSS                                         $   (7,139,859)     $  (16,465,877)   $  (42,866,834)
                                                 ==============      ==============    ==============
BASIC AND DILUTED NET LOSS PER SHARE:
    Continuing operations                        $         (.29)     $         (.67)
    Discontinued operations                                 -                  (.07)
    Extraordinary item                                      .01                 .03
                                                 --------------      --------------
    Basic and diluted net loss per share         $         (.28)     $         (.71)
                                                 ==============      ==============
 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING       25,099,278          23,032,965
                                                 ==============      ==============
</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)
       FOR THE PERIOD FROM MARCH 3, 1993 (INCEPTION) TO DECEMBER 31, 1999


<TABLE>
<CAPTION>

                                                                                                  DEFICIT
                                                                                                ACCUMULATED        TOTAL
                                                COMMON STOCK                     ADDITIONAL        DURING       STOCKHOLDERS'
                                          ----------------------                  PAID-IN       DEVELOPMENT       EQUITY
                                             SHARES      AMOUNT     WARRANTS      CAPITAL          STAGE         (DEFICIT)
                                          -----------   --------  -----------  --------------  -------------  ---------------
<S>                                      <C>          <C>        <C>          <C>            <C>              <C>
  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
    shares (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
  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)


<PAGE>F-6

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

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
       FOR THE PERIOD FROM MARCH 3, 1993 (INCEPTION) TO DECEMBER 31, 1999
                                   (Continued)


                                                                                                  DEFICIT
                                                                                                ACCUMULATED        TOTAL
                                                COMMON STOCK                     ADDITIONAL        DURING       STOCKHOLDERS'
                                           ---------------------                  PAID-IN       DEVELOPMENT       EQUITY
                                             SHARES      AMOUNT     WARRANTS      CAPITAL          STAGE         (DEFICIT)
                                           ----------   --------  -----------  --------------  -------------  ---------------
   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
     (Frebruary 1997)                         229,310        229            -       664,771                -        665,000
   Acquisition of Sierra Vista at
     $0.50 per share (May 1997)             8,514,500      8,515            -     4,248,735                -      4,257,250
   Issuance of common stock at $2.43
     per share for legal services
     rendered (June 1997)                       7,003          7            -        16,976                -         16,983
   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 feature           -          -            -     2,086,988                -      2,086,988
   Compensation recognized upon issuance
     of stock options                               -          -            -     1,558,666                -      1,558,666
   Net loss                                         -          -            -             -      (11,065,303)   (11,065,303)
                                          -----------   --------  -----------  ------------    -------------    -----------
BALANCES, December 31, 1997                20,561,897     20,562      968,578    16,219,653      (19,261,098)    (2,052,305)

  Issuance of common stock at $1.75
    per share in connection with
    issuance of notes payable
    (May 1998)                                125,000        125            -       218,625                -        218,750
  Issuance of common stock at $2.40
    per share in connection with
    conversion of notes payable -
    related party (May 1998)                1,742,362      1,742            -     4,179,679                -      4,181,421
  Issuance of common stock at $1.39
    per share in connection with
    conversion of debentures (May 1998)         7,431          7            -        10,285                -         10,292

<PAGE>F-7

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

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
       FOR THE PERIOD FROM MARCH 3, 1993 (INCEPTION) TO DECEMBER 31, 1999
                                   (Continued)


                                                                                                  DEFICIT
                                                                                                ACCUMULATED        TOTAL
                                                COMMON STOCK                     ADDITIONAL        DURING       STOCKHOLDERS'
                                           ---------------------                  PAID-IN       DEVELOPMENT       EQUITY
                                             SHARES      AMOUNT     WARRANTS      CAPITAL          STAGE         (DEFICIT)
                                           ----------   --------  -----------  --------------  -------------  ---------------

    Issuance of common stock at $0.26
      per share in connection with
      conversion of notes payable to
      a related party (June 1998)           2,057,146   $  2,057  $         -  $    532,800    $           -  $     534,857
    Issuance of common stock at $0.29
      per share in connection with
      conversion of debentures (June 1998)     70,339         71            -        20,638                -         20,709
    Issuance of common stock at $0.32
      per share in connection with
      conversion of debentures (June 1998)     63,971         64            -        20,624                -         20,688
    Issuance of common stock at $0.26
      per share for services (June 1998)      100,000        100            -        25,900                -         26,000
    Issuance of common stock at $0.19
      per share in connection with
      conversion of debentures (July 1998)     56,184         56            -        10,372                -         10,428
    Issuance of common stock at $0.26
      per share in connection with
      conversion of debentures (July 1998)    121,654        122            -        31,021                -         31,143
    Issuance of common stock at $0.17
      per share in connection with
      conversion of debentures
      (September 1998)                         60,160         60            -        10,432                -         10,492
    Issuance of common stock at $0.10
      per share in connection with
      conversion of debentures
      (October 1998)                          110,264        110            -        10,475                -         10,585
    Issuance of common stock at $0.11
      per share in connection with
      conversion of debentures
      (November 1998)                         969,536        970            -       105,291                -        106,261
    Shares canceled from default at par      (510,329)      (510)           -           510                -              -
    Shares canceled from default
      judgement issued for services at
      $0.50 per share                        (500,000)      (500)           -      (249,500)               -       (250,000)
    Compensation recognized upon
      issuance of stock options                     -          -            -       366,303                -        366,303

<PAGE>F-8

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

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
       FOR THE PERIOD FROM MARCH 3, 1993 (INCEPTION) TO DECEMBER 31, 1999
                                   (Continued)


                                                                                                  DEFICIT
                                                                                                ACCUMULATED        TOTAL
                                                COMMON STOCK                     ADDITIONAL        DURING       STOCKHOLDERS'
                                           ---------------------                  PAID-IN       DEVELOPMENT       EQUITY
                                             SHARES      AMOUNT     WARRANTS      CAPITAL          STAGE         (DEFICIT)
                                           ----------   --------  -----------  --------------  -------------  ---------------

    Allocation of proceeds from notes
      payable and debentures due to
      beneficial conversion feature                 -   $      -  $         -  $    859,140    $           -  $     859,140
    Warrants issued with sale of
      convertible debentures                        -          -      338,825             -                -        338,825
    Debt conversion expense                         -          -            -       260,645                -        260,645
    Contested proceeds from private
      placements reclassified from
      accrued liabilities due to
      defaults                                      -          -            -       250,959                -        250,959

    Net Loss                                        -          -            -             -      (16,465,877)   (16,465,877)
                                          -----------   --------  -----------  ------------    -------------  -------------
BALANCES, December 31, 1998                25,035,615     25,036    1,307,403    22,883,852      (35,726,975)   (11,510,684)

    Issuance of common stock at $0.15
      per share for services (March 1999)     200,000        200            -        29,800                -         30,000
    Shares canceled originally issued
      for services at share $0.26 per
      share (June 1998)                      (100,000)      (100)           -       (25,900)               -        (26,000)
    Issuance of common stock at $0.57
      per share for services (May 1999)        40,000         40            -         22,670               -         22,710
    Proceeds from the exercise of stock
      options                                   6,000          6            -          1,554               -          1,560
    Issuance of common stock at $0.19
      per share in connection with
      conversion of debentures
      (December 1999)                         602,623        603            -        113,689               -        114,292
    Warrants issued with sale of
      convertible debentures                        -          -    1,021,922              -               -      1,021,922
    Allocation of proceeds from notes
      payable and debentures due to
      beneficial conversion feature                 -          -            -         76,480               -         76,480
    Compensation recognized upon
      issuance of stock options                     -          -            -         40,234               -         40,234

<PAGE>F-9

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

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
       FOR THE PERIOD FROM MARCH 3, 1993 (INCEPTION) TO DECEMBER 31, 1999
                                   (Continued)

                                                                                                  DEFICIT
                                                                                                ACCUMULATED        TOTAL
                                                COMMON STOCK                     ADDITIONAL        DURING       STOCKHOLDERS'
                                           ---------------------                  PAID-IN       DEVELOPMENT       EQUITY
                                             SHARES      AMOUNT     WARRANTS      CAPITAL          STAGE         (DEFICIT)
                                           ----------   --------  -----------  --------------  -------------  ---------------
    Proceeds received from settlement
       agreement, net of legal costs                -          -            -       241,247                -        241,247
     Net Loss                                       -          -            -             -       (7,139,859)    (7,139,859)
                                          -----------   --------  -----------  ------------    -------------  -------------
BALANCES, December 31, 1999                25,784,238   $ 25,785  $ 2,329,325  $ 23,383,626    $ (42,866,834) $ (17,128,098)
                                          ===========   ========  ===========  ============    =============  =============

</TABLE>

<PAGE>F-10

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

                      CONSOLIDATED STATEMENTS OF CASH FLOW


<TABLE>
<CAPTION>

                                                                                        MARCH 3, 1993
                                                          FOR THE YEARS ENDED          (INCEPTION) TO
                                                              DECEMBER 31,               DECEMBER 31,
                                                 ----------------------------------
                                                       1999               1998              1999
                                                 --------------      --------------    --------------

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

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss from continuing operations            $  (7,400,741)      $  (15,482,989)   $  (41,385,376)
  Adjustments to reconcile net loss to
      net cash used in operating activities:
    Depreciation and amortization                      144,343              291,363           872,860
    Provision for inventory obsolescence                40,182                    -            40,182
    Provision for doubtful accounts                     20,000                    -            20,000
    Amortization of discount on long-term debt               -            2,345,866         2,345,866
    Loss on sale of fixed assets                        24,630                    -            24,630
    Impairment loss on property and equipment                -              937,000           939,559
    Interest related to beneficial conversion
      feature and warrants issued in connection
      with notes payable and convertible
      debentures                                     1,098,402            1,197,965         3,397,474
    Compensation recognized upon issuance of
      stock and stock options                           66,945              611,053         5,836,730
    Shares canceled from default judgement                   -             (250,000)         (250,000)
    Contribution of product license                          -                    -         1,275,000
    Write down of purchased incomplete
      research and development                               -                    -           500,000
    Gain on extinguishment of liabilities              235,093              572,935           808,028
    Debt conversion expense                                  -              260,645           260,645
    Write-off of related party receivable                    -                    -           139,594
    Write-off of acquisition costs                           -               68,364            68,364
    Changes in operating assets and
        liabilities:
      Cash - restricted                                      -                8,481                 -
      Accounts receivable                             (150,330)              (8,745)         (159,075)
      Other receivables                                 61,498                                (16,748)
      Inventory                                       (250,718)                              (250,718)
      Prepaid expenses                                 (47,298)              96,631           (49,048)
      Deposits                                           -                   52,679           (37,200)
      Accounts payable                                (498,538)           1,438,485         1,631,194
      Accrued liabilities                            1,751,112              678,309         3,602,601
                                                 -------------       --------------    --------------
        Net cash used in operating activities
          from continuing operations                (4,905,420)          (7,181,958)      (20,385,438)
                                                 -------------       --------------    --------------
  Net loss from discontinued operations                 25,789           (1,555,823)       (2,289,486)
    Loss on disposal of assets                               -               48,568            48,568
    Write-down of film rights and film costs
      inventory                                              -              277,500           250,000
    Write-down of goodwill                                   -              848,129           848,129
    Change in liabilities in excess of assets
      of discontinued operations                             -               62,932            62,932
                                                 -------------       --------------    --------------
        Net cash provided by (used in)
          operating activities from
          discontinued operations                       25,789             (318,694)       (1,079,857)
</TABLE>

<PAGE>F-11

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

                      CONSOLIDATED STATEMENTS OF CASH FLOW


<TABLE>
<CAPTION>

                                                                                        MARCH 3, 1993
                                                          FOR THE YEARS ENDED          (INCEPTION) TO
                                                              DECEMBER 31,               DECEMBER 31,
                                                 ----------------------------------
                                                       1999               1998              1999
                                                 --------------      --------------    --------------

<S>                                              <C>                 <C>               <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash received in acquisition of Sierra
    Vista Entertainment                          $           -       $            -    $    2,916,798
  Cost incurred for organization of joint
    venture                                                  -                    -           (68,364)
  Advance to related party                                   -                    -          (139,594)
  Purchases of property and equipment                   (9,934)          (1,216,870)       (2,200,151)
  Proceeds from sale of assets                             525                    -             4,025
                                                 -------------       --------------    --------------
      Net cash provided by (used in)
        investing activities                     $      (9,409)      $   (1,216,870)   $      512,714
                                                 -------------       --------------    --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable                                -              777,500         4,865,490
  Proceeds from secured promissory notes             4,200,000                    -         4,200,000
  Net proceeds from sale of convertible
    debentures with detachable warrants                750,000            4,000,000         9,358,593
  Principal payments on notes payable-related
    party                                              (35,000)            (174,478)         (309,278)
  Proceeds from sale of common stock                         -                    -         2,897,670
  Proceeds from issuance of stock options                1,560                    -             1,560
  Proceeds from settlements                            241,247                    -           241,247
                                                 -------------       --------------    --------------
      Net cash provided by financing
        activities                               $   5,157,807       $    4,603,022    $   21,255,282
                                                 -------------       --------------    --------------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                          268,767           (4,114,500)          302,701
CASH AND CASH EQUIVALENTS, beginning of
  period                                                33,934            4,148,434                 -
                                                 -------------       --------------    --------------
CASH AND CASH EQUIVALENTS, end of period         $     302,701       $       33,934    $      302,701
                                                 =============       ==============    ==============

SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash payments for:
    Interest                                     $           -       $            -    $        9,079
                                                 =============       ==============    ==============
    Income taxes                                 $       2,400       $        2,400    $       11,200
                                                 =============       ==============    ==============
NON-CASH INVESTING AND FINANCING
  ACTIVITIES:
    Net assets acquired, net of cash,
      through acquisition of Sierra
      Vista Entertainment                        $           -       $            -    $    1,340,452
                                                 =============       ==============    ==============
    Return of 500,000 shares of common
      stock per settlement agreement             $           -       $            -    $          500
                                                 =============       ==============    ==============
    Acquisition of technology for stock          $           -       $            -    $      500,000
                                                 =============       ==============    ==============
    Conversion of notes payable, debentures
      and accrued interest to equity             $     114,292       $    4,936,876    $    5,051,168
                                                 =============       ==============    ==============
</TABLE>

See accompanying notes to these consolidated financial statements.

<PAGE>F-12

                        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  digital  video
      compression and processing  technology to provide  broadcast quality video
      encoding and processing products and systems.

      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"),  in exchange for 8,514,500  previously  unissued shares of common
      stock of the Company. The transaction was accounted for as a purchase. The
      fair market value per share of the common stock issued in the  transaction
      was $0.50.  The resulting  purchase price was $4,257,250  with  $1,090,452
      being allocated to goodwill.  Sierra Vista was formed to acquire,  produce
      and distribute  low-budget  feature films.  On June 15, 1998  (measurement
      date),  the  Company's  Board of  Directors  decided  to  discontinue  the
      operations of Sierra Vista. Accordingly,  Sierra Vista is accounted for as
      a  discontinued  operation  in  the  accompanying  consolidated  financial
      statements.

      Liabilities  in excess of assets of  discontinued  operations  consist  of
      Sierra Vista accounts  payable as of December 31, 1999.  Since  inception,
      Sierra Vista has never generated any revenues.

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.

      Use of 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   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

      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.

      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  that 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 is removed from the accounts, and
      any gains or losses are reflected in current operations.

      Goodwill  -  Goodwill,  representing  the  excess of the cost over the net
      tangible and identifiable  intangible assets of the acquired business, was
      stated at cost and was amortized on a straight-line basis, over the future
      periods  to  be  benefited  estimated  to  be  three  years.  Due  to  the
      discontinuance  of Sierra  Vista,  goodwill in the amount of $848,129  was
      written off during the year ended December 31, 1998.

      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.

      Revenue  Recognition - The Company allows  customers to demo units,  for a
      period  specified in the purchase  order,  prior to  committing to a sale.
      Revenue is recognized once the customer has committed to purchase the demo
      units

      Debt  Issuance  Costs - Debt issue  costs  represent  the  offering  costs
      associated  with the sale of the  debentures  (See Note 9) and were  being
      amortized using the interest  method over the life of the debentures.  The
      Company  was in  violation  of  certain  covenants  under the terms of the
      debentures.  Consequently, the debentures are classified as current in the
      accompanying  consolidated  financial  statements  and debt issue costs of
      $664,815  capitalized  as of December 31, 1997 were written off during the
      year ended December 31, 1998. Debt issue costs  associated with debentures
      sold during the years ended  December  31, 1999 and 1998 were  immediately
      expensed due to the violation of certain  covenants under the terms of the
      debentures.

      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.

<PAGE>F-14

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      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 do not take into  account  the value of any  collateral  or
      security.

      The Company operates primarily in one industry segment and a concentration
      exists because the Company's has two primary  customers that generate more
      than 61% of revenues.  Financial  instruments  that subject the Company to
      credit risk consist principally of accounts receivable.

      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   receivable,   accounts   payable,   short  term  demand  notes,
      convertible debentures, and other debt, approximates the carrying value in
      the consolidated financial statements at December 31, 1999.

      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.  All such
      securities or other contracts were anti-dilutive for all periods presented
      and, therefore, excluded from the computation of earnings per share.

      Impact  of  Recently  Issued  Standards  - In  June  1998,  the  Financial
      Accounting  Standards  Board  issued  Statement  of  Financial  Accounting
      Standards No. 133 (FASB133),  "Accounting  for Derivative  Instruments and
      Hedging  Activities".   This  statement  is  effective  for  fiscal  years
      beginning after June 15, 1999. Earlier application is encouraged; however,
      the Company does not  anticipate  adopting  FASB133  until the fiscal year
      beginning  January 1, 2000.  FASB133 requires that entities  recognize all
      derivatives  as  assets  or  liabilities  in the  statement  of  financial
      position and measure those instruments at fair value. The Company does not
      believe  the  adoption  of  FASB133  will  have a  material  impact on its
      financial statements.

      Reclassification  - Certain  reclassifications  have been made to  conform
      1998   financial   statements   to   the   presentation   in   1999.   The
      reclassifications had no effect on net income.


<PAGE>F-15

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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 $7,139,859  for the
      year  ended  December  31,  1999,  and its  negative  working  capital  of
      $17,309,248  and its  stockholder's  deficit of $17,128,098 as of December
      31, 1999. The Company's  continued existence is dependent upon its ability
      to raise  substantial  capital,  to  generate  revenues  to  significantly
      improve operations and ultimately achieve profitability.

      During  1999,  the Company  sold  $750,000 in 7%  convertible  debentures,
      converted  $114,292  of debt  and  accrued  interest  to  equity,  settled
      $481,506  of  accounts  payable  for a  discount  resulting  in a gain  on
      extinguishment of liabilities  totaling $235,093,  and borrowed $4,200,000
      through the issuance of 13% secured  promissory notes, due on demand,  and
      is attempting to raise additional capital.  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 recoverabilty 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.


4.    INVENTORY:

      Inventories  are  stated  at the  lower  of cost  or  market  and  consist
      primarily of the following:

              Raw materials                        $  110,249
              Work in process                          66,766
              Finished Goods                           73,703
                                                   ----------
                                                      250,718

              Less: Inventory reserve                 (40,182)
                                                   ----------
                                                   $  210,536
                                                   ==========

      The inventory  reserve  includes  estimated costs to rework the demo units
      returned by customers and a provision for units not returned.

<PAGE>F-16

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.    PROPERTY AND EQUIPMENT:

      Property and equipment consists of the following:

              Computer and equipment               $  273,965
              Office equipment and furniture          125,774
                                                   ----------
                                                      399,739

              Accumulated depreciation               (255,789)
                                                   ----------
                                                   $  143,950
                                                   ==========

6.    ACCRUED LIABILITIES:

      Accrued liabilities consists of the following:

               Accrued payroll and benefits        $   283,788
               Accrued interest                      1,385,552
               Accrued penalty related to
                 convertible debentures              1,096,225
               Other                                   236,545
                                                   -----------
                                                   $ 3,002,110
                                                   ===========

7. NOTES PAYABLE - RELATED PARTIES:

               Note   payable   to   a   former
               director in the original  amount
               of $50,000  bearing  interest at    $     5,000
               10%, due on demand

               Note   payable   to   a   former
               director in the original  amount
               of $125,000  bearing interest at
               8%  with  monthly   payments  of
               $10,000, due on demand                   95,000
                                                   -----------
                                                   $   100,000
                                                   ===========

      In connection  with the notes payable - related parties  discussed  above,
      the Company issued  100,000 shares of common stock to the related  parties
      and has  recognized  $175,000  in  interest  expense  for the  year  ended
      December 31, 1998 for the fair value of the shares issued.

<PAGE>F-17

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      During  1997,  the  Company  entered  into a  revolving  convertible  debt
      facility  with a  shareholder  which bore interest at 10% and provided for
      the  conversion  of  all  amounts  outstanding  into  common  stock  at  a
      conversion  price  equal to 80% of the market  price for a share of common
      stock at the time a draw is funded. In May 1998, the shareholder converted
      $4,181,421  of the  amount  outstanding  into  1,742,362  shares of common
      stock.  In June 1998,  the  shareholder  converted its  remaining  balance
      outstanding  of  $317,357  into  common  stock and  terminated  the credit
      facility.  As an inducement to make this  conversion,  the Company allowed
      the shareholder to convert the remaining  balance into 1,220,608 shares of
      common  stock based on the market price of the stock of $0.26 per share as
      opposed to the  conversion  price of $2.40 per  share.  During  1998,  the
      Company  recognized an additional expense of $260,645 for the value of the
      additional shares issued to induce the conversion.


7.    SECURED PROMISSORY NOTES:

      During 1999, the Company entered into promissory note agreements  totaling
      $4,200,000  that are due on demand and accrue  interest  at 13% per annum.
      The notes are secured by  substantially  all of the Company's  assets.  As
      part of the issuance of the notes,  the Company  issued to the note holder
      five-year  warrants to purchase 2,300,000 shares of common stock at prices
      ranging from $0.25 to $0.65.  In addition,  the Company  issued  five-year
      warrants to purchase 840,000 shares of common stock at prices ranging from
      $0.16 to $0.84 per share as a finder's fee.

      The Company  recognized  interest  expense of  $1,004,163,  related to the
      promissory  notes,  during  the  year  ended  December  31,  1999  that is
      attributable to the fair value of the warrants issued.


8.    LONG-TERM DEBT:

      In  December  1997,  the  Company  issued  $5,000,000  of  7%  convertible
      debentures due in December 2002. The debentures  accrue interest at 7% per
      annum and are  convertible  into  shares of common  stock at a  conversion
      price  equal  to the  lesser  of  $3.47  per  share or 80% of the five day
      average  market  price  per  share  prior  to  conversion.  As part of the
      issuance of the  debentures,  the Company issued to the debenture  holders
      five year warrants to purchase 250,000 shares of common stock at $3.00 per
      share and 250,000 shares of common stock at $4.00 per share.  In addition,
      the Company  issued a  five-year  warrant to  purchase  250,000  shares of
      common stock at $2.43 per share as a finder's fee.

      In June 1998, the Company issued  $2,000,000 of 7% convertible  debentures
      due in June 2003. The debentures  accrue  interest at 7% per annum and are
      convertible  into shares of common  stock at a  conversion  price equal to
      $0.35 per share.  As part of the issuance of the  debentures,  the Company
      issued to the debenture  holders  five-year  warrants to purchase  500,000
      shares of common stock at $0.50 per share. In addition, the Company issued
      five-year warrants to purchase 400,000 shares of common stock at $0.34 per
      share as a finders fee.

<PAGE>F-18

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      In August 1998, the Company issued $1,500,000 of 7% convertible debentures
      due in August 2003. The debentures accrue interest at 7% per annum and are
      convertible into shares of common stock at a conversion price equal to the
      lesser of $0.26 per share or 75% of the five day average  market price per
      share prior to conversion. As part of the issuance of the debentures,  the
      Company  issued to the  debenture  holders five year  warrants to purchase
      75,000  shares  of common  stock at $0.50 per  share,  and  cancelled  the
      500,000  warrants  issued with the December 1997 debentures and issued new
      five year warrants to purchase 500,000 shares of common stock at $0.50 per
      share.  In addition,  the Company  issued  five-year  warrants to purchase
      300,000 shares of common stock at $0.21 per share as a finders fee.

      In December 1998, the Company issued $500,000 of 7% convertible debentures
      due in December 2003. The debentures  accrue  interest at 7% per annum and
      are convertible into shares of common stock at a conversion price equal to
      the lesser of $0.18 per share or 75% of the five day average  market price
      per share prior to conversion.  As part of the issuance of the debentures,
      the Company issued to the debenture holders five-year warrants to purchase
      125,000  shares  of common  stock at $0.50 per  share.  In  addition,  the
      Company  issued  five-year  warrants to purchase  100,000 shares of common
      stock at $0.14 per share as a finder's fee.

      In January 1999, the Company issued $750,000 of 7% convertible  debentures
      due in January 2004.  The debentures  accrue  interest at 7% per annum and
      are convertible into shares of common stock at a conversion price equal to
      the  lesser of  $0.1275  per share or 75% of the five day  average  market
      price  per  share  prior to  conversion.  As part of the  issuance  of the
      debentures, the Company issued to the debenture holders five-year warrants
      to  purchase  187,500  shares  of  common  stock at $0.50  per  share.  In
      addition, the Company issued five-year warrants to purchase 150,000 shares
      of common stock at $0.11 per share as a finder's fee.

      All of the debentures are secured by all of the assets of the Company. The
      Company is in violation of certain  covenants  related to the  debentures;
      consequently  all of the debentures have been classified as current in the
      accompanying  financial statements.  Pursuant to the convertible debenture
      agreements, the Company has accrued a penalty of 1 1/2% of the outstanding
      balance of the  debentures  totaling  $1,096,225 at December 31, 1999 as a
      penalty for the violation of certain of the covenants.

      The  unamortized  debt  issuance  costs  and  discount  in the  amount  of
      $2,345,866  associated with the December 1997 debentures were  written-off
      during the year ended December 31, 1998.  The Company has also  recognized
      additional  interest  expense of $94,239 and  $1,093,879  during the years
      ended December 31, 1999 and 1998,  respectively,  which is attributable to
      the fair value of the  warrants  and the  beneficial  conversion  features
      associated with the debentures issued.

      In the year ended  December  31, 1998,  the holders of the  December  1997
      debentures converted $210,000 in principal and $10,597 in accrued interest
      into  1,459,539  shares of common stock.  During 1999,  the holders of the
      December 1997  debentures  converted  $100,000 in principal and $14,292 in
      accrued interest into 602,623 shares of common stock.


<PAGE>F-19

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.      STOCKHOLDERS' EQUITY:

        In 1999, the Board of Directors approved an amendment to increase in the
        authorized  number of common stock to 150,000,000  shares at a par value
        of $0.001 per share.

        In May 1998,  the Company  borrowed  $217,500  that was  converted  into
        836,538 shares of common stock. In connection  with this borrowing,  the
        Company issued 25,000 shares of common stock and  recognized  $43,750 in
        interest expense for the year ended December 31, 1998 for the fair value
        of the 25,000 shares issued.


10.     STOCK OPTION PLANS:

        In  October   1996,   the  Company   adopted  the  1996   Incentive  and
        Non-statutory  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 for incentive
        options  granted to employees who own 10% or more of the Company's stock
        is at least 110% of market value at date of grant.

        In January 1999, the Company adopted the 1999 Non-statutory Stock Option
        Plan (the 1999 plan) covering 5,000,000 shares. The 1999 plan is a "dual
        plan" which provides for the grant of both  incentive  stock options and
        non-qualified  stock  options and was designed to attract and retain the
        services of employees,  officers,  directors, and consultants. 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 plan
        will be  administered by a compensation  committee  consisting of two or
        more  disinterested  non-employee  board  members  whom will  decide the
        vesting period of the options, if any, and no option will be exercisable
        after ten years  from the date  granted.  Prices for  incentive  options
        granted to employees  who own 10% or more of the  Company's  stock is at
        least 110% of market value at date of grant.

        During 1998, the Company granted options to purchase 1,966,400 shares of
        common stock to employees  under the 1996 plan. The options were granted
        with exercise prices equal to market on the date of grant and range from
        $0.26 to $2.50 per share. The options expire in 2003 and vest over three
        years.

        In March 1998, the Company granted  non-plan  options to purchase 50,000
        shares of common stock to an employee.  The options were granted with an
        exercise  price of $1.75  per  share.  One  third  of the  options  vest
        immediately and the remainder vest over two years.  Compensation expense
        of  $8,854  was  recognized  in the year  ended  December  31,  1998 for
        services provided.

<PAGE>F-20

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



        In May 1998, the Company granted options to purchase 1,000,000 shares of
        common stock at an exercise price of $1.75 per share in connection  with
        the hiring of a new president.  In December 1998, the Company  settled a
        claim  with this  individual  in which  500,000  of these  options  were
        forfeited.

        In October  1998,  the  Company  granted  non-plan  options to  purchase
        300,000  shares of common stock to a director.  The options were granted
        with an exercise  price equal to market on the date of grant  ($0.16 per
        share) and vest immediately.

        In January  1999,  the  Company  granted  non-plan  options to  purchase
        300,000  shares of common stock to an officer.  The options were granted
        with an exercise  price equal to market on the date of grant  ($0.12 per
        share) and vest immediately.

        During 1999, the Company granted  options to purchase  962,400 shares of
        common  stock to  employees  under the 1996 and 1999 plans.  The options
        were granted with  exercise  prices equal to market on the date of grant
        and range from $0.17 to $0.51 per share.
        The options expire in 2004 and vest over three years.

        The following  table sets forth  activity for all options  granted under
        the 1996 and 1999 Plans:

                                                                 AVERAGE
                                                 NUMBER OF    EXERCISE PRICE
                                                  SHARES        PER SHARE
                                                ----------       -------
              BALANCE, December 31, 1997         2,808,323       $  2.63

              Granted                            2,419,833           .32
              Forfeited                         (2,558,323)         2.57
              Exercised                                  -             -
                                                ----------       -------

              BALANCE, December 31, 1998         2,669,833       $   .59
                                                ==========       =======

              Granted                              962,400           .22
              Forfeited                            (89,683)          .25
              Canceled/Expired                    (271,000)          .26
              Exercised                             (6,000)          .26
                                                ----------       -------

              BALANCE, December 31, 1999         3,265,550       $   .52
                                                ==========       =======

        At  December  31,  1999  options  to  purchase   1,007,025  shares  were
        exercisable  at  prices  ranging  from  $0.17 to $2.59  per  share.  The
        remaining  2,258,525 options  outstanding  become  exercisable at prices
        ranging from $0.17 to $1.75 per share through June 2003.

<PAGE>F-21

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        If not previously  exercised the outstanding plan options will expire as
follows:

                                                   AVERAGE
                                   NUMBER OF    EXERCISE PRICE
     YEAR ENDING DECEMBER 31,       SHARES         PER SHARE
     ------------------------    ------------   --------------

              2001                  159,000        $  .26
              2002                  426,600          1.58
              2003                1,773,550           .43
              2004                  906,400           .24
                                  ---------        ------
                                  3,265,550        $  .52
                                  =========        ======


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

                                                               WEIGHTED
                                               NUMBER OF       AVERAGE
                                                SHARES      EXERCISE PRICE
                                              ----------    --------------

         BALANCE, December 31, 1997            4,750,493       $   2.86

         Options granted to employees          1,050,000           1.75
         Options granted to directors          1,800,000            .24
         Expired/cancelled options            (4,366,665)          2.78
                                              ----------       --------

         BALANCE, December 31, 1998            3,233,828       $   1.24

         Options granted to employees            300,000            .12
         Expired/cancelled options              (771,326)          2.92
                                              ----------       --------

         BALANCE, December 31, 1999            2,762,502       $   1.24
                                              ==========       ========

        At  December  31,  1999  options  to  purchase   2,412,502  shares  were
        exercisable  at  prices  ranging  from  $0.12 to $3.37  per  share.  The
        remaining 350,000 options  outstanding  become exercisable at a price of
        $1.75 per share through 2001.

        If not previously exercised or forfeited, all options will expire during
        the years ended December 31, 2000 through 2008.

<PAGE>F-22

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        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 1999 and 1998  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:

                                                  1999                1998

            Net loss                          $  (7,713,626)     $ (21,539,607)
                                              =============      =============
            Basic and diluted net loss per
            common share                      $       (0.31)     $       (0.94)
                                              =============      =============

        The fair value of each option was  estimated  on the date of grant using
        the Black-Scholes  option-pricing model using the following assumptions:
        risk-free  interest rates ranging from 4.70% to 5.84%,  expected life of
        three years;  dividend yield of 0%; and expected volatility ranging from
        136.7% to 150.9%. The weighted-average  fair value of the options on the
        grant   date  for  1999  and  1998  was  $0.20  and  $1.41  per   share,
        respectively.


11.     COMMITMENTS AND CONTINGENCIES:

        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, during 1998, the Company issued 100,000 shares of common stock
        to a third party as a finder's  fee upon  closing of the  agreement  and
        recognized  $26,000 in expense for  services  provided.  During the year
        ended December 31, 1998, the Company entered into an agreement to obtain
        a release from all  obligations  under the joint venture  agreement.  As
        part of the agreement,  in March 1999, the Company paid $53,000 for past
        consulting  fees,  canceled  the 100,000  shares  previously  issued for
        services in 1998,  and issued 200,000 new shares at a price of $0.15 per
        common share.

        Leases - The Company  leases office space in  California.  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:

                        YEAR ENDING DECEMBER 31,                 AMOUNT
                        ------------------------             ------------
                                  2000                            345,600
                                  2001                            345,600
                                  2002                            345,600
                                                             ------------
                                                             $  1,036,800
                                                             ============

        Rent expense was $410,306 and $427,826 for 1999 and 1998, respectively.

<PAGE>F-23

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Litigation  - 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 the  private
        placements  of the Jettson  Realty  Development  stock.  The suit claims
        fraud,   breach  of  fiduciary  duty  and  negligence   surrounding  the
        acquisition.  Management  intends to pursue this lawsuit  vigorously and
        believes that no material  adverse  impact will arise as a result of the
        litigation.  During  1997,  the Company has  entered  into a  settlement
        agreement  with the  Company's  former  president  related  to this suit
        whereby  the  Company's  president  agreed to return  500,000  shares of
        common stock. During 1998, the Company obtained defaults against certain
        of the  defendants  whereby the Company  was awarded  approximately  $25
        million in  damages,  allowed to cancel  1,010,329  shares of its common
        stock  previously  issued to the  defendants,  and  retain  $250,959  of
        contested  proceeds from a private  placement.  The Company has given no
        accounting recognition to the $25 million in damages.

        During 1999, the Company entered into a settlement  agreement and mutual
        release with a party named in the November 10, 1997 lawsuit for proceeds
        in favor of the  Company  equaling  $80,000.  In  addition,  the Company
        entered  into  another  settlement  agreement  with a party named in the
        November 10, 1997 lawsuit for proceeds in favor of the Company  totaling
        $70,000 to be paid in two payments of $20,000 on September  15, 1999 and
        October 15, 1999 and three annual  payments of $10,000 due September 15,
        2000 through 2002.

        In  connection  with the  November  10,  1997  lawsuit,  the Company has
        entered into a settlement agreement with the transfer agent named in the
        lawsuit in  November  1999.  In exchange  for the mutual  release of all
        claims, the transfer agent agreed to a judgement in favor of the Company
        for  $750,000 to be paid in one payment of $350,000 on December 15, 1999
        and eight annual payments of $50,000 due December 15, 2000 through 2007.

        In  August  1998,  the  Staff  of the  Division  of  Enforcement  of the
        Securities  and  Exchange   Commission  advised  the  Company  that  the
        Commission  had issued a formal  order for  private  investigation.  The
        investigation  involves allegations that, since January 1, 1995, certain
        of the  Company's  present  or former  officers,  directors,  employees,
        business consultants,  investment bankers,  and/or certain other persons
        or  entities  associated  with the Company  may have  employed  devices,
        schemes,  or  artifices  to  defraud,  by,  among other  things,  making
        undisclosed payments to certain registered  representatives  relating to
        sales of the Company's  securities,  and by  manipulating  the Company's
        stock price. Discovery has been initiated.  Management believes based on
        current  information,  that there will be no material  adverse impact on
        the Company as a result of this investigation.

<PAGE>F-24

                        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,
                               -----------------------
                                 1999           1998          1999
                               --------       --------      --------
         Current:
         Federal               $      -       $      -      $      -
         State                    1,600          1,600         8,000
                               --------       --------      --------
                                  1,600          1,600         8,000
                               --------       --------      --------

         Deferred:
         Federal                      -              -             -
         State                        -              -             -
                               --------       --------      --------

         Income tax expense    $  1,600       $  1,600      $  8,000
                               ========       ========      ========

        Deferred income tax assets  (liabilities) are comprised of the following
        at December 31, 1999:

              Current deferred income tax assets (liabilities):

               Provision for inventory obsolescence                $     16,004
               Provision for doubtful accounts                            7,966
               Accrued vacation                                          26,434
               Accrued wages                                             86,598
               Accrued interest for convertible debt                    436,626
               Stock based compensation                               1,776,050
               Other                                                        816
                                                                   ------------
                                                                      2,350,494
               Valuation allowance                                   (2,350,494)
                                                                   ------------
              Net current deferred tax asset                       $          -
                                                                   ============

              Long-term deferred tax assets (liabilities):
              Depreciation/amortization                            $  2,283,473
              Net operating loss carryforward                        10,155,910
              Research and development credit                         1,126,419
                                                                   ------------
                                                                     13,565,802
              Valuation allowance                                   (13,565,802)
                                                                   ------------
              Net long-term deferred tax asset                     $          -
                                                                   ============
<PAGE>F-25

                        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 YEAR ENDED    (INCEPTION) TO
                                               DECEMBER 31,        DECEMBER 31,
                                         ---------------------   --------------
                                           1999          1998         1999
                                         -------        ------       ------
         Total expense (benefit)
         computed by applying the
         U.S. statutory rate              (34.0%)       (34.0%)      (34.0%)
         Nondeductible license costs          -             -          1.0
         Nondeductible goodwill               -           5.5          2.6
         Non deductible interest            1.0          13.9          7.9
         Other                               .1            .4           .2
         Change in  beginning  balance
         of valuation allowance            32.9          14.2         22.3
                                          -----         -----        -----
                                              -%            -%           -%
                                          =====         =====        =====

        As of December 31, 1999,  the Company has available  net operating  loss
        carryforwards  for income taxes of $23,634,607 for federal  purposes and
        $23,983,524  for  California  purposes  that begin to expire in the year
        2011 and 2001,  respectively.  The Company has  $760,132 and $366,287 of
        credit  carryforwards  for federal  and  California,  respectively.  The
        benefit of the net operating loss and credit carryovers 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.     PROFIT SHARING PLAN:

        During 1998, the Company  established the InnovaCom,  Inc. 401(K) Profit
        Sharing Plan (the Plan)  covering  substantially  all of its  employees.
        Management determines, at its discretion,  the amount of any matching or
        other  contributions to the Plan. The Company made no such contributions
        to the Plan during the year ended December 31, 1999 and 1998.

14.     SUBSEQUENT EVENTS:

        Subsequent  to December 31, 1999,  the Company  entered into  promissory
        note  agreements  in the amount of  $625,000  that are due on demand and
        accrue  interest at 13% per annum. As part of the issuance of the notes,
        the  Company  issued to the note holder  five-year  warrants to purchase
        487,500  shares  of  common  stock.  In  addition,  the  Company  issued
        five-year  warrants  to  purchase  106,250  shares of common  stock as a
        finder's fee.

        Subsequent to December 31, 1999,  in  connection  with the December 1997
        convertible debenture, the note holder converted $4,690,000 in principal
        and $723,063 of accrued interest into 8,687,958 shares of common stock.

        Subsequent to December 31, 1999, the Company issued  1,846,933 shares of
        common stock pursuant to the exercise of warrants and stock options.

<PAGE>F-26

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        Subsequent to December 31, 1999, the Company granted non-plan options to
        purchase  300,000  shares  of  common  stock  at $0.26  per  share to an
        officer. The options expire in 2005 and vest immediately.