<PAGE>


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

                                   FORM 10-KSB
                                  Annual Report

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
                     For the fiscal year ended June 30, 1998
                         Commission File Number: 0-17493


                                OMNI U.S.A., INC.
                                -----------------
                              (Name of Registrant)

                  Nevada                               88-0237223
                  ------                               ----------
         (State of Incorporation)          (IRS Employer Identification No.)

                      7502 Mesa Road, Houston, Texas 77028
                      ------------------------------------
                    (Address of principal executive offices)


                    Issuer's telephone number: (713) 635-6331
           Securities registered pursuant to Section 12(g) of the Act:


                         Common Stock $.004995 par value
                         -------------------------------


         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(g) of the Securities Exchange Act of 1934 during the past 12
months, and (2) has been subject to such filing requirements for the past 90
days.

                                  Yes X No ___


         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulations S-B contained in this form, and no disclosure will 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. [ ]

         Issuer's revenues for its most recent fiscal year were $16,807,349.

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of September 1, 1998 was approximately $7,486,571 based on
quoted sales on NASDAQ on such date.

         The number of shares of the Registrant's common stock outstanding as of
September 1, 1998 was 3,523,092.


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                                     PART I

Item 1. Description of Business

         Overview

         History of the Company. The Company, through its wholly-owned
subsidiary Omni U.S.A., Inc., a Washington corporation ("Omni-Washington") and
Omni-Washington's wholly-owned subsidiary, Omni Resources, Ltd., a Hong Kong
company ("Omni Resources"), through its wholly-owned manufacturing facility,
"Shanghai Omni Gear," designs, develops, manufactures and distributes power
transmissions (also known as "gearboxes" or "enclosed geardrives") for use in
agricultural, industrial, "off-highway" and construction equipment. The Company,
through another wholly-owned subsidiary, Butler Products Corporation, designs,
develops, manufactures and distributes trailer and implement jacks and couplers,
which include light and heavy-duty jacks and couplers used in a variety of
trailers. The Company's products are distributed to original equipment
manufacturers and distributors in North America and in several foreign countries
including Argentina, Australia, Brazil, Canada, France, Mexico, New Zealand,
South Africa, Thailand and Venezuela. The Company began procuring the
manufacture of its products by Chinese manufacturers in China in 1980, and since
1986 substantially all of its geardrives have been manufactured in China; 30% of
its trailer and implement products are manufactured in China and approximately
70% of its trailer and implement products are manufactured in the United States.

         Omni-Washington, the Company's primary operating subsidiary, was
incorporated in 1961 and in 1974, began distributing power transmissions in the
U.S., and later established Omni Resources to distribute its products in certain
foreign markets. In 1988, Omni-Washington acquired the outstanding minority
ownership interest in Omni Resources and thereafter operated it as a wholly
owned subsidiary.

         Effective July 1, 1988, Ed Daniel, the sole shareholder, exchanged all
of the outstanding stock of Omni-Washington for 6,650,000 shares of voting
Common Stock of Triste Corporation, a Nevada corporation incorporated in 1988
("Triste"), giving him a 42.5 % interest in Triste. Triste thereafter changed
its name to Omni U.S.A., Inc. ("Omni" or the "Company") and continued and
expanded the business historically conducted by Omni-Washington. Omni's Common
Stock began trading on the over-the-counter market on November 1, 1988, and
since August 13, 1991, Omni's Common Stock has been listed on the NASDAQ
SmallCap Market.

         In December 1994, Omni Resources formed a "Cooperative Joint Venture
Limited Liability Company" to be known as "Shanghai Omni Gear Co., Ltd."
("Shanghai Omni Gear" or the "Joint Venture") with a Chinese manufacturing
company that owns a multi-building manufacturing complex in Shanghai for the
purpose of the manufacture and sale of planetary and industrial geardrives.

         Shanghai Omni Gear was formed in accordance with the Law of the
People's Republic of China on Co-operative Joint Ventures, and its activities
are governed by all laws, decrees, rules and regulations of the People's
Republic of China, including, but not limited to, labor and employment, tax,
foreign exchange and insurance laws and regulations. Shanghai Omni Gear is
obligated to contribute five percent of its after-tax profits per year, up to a
maximum of 50% of the registered capital of the Company (or $1,312,500) to a
reserve enterprise development and welfare fund for staff and workers. Shanghai
Omni Gear is entitled to certain preferential tax treatments and is eligible for
exemption, as determined by the Chinese Government, from custom duties,
value-added tax and other levies.

         The Chinese manufacturer contributed to the Joint Venture the use of
land and factory space in its manufacturing complex under a 30-year facilities
lease; Omni Resources agreed to contribute an aggregate of $2,625,000 in working
capital, leasehold improvements, machinery and other assets required to
establish a fully operational manufacturing facility, and, as of the date
hereof, has contributed approximately $3,494,000 to the Joint Venture. Omni
Resources controls Shanghai Omni Gear, as it appoints a majority of Shanghai
Omni Gear's Board of Directors and also appoints the General Manager of the
Joint Venture. The Chinese manufacturer has a single representative on Shanghai
Omni Gear's Board of Directors and does not participate in the profits of
Shanghai Omni Gear; its only return from Shanghai Omni Gear being a rental fee
from the facilities lease, which is approximately $20,000 per month commencing
January 1996. 

         The Joint Venture is conducted as a "limited liability company,"
the Articles of Association of which provide that each joint venturer's
liability for the obligations of the Joint Venture is limited to such joint
venturer's investment. The Joint Venture has a thirty-year term, which can be 
extended for an additional ten years by consent of the joint venturers. The 
Joint Venture may be liquidated in the event of either party's failure to 
perform its obligations under the Joint Venture or organizational documents.


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         In October 1998, the Joint Venture will move to a new facility in
Shanghai, China containing approximately 75,000 square feet pursuant to a
30-year lease, with lease payments of approximately $10,000 per month.

         Shanghai Omni Gear manufactures the Company's planetary and helical
geardrive product lines. The facility is being used for assembly of planetary
drives, helical geardrives and inspection of drives produced in other Chinese
manufacturing facilities. There are approximately one hundred-thirty persons
employed by the Joint Venture. Additional employees will be added as the
manufacturing facility is further developed. Highly skilled labor is abundant in
Shanghai, and a core staff, including American and Chinese engineers, provides
additional planning and development of the facility. Shanghai Omni Gear will
continue to emphasize production of planetary and helical drive products.

         The Company has been funding the Joint Venture with internally
generated funds, financing of equipment, and is considering other alternatives
to finance further investment in the Joint Venture and development of the
facility.

         On October 1, 1996, the Company acquired 100% of the common stock of
Butler Products Corporation ("BPC"). Consideration paid to the shareholders of
BPC included $225,000 in cash, $500,000 in junior subordinated notes due in
2003, and 150,000 shares of Omni Common Stock. Located in Butler, Kentucky, BPC
is a long-standing manufacturer of jack and trailer products typically sold to
manufacturers and distributors of heavy duty trailers. Senior management of BPC
remains with the Company. The addition of BPC provides the Company with a wider
range of products, will broaden Omni's customer base and increase sales of both
product lines, and will provide Omni with an opportunity to participate in
additional markets.

         After July 1, 1997, all towing products designed, developed,
manufactured and sold by the Company are marketed under the "Butler" name and
associated trademarks; all power transmission products designed, developed,
manufactured and sold by the Company are marketed under the "Omni Gear" name and
associated trademarks.

         Since the Company began selling power transmission products in 1974 it
has achieved a number of competitive advantages including:

         (i)      the establishment of very strong customer relationships and a
                  reputation for quality products at a good value;
         (ii)     recognition as the low cost producer in the industry resulting
                  from the Company's extensive Chinese manufacturing capability
                  with Chinese contract manufacturers and now with its own
                  manufacturing facility in Shanghai;
         (iii)    substantial market penetration in the agricultural implement
                  market with right-angle gear boxes;
         (iv)     a reputation for responsive service;
         (v)      recognition for design innovation in response to customers
                  needs; and
         (vi)     the accumulation of a substantial body of technical and
                  industry specific knowledge.

         The Company intends to build on this base of strategic advantages and
achieve compounded annual growth in both sales and profits. To achieve this
objective the Company has developed a growth strategy encompassing the
following:

         (i)      Compound annual sales and income growth of 20%-30% per year;

         (ii)     the acquisition of companies, in a consolidation strategy,
                  which produce similar products for markets which the Company
                  has targeted, or which produce products which are
                  complimentary to, or extensions of, existing products;
         (iii)    expand market share in right-angle gearbox products in foreign
                  markets via acquisition synergy and all markets by continuing
                  emphasis on low cost, quality products manufactured in China;
         (iv)     expand market share in planetary and industrial geardrives
                  through the marketing arrangement with the Braden Winch
                  division of PACCAR, Inc.;
         (v)      expand new and/or related trailer and implement components for
                  sale into existing markets as well as an increased emphasis on
                  penetration of new markets;
         (vi)     continued improvement in operating efficiencies in Shanghai
                  Omni Gear; and 
         (vii)    new product innovation and development.




                                       2
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         Products

         Omni Gear

         Power Transmissions. Power transmissions (also known as "enclosed
geardrives" or "gearboxes") are configurations of gears enclosed in a housing or
casing that transfer or transmit power from one point to another. Omni currently
distributes a standard product line of over 300,000 gearbox configurations. As a
percentage of revenues, Omni's power transmissions are its most significant
product, representing 78% and 81% of Omni's revenues in fiscal years 1998 and
1997, respectively.

         Although Omni distributes power transmissions for numerous applications
and purposes, the majority of its sales revenues are derived from sales of power
transmissions manufactured for three distinct applications:

         Agricultural equipment. Omni Gear distributes power transmissions for
         tractor powered implements with capacities ranging from 3 to 300
         horsepower for use in agricultural equipment, including post hole
         diggers, which are accessories attached to tractors used to dig post
         holes; rotary cutters, which are large, heavy duty "mowers" for use in
         agriculture and highway right-of-way and recreational area maintenance;
         grain augers, which deliver grain to the top of grain silos; and
         geardrives for fertilizer spreader and roto-tiller applications.
         Transmissions manufactured for such applications typically employ only
         a few gears and the Company therefore typically refers to power
         transmissions for right-angle geardrives.

         Irrigation systems. Omni Gear is a major supplier of "right-angle"
         gearboxes and helical geared center drive gearboxes for "center pivot"
         irrigation systems, which dispense water through a system of pipes and
         sprinklers mounted in wheel-driven towers revolving around a central
         well and irrigating fields of up to one mile in diameter. Omni Gear has
         recently introduced into the North American market irrigation gearheads
         which are large gearboxes (up to 400 horse power) used to drive
         underground turbine pumps.

         Construction, mobile off-highway, industrial and utility equipment. In
         1992, Omni Gear began distributing "planetary drive" power
         transmissions for use in construction, "mobile off-highway" (which
         includes a wide variety of equipment designed for use in rugged
         terrain, construction sites, or undeveloped areas), industrial, and
         utility equipment, such as four-wheel drive forklifts, skid steer
         loaders, telephone and power cable installation and replacement
         equipment, road rollers and dirt compactors. Planetary geardrives
         utilize more complex configurations of gears and are used in
         applications where transmission of high torque at low speeds is needed.
         Sales of planetary geardrives accounted for approximately 8% of the
         Company's sales in 1998. The Company believes that it can significantly
         expand its share of the market of planetary drives, and the Company's
         goal of increased production of these products is a primary factor in
         the Company's decision to establish a manufacturing facility in China.
         The Company has also entered into a distribution agreement for its
         planetary drives. See "Distribution, Sales and Marketing."

         Butler

         Towing Equipment. Butler manufactures a wide variety of jacks with
capacities ranging from 1,000 lbs. to 220,000 lbs. These jacks are used to level
and lift various trailers, agricultural implements and equipment for
recreational, utility, construction, agricultural and trucking industries as
well as for military applications. Butler's products include heavy duty
implement jacks, spring return jacks, stabilizing jacks and wheel chocks for
semi-trailers, a series of high density polyethylene lubricating plates for the
trucking industry and a complete line of bumper-pull and gooseneck couplers for
trailers with gross weights up to 30,000 lbs. As a percentage of revenues,
towing equipment represented 22% and 19%, respectively, of Omni's net sales in
fiscal years 1998 and 1997. The Company expects sales from both product lines to
equate as the Company continues its strategy is to develop its power
transmission and trailer and implement product lines.

         New Products. The Company continues to improve its products and expand
product application. Currently, the Company is designing gearboxes to expand its
agricultural, universal, irrigation, planetary, commercial turf and mobile
utility geardrive product lines. Specifically, the Company is testing a 300
horsepower irrigation gearhead pump drive, heavy-duty multiple spindle rotary
cutter drives, two speed orchard sprayer drives, snow blower drives, planetary
geardrives for hydraulic post hole diggers and high ratio universal geardrives
for various applications in the European and North American markets.



                                       3
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         Product Manufacturing

         Current Manufacturing Arrangements. Pending development of the Shanghai
Omni Gear facility into a full-service manufacturing and assembly facility, a
majority of the Company's geardrives are assembled incorporating raw materials
and components manufactured or produced in China by four manufacturers located
in metropolitan Shanghai and in Yantai, some of whom the Company has been doing
business with for over eighteen years. The Company believes that these
manufacturers can be relied upon to provide a reliable source of quality
manufactured goods for the foreseeable future. The Company and certain
manufacturers have from time to time memorialized their working relationships in
written memoranda. In the Company's experience, business relationships in China
are not established and are not governed by written agreements of contract, and
the Chinese legal system is not sufficiently developed to provide for the
enforcement of contracts or remedies to an aggrieved party in the event of a
breach of contract. Rather, business in China is conducted primarily upon the
basis of personal relationships among the parties, and commercial disputes are
resolved almost entirely through negotiation. The Company believes that it has
established solid working relationships with these factories, which
relationships are and will continue to be critical to the Company's ability to
obtain quality manufactured products on acceptable terms.

         The Company owns a 35,000 square foot facility in Butler, Kentucky
where all jacks from 10,000 lbs. to 220,000 lbs. capacities are manufactured.
With its convenient location near Cincinnati, Ohio, Butler purchases raw
materials and component parts from a variety of quality suppliers. The smaller
jacks are manufactured to Butler's quality specifications in China as are
certain components of its coupler line which are assembled at the Company's
Houston, Texas facility. With over forty years of providing a wide variety of
jacks, Butler has developed and will continue to focus on its reputation for
high quality products.

         Availability of Raw Materials and Components. Product components and
raw materials are currently purchased from numerous suppliers in China, selected
by the Company on the basis of available production capacity, reputation for
quality, and relative costs. The Company believes that there are sufficient
supplies of raw materials and components in China to meet its needs for the
foreseeable future, and the Company's suppliers have generally been able to meet
the Company's specifications and schedules. However, in the few instances in
which resources of sufficient quality have not been available in China, the
Company has generally encountered little difficulty in locating substitutes
outside China and importing them for production. Based on the number of
potential suppliers in China, the Company does not believe that the loss of any
supplier would have a material adverse effect on the Company.

         Manufacturing Capacity. The Company believes that Shanghai Omni Gear
and the other manufacturers it currently employs possess sufficient excess
production capacity to meet the Company's production requirements for the
foreseeable future. Based on the number of potential manufacturers in China and
excess capacity of manufacturers currently in use, the Company does not believe
that the loss of services of any single manufacturer would have a material
adverse effect on the Company.

         Distribution, Sales and Marketing

         Distribution. The Company distributes its products primarily to
distributors and original equipment manufacturers. Customers with limited
requirements, and most of the Company's North American customers, typically
purchase geardrive products from inventories; sales to these customers are made
by Omni-Washington through Omni Gear. Omni Resources, including Shanghai Omni
Gear, on the other hand, ships planetary geardrive products marketed under Omni
Gear directly from the factory to U.S. customers and foreign customers located
primarily in Australia and Japan; or to other customers that purchase entire
containers or production runs of Company products. Butler distributes its
products to after-market distributors, trailer OEMs, export brokers and
government agencies. Butler-employed sales personnel make virtually all sales.
All products are shipped either from Butler's manufacturing facility in Butler,
Kentucky or from Omni's facility in Houston, Texas. Sales are divided between
Omni Gear, Omni Resources, and Butler based on product line, location of the
customer and size of the orders, with the majority of the sales made in the
United States. Omni Gear's and Omni Resources' sales of geardrive products
increased by approximately 13% from 1997 to 1998, a total increase of
approximately $1,483,804. Butler's sales increased by approximately 29% from
1997 to 1998, a total increase of approximately $803,293. Net sales of Omni Gear
represents approximately 66% of consolidated net sales with Omni Resources and
Butler representing approximately 12% and 22% of the Company's net sales,
respectively.



                                       4
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         On October 3, 1994, the Company and its subsidiaries signed an
exclusive ten-year distribution agreement with the Braden Winch division of
PACCAR Inc. ("PACCAR"), an international manufacturer, marketer and distribution
of winches and planetary geardrives located in Broken Arrow, Oklahoma. Under the
terms of the Agreement, PACCAR will market and distribute throughout the world
(except Japan and China) planetary drives, parts and accessories designed and
manufactured by the Company. The drives and parts will be marketed by PACCAR
under the "Braden" trademark and trade name owned by PACCAR. Omni retained the
rights to sell its products in Japan and China, and also retained the right to
market its planetary drives under its own name to certain original equipment
manufacturers that it now services and to all current and potential pivot
irrigation makers or after-market resellers for products designed exclusively
for the irrigation market. While the agreement restricts the Company's ability
to develop its own markets for its products in the territory assigned to PACCAR,
it gives the Company immediate access to an established distribution network.

         Sales. Omni considers its overall customer base to be relatively
stable, with little significant variation from year to year. In 1998, the
Company's top ten customers represented 76% of the Company's net sales volume,
and its two largest customers, who are in different segments of the market,
represented 29% of net sales.

         The Company's sales are influenced by a variety of seasonal, economic
and climatic factors affecting its customers, many of which are difficult to
predict. Since a large proportion of the Company's products are utilized in the
agriculture industry, the Company's sales are lower during the fall and winter
months while farming and ranching activity is slower. Drought, flooding,
commodity prices, government subsidies and U.S. Agricultural Department policies
that affect farmers also impact demand for the Company's products. The Company
believes that the seasonality in its sales will become less pronounced as it
increases its market share for products that are incorporated into construction,
off-highway and utility equipment.

         The Company does not currently hold any government contracts, nor does
it sell more than an insignificant portion of its products to any governmental
agency. Accordingly, none of its contracts and subcontracts or purchase orders
are subject to governmental re-negotiation or cancellation.

         Marketing. Power transmissions are usually manufactured according to a
customer's specific applications and specification. Because incorporating a
power transmission manufactured by a different supplier may require changes in
product design or expensive retooling, customers often do not replace a current
supplier's product with a standard product of another manufacturer and therefore
do not frequently change suppliers of power transmissions. Accordingly, while
the Company regularly solicits additional sales from existing customers, a large
portion of its sales are made to existing customers with minimal marketing
effort.

         With respect to new business, the Company distributes product catalogs
to prospects, as well as soliciting sales directly from new customers. From time
to time, Omni has also acquired customer lists which it uses as a basis for
solicitation of new customers, as well as solicited sales by direct marketing
and trade shows. Sales to new customers are rarely an effort by a salesperson
alone and Omni engineers are often required to consult with prospective
customers, assist in identifying, designing and developing products that fulfill
a new customer's particular requirements. After a sale is made, Company
engineers continue to consult with the customer on product improvements and
modifications.

         Inventories, Firm Orders and Backlogs. The Company maintains
approximately $1,850,000 in inventory in its Houston, Texas facility,
approximately $300,000 at the Company's facility in Butler, Kentucky, and
approximately $550,000 at its facility in Shanghai, China. Additionally, the
Company has access to inventory located in bonded warehouses and vendor
facilities that approximate $1,500,000. The Company forecasts sales 12 months in
advance, and maintains a three month "rolling" production schedule, which
permits the Company to maintain sufficient inventories to meet projected
requirements of its customers yet avoids excessive investments in inventory.

         As of June 30, 1998, the amount of the Company's backlog believed to
represent firm orders was approximately $6,600,000. The Company determines the
amount of backlog by estimating purchases to be made by established customers
with "blanket" purchase orders with the Company. Average delivery time for the
Company's power transmission equipment varies depending upon the product. The
Company can often fill and ship an order from inventory in twenty-four hours;
orders for products that require minimal modification to an existing product can
often be shipped in a few days; and custom products requiring extensive design
and retooling for production can require a six month production schedule.



                                       5
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         Competition. The power transmission market is supplied by numerous
American and foreign manufacturers, ranging from conglomerates that distribute
broad product lines to customers around the world, to small manufacturers that
produce a limited number of products for specific applications to limited
markets. Accordingly, the "market" for power transmissions is difficult to
define. Omni therefore identifies its competition according to specific
products, rather than power transmissions in general.

         In sales of power transmissions for 1) rotary cutter, 2)
tractor-powered implement and 3) universal geardrive product lines, Omni Gear
competes with a number of U.S. and foreign companies, including Comer S.p.A. and
Bondioli & Pavesi, each of which are Italian companies, and Curtis Machine,
Inc., Superior Gearbox Mfg., Inc., Hub City and Durst (both divisions of
Regal-Beloit Corporation), and ITG, all of which are American companies,
together with geardrives which are self-produced by certain OEM's. Published
statistics of the size of the market are not readily available.

         In sales of the irrigation geardrive market, Omni Gear's most
significant competitors in the marketplace are Durst and Ohio Gear (both
divisions of Regal-Beloit Corporation), U.S. Motors (a division of Emerson
Electric), and Universal Motion Components, together with irrigation geardrives
which are self-produced by certain OEM's.

         Omni estimates that the North American market for planetary gearboxes
with torque capacities up to 120,000 lbs. that Omni Gear can currently supply is
approximately $50,000,000 in sales per year, and that this market is currently
dominated by Auburn Gear, Fairfield Manufacturing and Eskridge Manufacturing,
all American companies. Other companies which supply planetary geardrives in
these rated torque capacities as a part of their overall planetary products
include Gear Products (a division of Blount), DP Manufacturing, Tulsa Winch (a
division of Dover), and Von Ruden, all American companies, and Brevini, Lohmann
& Stolterfoht, Orisson & Koepfel, Regiana & Riddutori, SOM (a division of
Comer), Teijin Seiki, and Transmital Bonfiglioli, all foreign companies. The
Company's sales of planetary geardrives exceeded $1,300,000 in fiscal year 1998,
and Omni Gear believes that it can increase its share of this market in the
future since demand for construction and off-highway equipment continues to be
strong, and the Company, as a low-priced competitor, can usually capture a
portion of any new market that it enters.

         In sales of Butler light duty product lines, Butler competes with a
number of U.S. and foreign companies, including Atwood, Fulton and Hammerblow.
Butler's heavy-duty product lines compete with a number of U.S. and foreign
companies, including Kaiser Austin Westran, Eagle, Jost, Holland/Binkley, and
Sudisa.

         Omni's most important competitive advantage is its competitive pricing
afforded by inexpensive Chinese labor and manufacturing costs. Omni believes
that it is competitive in its industry with respect to warranty and return
matters, payment terms, and product quality.

         Other

         Employment. The Company currently employs approximately one
hundred-eighty persons worldwide; (i) one hundred-thirty by Shanghai Omni Gear,
(ii) twenty-seven at the Company's Houston, Texas facility, and (iii)
twenty-eight at the Company's facilities in Butler, Kentucky. Twenty-two of
Butler's twenty-eight employees are unionized. No other Company employees are
unionized or attempting to unionize. Management believes its relations with its
employees, union and non-union, are good.

         Research and Development. The Company currently employs five full-time
engineers who redesign products to meet new customer specification or
applications and to make refinements in product manufacturing processes and
product quality. The Company has not traditionally capitalized expenses related
to these activities, but has identified them as "research and development
expenses." Most significantly, the Company has expensed all research and
development costs related to the development of products for Paccar, and, with
the exception of cost related to capital equipment, the Company has expensed all
cost related to developing the Shanghai, China manufacturing facility. Research
and development expenses, unless otherwise specified, are reflected in the
Company's financial statements as part of operating expenses.



                                       6
<PAGE>

         Intangible Properties. The Company manufactures, advertises and sells
its products under numerous trademarks. Omni-Registered Trademark-, Omni 
USA-Registered Trademark-, Omni Gear-Registered Trademark-, and
Butler-TM- trademarks are the primary marks under which the Company's products
are sold. The Company also owns other trademarks under which gearbox products
are sold such as RC-20-Registered Trademark-, RC-30-Registered Trademark-,
RC-51-Registered Trademark-, RC-61-Registered Trademark-, RC-61T-Registered
Trademark-, RC-65T-Registered Trademark-, RC-71-Registered Trademark-,
RC-81-Registered Trademark-, RC-91-Registered Trademark-, RC-110-Registered
Trademark-, RCD-101-Registered Trademark-, PHD-26HD-Registered Trademark-,
PHD-50A-Registered Trademark-, PHD-75-Registered Trademark-, IR-15-Registered
Trademark-, IR-50-Registered Trademark-, OFD-50-Registered Trademark-,
RC-130-TM-, RC-25-TM-, Irri-Torq-TM-, Voyager-Registered Trademark-, Galaxy-TM-,
Enforcer-TM-, Enforcer II-TM-, Slick Disc-TM-, and Slider-Registered Trademark-.
Management believes that the Company's trademarks are well known in its markets,
are valuable and that their value is increasing with the development of its
business. The Company is not dependent on any one such trademark. The Company
vigorously protects its trademarks against infringement. The Company has
registered its trademarks in the appropriate jurisdictions.

         Environmental Matters. The Company is not a party to any legal or
regulatory proceedings seeking to impose liability or responsibility for any
environmental damages or violations of any environmental laws or regulations,
nor is it aware of any circumstances in which its activities in China or in the
United States have created any basis for any environmental liability or
responsibility for damages.

         Government Regulation. The Company is not subject to governmental
regulations other than those that typically apply to businesses importing
foreign manufactured goods into the United States and other countries, such as
customs laws and regulations. The Joint Venture is subject to certain Chinese
laws and regulations governing labor and employment, taxation, insurance,
foreign exchange, and other business matters, but the Company does not regard
these laws and regulations as significantly different in form or effect as those
that apply to the Company generally.

Item 2.  Description of Property

         The Company currently leases facilities located in Houston, Texas,
Japan and China, and owns a 35,000 square foot manufacturing facility in Butler,
Kentucky.

         The Houston facility is a combination office/warehouse facility of
approximately 40,000 square feet, which the Company uses as its headquarters and
as an assembly center, inventory warehouse, and warranty repair, quality
control, testing and inspection, and distribution center for products imported
and distributed for its own account. The Houston facility is leased from Daniel
Development Corporation, a limited partnership controlled by Mr. Ed Daniel on a
long-term lease expiring in 2002 at a rate of $8,000 per month. See, "Certain
Relationships and Related Transactions," below. On March 6, 1998, effective
April 1, 1998, the building was sold to Phenix Investment Company, a real estate
investment company located in Houston Texas. Phenix Investment Company is not
affiliated with Daniel Development Corporation, Edward L. Daniel or Joan J.
Daniel. The terms of the lease were not changed as a result of the sale.

         Pursuant to the Articles of Association and Joint Venture Agreement
establishing the Joint Venture, the Joint Venture leases buildings in a
manufacturing complex containing approximately 130,000 square feet pursuant to a
30-year lease, with lease payments of approximately $20,000 per month. The
existing space is sufficient for the activities currently conducted there, and
the Company may acquire additional space in the complex as it expands its
operations. In October 1998, the joint Venture will move to a new facility in
Shanghai, China containing approximately 75,000 square feet pursuant to a
30-year lease, with lease payments of approximately $10,000 per month.

         The Company believes that its facilities are adequate for its needs in
the foreseeable future. In the event that any of the facilities became
unavailable for use by the Company for any reason, the Company believes that
alternative facilities are available on terms and conditions acceptable to the
Company.

Item 3.  Legal Proceedings

         The Company is subject to various claims, including product liability
claims, arising in the ordinary course of business and, from time to time, is a
party to various legal proceedings which constitute ordinary routine litigation
incidental to the Company's business. In the opinion of management, all such
matters are either adequately covered by insurance or are not expected to have a
material adverse effect on the Company.



                                       7
<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders

         No matters were submitted to a vote of the security holders of the
Company during the quarter ended June 30, 1998.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         The Company's Common Stock trades on the NASDAQ Small-Cap Market tier
of the NASDAQ Stock Market under the symbol "OUSA".

         The following table sets forth in the periods indicated the range of
low and high sales prices per share of the Company's Common Stock traded as
reported by the NASDAQ Stock Market:

<TABLE>
<CAPTION>
                  Quarter Ending         Low           High
                  --------------         ---           ----
<S>               <C>                    <C>           <C> 
                  09/30/96               1.63          3.13

                  12/31/96               1.00          2.15

                  03/31/97               0.88          1.44

                  06/30/97               0.75          1.44

                  09/30/97               1.25          2.00

                  12/31/97               0.75          1.81

                  03/31/98               0.75          1.37

                  06/30/98               1.88          3.50
</TABLE>

         As of September 1, 1998, the closing price of the Company's Common
Stock was $2.125 per share. As of June 30, 1998, there were approximately 665
holders of record of the Company's Common Stock.

         The Company has never paid cash dividends on its Common Stock. As a
result of net losses in prior fiscal years, the Company has a cumulative deficit
of $2,999,713 as of June 30, 1998; accordingly, the Company may be prohibited by
legal restrictions on capital from paying cash dividends for the foreseeable
future. While any determination as to the payment of cash dividends will depend
upon the Company's earnings, general financial condition, capital needs, and
other factors, the Company presently intends to retain any earnings to finance
working capital needs and expand its business, and therefore does not expect to
pay cash dividends in the foreseeable future.

Item 6.  Management's Discussion and Analysis or Plan of Operation

         Liquidity and Capital Resources. Omni's liquidity and capital position
as of June 30, 1998 remained consistent with the prior fiscal year ended June
30, 1997, as a result of management's desire to maintain or improve liquidity
ratios.

          Working capital increased by $298,445 during the fiscal year ended
June 30, 1998 to $731,607 as of June 30, 1998 and current assets increased
$1,092,110 from the prior year and current liabilities increased $793,665 as a
result of increased sales and profits in fiscal 1998. Accounts receivable
increased $525,037 to a balance of $2,585,473 and inventory increased $680,997
or 30% to a balance of $2,924,748 from the year ended June 30, 1997.



                                       8
<PAGE>

         The Company utilizes a $2,000,000 working capital facility that had an
outstanding balance of $1,965,186 at June 30, 1998. The Company's cash balance
of $278,297 at the end of June 30, 1998, was $1,459 lower than the end of June
30, 1997. Given its current working capital requirements, known obligations, and
assuming current levels of operations, the Company believes that it has
sufficient capital resources to meet its working capital requirements for the
foreseeable future.

         Results of Operations

         Fiscal year ended June 30, 1998, compared to fiscal year ended June 30,
1997. Omni's net sales increased 14% to approximately $16.8 million, compared to
$14.5 million for fiscal year 1997. Sales increases of $1.6 million are the
result of internal growth and new product development. For the year ended June
30 1998, Omni had operating income of $482,657 compared to $345,638 for the
fiscal year ended June 30, 1997. Operating income improved as a result of the
increase in sales and the decrease in selling, general and administrative
expenses as a percentage of sales. The Company earned net income of $225,492 or
$0.06 per share for the fiscal year ended June 30, 1998, compared to a loss of
$175,868 or $0.14 loss per share for the fiscal year ended June 30, 1997 after
one-time charges and a $73,464 provision for interest (dividends) on equity
contract notes and $33,434 dividends on preferred stock. For detailed
information on the one-time charges related to Edward L. Daniel, see "Certain
Relationships and Related Transactions," below.

         Net sales increases for the year were driven by stronger demand for the
Company's rotary cutter, tractor powered implement, irrigation geardrives and
new product introduction. Sales of the Company's geardrives represented 78% of
total sales while the towing products made up 22% of total sales. Gross margin
increased to 25.4% in fiscal year 1998 from 24.5% when compared with fiscal
1997, caused primarily by the addition of higher margin items to the product
mix. Management continues to focus on improving margins through more aggressive
manufacturing policies.

         Selling, general and administrative expenses increased by $560,441 or
17%, from 1997 to 1998. Selling, general, and administrative expenses 
represented 22.5% of net sales in 1998 compared to 22.2% of net sales in 1997.

         Interest expense increased to $316,443 in 1998 from $256,425 in 1997,
attributable to additional debt carried to meet increased sales.

         Fiscal year ended June 30, 1997, compared to fiscal year ended June 30,
1996. Omni's revenues increased 39% to approximately $14.5 million, compared to
$10.4 million for fiscal year 1996. Sales increases of $2.1 million are the
result of internal growth and new product development and $2.0 million resulted
from the BPC acquisition. For the year ended June 30 1997, Omni had operating
income of $345,638 compared to a loss of $105,272 for the fiscal year ended June
30, 1996. Operating income improved as a result of the increase in sales and the
decrease in selling, general and administrative expenses as a percentage of
sales. The Company recorded $332,367 in one-time charges against current year
results, related substantially to: (1) write-off of prepaid royalties ($86,050);
and (2) a services termination agreement between the Company and its former
chairman Edward L. Daniel and his affiliates effective June 30, 1997 ($246,317).
As a result, the Company recorded a consolidated net loss of $175,868 or $0.14
loss per share for the fiscal year ended June 30, 1997 after $73,464 provision
for interest (dividends) on equity contract notes and $33,434 dividends on
preferred stock. For detailed information on the one-time charges related to
Edward L. Daniel, see "Certain Relationships and Related Transactions," below.

         Net sales increases for the year was driven by stronger demand for the
Company's rotary cutter, tractor powered implement and irrigation geardrives.
Sales of the Company's geardrives represented 80% of total sales while the
towing products made up 20% of total sales. Gross margin decreased 3% when
compared with fiscal 1996, primarily caused by the addition of lower margin
items to the product mix and sales of slow moving inventory at reduced margins.

         Selling, general and administrative expenses increased by $272,340 or
9%, from 1996 to 1997. Selling, general, and administrative expenses
represented 22% of net sales in 1997 compared to 28% of net sales in 1996.
Butler added 50% of the increase in S,G,&A. The Company incurred selling,
general and administrative expenses of $654,590 related to the Shanghai Omni
Gear manufacturing facility.

         Interest expense increased to $256,425 in 1997 from $95,382 in 1996,
attributable to additional debt issued for the purchase of BPC and increased
borrowing under the Company's working capital facility.



                                       9
<PAGE>

         Year 2000. The Company recognizes the need to ensure that its
operations will not be adversely impacted by the Year 2000 software issues.
Processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company is actively addressing these software issues to
minimize these risks. The Company is in the process of identifying internal
software and imbedded technology Year 2000 risks. The Company has performed
internal test operations using dates subsequent to Year 2000 (specifically, the
Company's financial and inventory systems) and has not encountered problems
which are material to the Company's operations. The Company is inquiring of its
customers and vendors and contractors with whom the Company has a material
relationship to provide the Company with updates of their efforts to be Year
2000 compliant and, if compliant, written assurances to that effect. The Company
anticipates the completion of the identification and verification process to be
completed within fiscal year 1999. The Company has not accelerated computer
replacement or software upgrades as a result of Year 2000 issues. At this point,
the Company has not identified any internal Year 2000 issue that will not be
otherwise resolved through computer and software upgrades. The cost of achieving
Year 2000 compliance over the cost of normal software upgrades is estimated to
be approximately $10,000-$20,000. At this point, the Company has not developed a
contingency plan in the event a material issue arises.

         Cautionary Statement. Forward-looking statements in this release are
made pursuant to the "safe harbor" provisions of the Private Securities
Litigation Act of 1995. Investors are cautioned that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties, including, but not limited to, continued
acceptance of the Company's products in the marketplace, competitive factors,
new products and technological changes, the Company's dependence upon
third-party suppliers, political and economic circumstances in China, and other
risks detailed from time to time in the Company's periodic report filings with
the Securities and Exchange Commission. Investors are directed to the Company's
documents, such as its Annual Report on Form 10-KSB, Form 10-QSB's filed with
the Securities and Exchange Commission.




                                       10
<PAGE>

Item 7.  Financial Statements



                       OMNI U.S.A., INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1998 AND 1997


                                       11
<PAGE>

                            Harper & Pearson Company
                            One Riverway, Suite 1000
                              Houston, Texas 77056




                          INDEPENDENT AUDITOR'S REPORT


To the Stockholders and
Board of Directors of
Omni U.S.A., Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Omni U.S.A.,
Inc. and Subsidiaries as of June 30, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit 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 aspects, the financial position of Omni U.S.A., Inc. and
Subsidiaries at June 30, 1998 and 1997, and the results of their operations and
their cash flows for the years then ended, in conformity with generally accepted
accounting principles.






                            HARPER & PEARSON COMPANY




Houston, Texas
September 17, 1998



                                       12
<PAGE>

                       OMNI U.S.A., INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                     ASSETS
                                                                            1998            1997
                                                                         -----------    -----------
<S>                                                                      <C>            <C>        
CURRENT ASSETS
   Cash ..............................................................   $   278,297    $   279,756
   Accounts receivable, trade, net ...................................     2,585,473      2,060,436
   Accounts receivable, related parties ..............................        92,396         60,654
   Inventories .......................................................     2,924,748      2,243,751

   Prepaid expenses ..................................................        52,918        130,457
   Note receivable ...................................................             0         66,668
                                                                         -----------    -----------

               TOTAL CURRENT ASSETS ..................................     5,933,832      4,841,722
                                                                         -----------    -----------
PROPERTY AND EQUIPMENT, net of
   accumulated depreciation and amortization .........................     2,110,538      1,992,803
                                                                         -----------    -----------
OTHER ASSETS - primarily intangible assets, net ......................       280,607        418,519
                                                                         -----------    -----------
TOTAL ASSETS .........................................................   $ 8,324,977    $ 7,253,044
                                                                         -----------    -----------
                                                                         -----------    -----------
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable ..................................................   $ 2,466,175    $ 1,562,493
   Line of credit ....................................................     1,965,186      1,677,969
   Accrued expenses ..................................................       605,077        941,947
   Current portion of long-term debt .................................       165,787        226,151
                                                                         -----------    -----------
               TOTAL CURRENT LIABILITIES .............................     5,202,225      4,408,560
                                                                         -----------    -----------
LONG-TERM DEBT .......................................................       815,130        753,854
                                                                         -----------    -----------
STOCKHOLDERS' EQUITY
   Common stock ......................................................        17,885         17,885
   Additional paid-in capital ........................................     5,248,560      5,248,560
   Treasury stock ....................................................       (57,141)       (48,641)
   Retained deficit ..................................................    (2,999,713)    (3,225,205)
   Foreign currency translation adjustment ...........................        98,031         98,031
                                                                         -----------    -----------
               TOTAL STOCKHOLDERS' EQUITY ............................     2,307,622      2,090,630
                                                                         -----------    -----------
TOTAL LIABILITIES & STOCKHOLDERS'  EQUITY ............................   $ 8,324,977    $ 7,253,044
                                                                         -----------    -----------
                                                                         -----------    -----------
</TABLE>

See accompanying notes



                                       13
<PAGE>

                       OMNI U.S.A., INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


<TABLE>
<CAPTION>
                                                     1998              1997
                                                 ------------      ------------
<S>                                              <C>               <C>         
NET SALES ..................................     $ 16,807,349      $ 14,520,252
                                                 ------------      ------------

      Cost of Sales.........................       12,800,209        10,955,654
      Write-off of Vendor Obligation........         (254,918)            -
                                                 ------------      ------------

COST OF SALES ..............................       12,545,291        10,955,654
                                                 ------------      ------------

      Gross Profit .........................        4,262,058         3,564,598

OPERATING EXPENSES
   Selling, general and administrative .....        3,779,401         3,218,960
                                                 ------------      ------------

      Operating income .....................          482,657           345,638
                                                 ------------      ------------


OTHER INCOME (EXPENSE)
   Commission income .......................           45,307             7,570
   Interest expense ........................         (316,443)         (256,425)
   Other, net ..............................           13,971          (272,651)
                                                 ------------      ------------

                                                     (257,165)         (521,506)
                                                 ------------      ------------

NET INCOME (LOSS) ..........................     $    225,492      $   (175,868)
                                                 ------------      ------------
                                                 ------------      ------------
BASIC AND DILUTED EARNINGS (LOSS) PER 
 SHARE .....................................     $       0.06      $      (0.14)
                                                 ------------      ------------
                                                 ------------      ------------
WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES OUTSTANDING ...............        3,523,903         2,061,180
                                                 ------------      ------------
                                                 ------------      ------------
</TABLE>

See accompanying notes




                                       14

<PAGE>


                                  OMNI U.S.A., INC.
             CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                    FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>

                                       Series B
                                    Preferred Stock         Common Stock
                                        Number                 Number                    Equity      Subordinated 
                                      Of Shares              Of Shares                  Contract     Convertible  
                                     Outstanding   Amount   Outstanding     Amount       Notes        Debentures  
                                   --------------- ------  --------------  -------    ----------   ---------------
<S>                           <C>               <C>      <C>            <C>        <C>           <C>
Balance, July 1, 1996 ......            10,120     $ 101    1,805,750     $ 9,020     $ 918,304     $      -      

Issuance of common
   shares ..................                                  195,000     $   974                                 

Issuance of preferred
   shares for services .....                60     $ -                                                            

Issuance of convertible
   debentures ..............                                                                        $  477,150    

Conversion of subordinated
   debentures ..............                                  829,842     $ 4,145                   $ (477,150)   

Purchase of shares .........                                  (51,000)                                            

Interest on equity contract
   notes ...................                                                                                      

Preferred dividends ........                                                                                      

Net loss ...................                                                                                      

Conversion of equity
   contract notes ..........           (10,180)    $(101)     750,000     $ 3,746     $(918,304)                  
                                   --------------- ------  --------------  -------    ----------   ---------------
Balance, June 30, 1997 .....               -       $ -      3,529,592     $17,885     $     -       $      -      

Purchase of shares .........                                   (6,500)                                            

Net income .................                                                                                      
                                   --------------- ------  --------------  -------    ----------   ---------------
Balance, June 30, 1998 .....               -       $ -      3,523,092     $17,885     $     -       $      -      
                                   --------------- ------  --------------  -------    ----------   ---------------
                                   --------------- ------  --------------  -------    ----------   ---------------

</TABLE>

<TABLE>
<CAPTION>

                                   Additional                    Retained        Foreign
                                    Paid-in       Treasury       Earnings        Currency
                                    Capital         Stock        (Deficit)     Translation       Total
                                --------------  ----------    ------------     -----------   ----------
<S>                           <C>             <C>           <C>            <C>             <C>
Balance, July 1, 1996 ......     $4,391,171      $    -       $(2,942,176)     $  98,031     $2,474,451

Issuance of common
   shares ..................     $  304,024                                                  $  304,998

Issuance of preferred
   shares for services .....     $   50,010                                                  $   50,010

Issuance of convertible
   debentures ..............                                                                 $  477,150

Conversion of subordinated
   debentures ..............     $  503,355                   $      (263)                   $   30,087

Purchase of shares .........                     $(48,641)                                   $  (48,641)

Interest on equity contract
   notes ...................                                  $   (73,464)                   $  (73,464)

Preferred dividends ........                                  $   (33,434)                   $  (33,434)

Net loss ...................                                  $  (175,868)                   $ (175,868)

Conversion of equity
   contract notes ..........                                                                 $ (914,659)
                                --------------  ----------    ------------     -----------   ----------
Balance, June 30, 1997 .....     $5,248,560      $(48,641)    $(3,225,205)     $  98,031     $2,090,630

Purchase of shares .........                     $ (8,500)                                   $   (8,500)

Net income .................                                  $   225,492                    $  225,492
                                --------------  ----------    ------------     -----------   ----------
Balance, June 30, 1998 .....     $5,248,560      $(57,141)    $(2,999,713)     $  98,031     $2,307,622
                                --------------  ----------    ------------     -----------   ----------
                                --------------  ----------    ------------     -----------   ----------

</TABLE>


See accompanying notes.

                                     15

<PAGE>

                         OMNI U.S.A., INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                       FOR YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>

                                                      1998        1997
                                                  ---------- ------------
<S>                                         <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss) ..............................$  225,492 $  (175,868)
                                                  ---------- ------------
  Adjustments to reconcile net income 
     (loss) to net cash
  used by operating activities:
  Depreciation....................................   235,633     220,135
  Amortization....................................    77,353      73,186
  Non cash expenses...............................         -     115,906
  Changes in operating assets and liabilities:
  Accounts receivable ............................  (556,779)   (127,692)
  Inventories ....................................  (680,997)    (98,994)
  Prepaid expenses and other current assets ......    77,539      80,775
  Note receivable ................................    66,668      13,332
  Long term deposits .............................    60,559           -
  Accounts payable and accrued expenses ..........   566,812    (113,054)
                                                  ---------- ------------
  Total adjustments ..............................  (153,212)    163,594
                                                  ---------- ------------
  Net cash provided (used) by operating 
     activities ..................................    72,280     (12,274)
                                                  ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of subsidiary net of cash acquired ....         -    (187,120)
  Purchase of property and equipment .............  (131,381)   (425,964)
  Purchase of intangible assets and 
     organizational cost .........................         -      (6,245)
                                                  ---------- ------------
  Net cash used by investing activities ..........  (131,381)   (619,329)
                                                  ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings on line of credit .................. 15,921,284  14,214,993
  Repayments on line of credit ..................(15,634,067)(14,042,659)
  Payments on long term debt ....................   (221,075)   (184,165)
  Purchase of treasury stock ....................     (8,500)    (48,641)
  Proceeds from issuance of convertible 
     debentures .................................          -     477,150
                                                  ---------- ------------
  Net cash provided by financing activities .....     57,642     416,678
                                                  ---------- ------------
NET CHANGE IN CASH ..............................     (1,459)   (214,925)

CASH AT BEGINNING OF YEAR .......................    279,756     494,681
                                                  ---------- ------------
CASH AT END OF YEAR .............................   $278,297    $279,756
                                                  ---------- ------------
</TABLE>

See accompanying notes.

                                      16

<PAGE>

NOTE 1   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation - Omni USA, Inc. (the Company) is
         incorporated in the state of Nevada. The Company's consolidated
         financial statements include the accounts of the Company and its
         wholly-owned subsidiaries Omni USA, Inc. (a Washington Company), Omni
         Resources, Ltd. (a Hong Kong Corporation) and Butler Products
         Corporation (a Kentucky Corporation). The financial statements of Omni
         Resources, Ltd. include the activity of Shanghai Omni Gear Co., Ltd.
         located in Shanghai, China. All material inter-company transactions and
         balances have been eliminated in consolidation.

         Organization and Business - The Company designs, develops, manufactures
         and distributes gear boxes and towing and trailer products, used
         primarily for agricultural and industrial purposes, to original
         equipment manufacturers and distributors worldwide. The Company's
         manufacturing and distribution system involves locating qualified
         manufacturers of custom products in a foreign country, contracting with
         such manufacturer for the manufacture of custom products, quality
         control of the products (in the case of manufacturing subcontractors),
         and delivery to an ultimate third party customer. Since 1986, the
         Company's power transmission products have been manufactured primarily
         in China and approximately 70% of the Company's towing products are
         manufactured in the United States. In fiscal 1995, Shanghai Omni Gear
         was established to begin manufacturing certain products currently
         purchased from third parties. Shanghai Omni Gear began production
         during the year ended June 30, 1997.

         Effective October 1, 1996, the Company acquired 100% of the common
         stock of Butler Products Corp. ("Butler"), located in Butler, Kentucky
         for $937,400. Butler is a manufacturer of stabilizer and landing gear
         jacks and trailer products sold to manufacturers and distributors of
         heavy-duty trailers. The stock was purchased from the sole shareholders
         of Butler, who were unaffiliated with the Company at the time of
         acquisition. Terms of the transaction included payments to the
         shareholders of Butler of $225,000 in cash, $500,000 in junior
         subordinated notes due in 2003, and 150,000 shares of common stock of
         the Company valued at $212,400. Butler has been engaged in the business
         of manufacturing jack and trailer products for over 40 years. The
         Company intends to utilize the assets of Butler to continue in that
         business.

         In connection with the Butler acquisition, the Company acquired trade
         receivables, inventories and other current assets of about $730,000,
         property valued at about $810,000 for financial statement purposes, and
         assumed trade payables, accrued expenses and debt of about $850,000. In
         connection with the acquisition, the Company recognized about $250,000
         of goodwill, which it is amortizing over 15 years. The accompanying
         financial statements include the operations of Butler beginning October
         1, 1996.

         Estimates - The preparation of financial statements in conformity with
         generally accepted accounting principles requires management to make
         estimates and assumptions that affect the reported amounts of assets
         and liabilities and disclosure of contingent assets and liabilities at
         the date of the financial statements and the reported amounts of
         revenues and expenses during the reporting period. Actual results could
         differ from those estimates.

         Revenue Recognition - The Company generally recognizes revenue when
         goods are shipped from any of its locations to a customer.



                                       17
<PAGE>

NOTE 1   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

         Concentration of Credit Risk - Financial instruments which potentially
         subject the Company to concentrations of credit risk consist
         principally of trade receivables and cash. The Company places its cash
         with high credit quality financial institutions. Cash in financial
         institutions located abroad totaled $170,469 and $82,856 in 1998 and
         1997, respectively.

         Trade accounts receivable consist of receivables from both domestic and
         foreign customers in various industries and geographic regions
         worldwide, with more than one half of consolidated sales being to
         customers in the Southern and Central United States. Generally, no
         collateral or other security is required to support customer
         receivables. An allowance for doubtful accounts is established as
         needed based upon factors surrounding the credit risk of specific
         customers, historical trends and other information.

         Inventories - Inventories are stated at the lower of cost or market
         using the weighted average method for inventories on hand and the
         specific identification method for inventory in-transit. The Company
         records inventory and any related obligation at the time title to the
         goods passes to the Company based on the specific terms of the
         transaction.

         Property, Equipment, Depreciation and Amortization - Property and
         equipment are stated at cost. Depreciation and amortization are
         computed over the estimated useful lives of the assets using the
         straight-line method for financial reporting purposes as follows:

<TABLE>
<CAPTION>
                                                                Estimated useful
                                                                   lives (years)
                                                                   -------------
<S>                                                             <C>
         Warehouse, manufacturing and office equipment ..........         3 to 10
         Leasehold improvements .................................         5 to 10
         Tooling costs ..........................................         5 to 10
</TABLE>

         The costs of repairs and maintenance are charged to operations when
         incurred. Major renewals or improvements are capitalized. When
         properties are sold or retired, the cost and related accumulated
         depreciation and amortization are removed from the accounts and any
         resulting gain or loss is included in the results of operations.

         Intangible Assets and Organizational Costs - Intangible assets, consist
         of purchased goodwill from Butler Products, historical customer
         relationships of Omni Resources, Ltd. and engineering plans and
         designs. Organizational costs are attributed to Shanghai Omni Gear
         capitalized expenditures. Intangible assets and organizational costs
         are valued at cost less accumulated amortization of $496,404 and
         $419,051 in 1998 and 1997 respectively. Amortization is provided on a
         straight-line basis over five to fifteen-year periods.



                                       18
<PAGE>

NOTE 1   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

         Foreign Currency Translation - The financial position and results of
         operations of the Company's foreign subsidiary are measured using the
         subsidiary's functional currency. Receivables and payables of the
         subsidiary, denominated in currency other than their functional
         currency, are translated at exchange rates in effect at the balance
         sheet dates, and related transaction gains or losses are included in
         the determination of net income(loss).

         Income and expense amounts of the subsidiary are translated at the
         average rates of exchange for the periods. Translation adjustments
         result from the process of translating foreign currency financial
         statements of the subsidiary into U.S. dollars. These translation
         adjustments, which are not included in the determination of net loss,
         are reported separately as a component of stockholders' equity.

         Income (Loss) Per Share - Income (loss) per share is computed using the
         weighted-average number of shares of common stock outstanding during
         the period. Common stock equivalents were anti-dilutive and therefore
         were not included in the computation of primary and fully diluted loss
         per share. For 1997, loss per share is calculated after a provision for
         interest (dividends) on equity contract notes of $73,464 and preferred
         stock dividends of $33,434.

         Fair Value of Financial Instruments - The fair values of financial
         instruments approximate their reported carrying amounts at June 30,
         1998.

         Prior Period Adjustments - During 1988, the Company determined that
         certain fiscal 1997 intercompany balances were not properly 
         eliminated. As a result, machinery and equipment purchased for the 
         China operations amounting to $146,471 had been expensed. The 1997 
         financial statements have been restated to correct this error by 
         increasing warehouse, manufacturing and office equipment and 
         decreasing general and administrative expenses. Net loss was reduced 
         and retained earnings was increased in 1997 by $146,471 (0.07 per 
         share) as a result of the restatement.

NOTE 2   ACCOUNTS RECEIVABLE

         Accounts receivable at June 30 consisted of the following:

<TABLE>
<CAPTION>
                                                1998              1997
                                             -----------      -----------
<S>                                          <C>              <C>        
         Accounts receivable - trade ...     $ 2,629,092      $ 2,064,049
         Allowance for doubtful accounts         (43,619)          (3,613)
                                             -----------      -----------

                                             $ 2,585,473      $ 2,060,436
                                             -----------      -----------
                                             -----------      -----------
         </TABLE>

NOTE 3   INVENTORIES

         Inventories at June 30 consisted of the following:

<TABLE>
<CAPTION>
                                              1998             1997
                                           ----------        ----------
<S>                                        <C>               <C>       
         Raw Materials ............        $  501,318        $  239,415
         Work in Process ..........           230,110           145,966
         Finished Goods ...........         2,193,320         1,858,370
                                           ----------        ----------
                                           $2,924,748        $2,243,751
                                           ----------        ----------
                                           ----------        ----------
         </TABLE>




                                       19
<PAGE>

NOTE 4   PROPERTY AND EQUIPMENT

         Property and equipment at June 30 consisted of the following:

<TABLE>
<CAPTION>
                                                          1998             1997
                                                       -----------      -----------
<S>                                                    <C>              <C>        
         Warehouse, manufacturing and
           office equipment ......................     $ 2,371,128      $ 2,082,956
         Land, Buildings & Leasehold improvements          557,060          557,060
         Tooling costs ...........................         613,722          548,527
                                                       -----------      -----------
                                                         3,541,910        3,188,543
         Accumulated depreciation and amortization      (1,431,372)      (1,195,740)
                                                       -----------      -----------
                                                       $ 2,110,538      $ 1,992,803
                                                       -----------      -----------
                                                       -----------      -----------
         </TABLE>

NOTE 5   LINE OF CREDIT

         The Company has a revolving line of credit with a bank which includes a
         term loan of $100,000 and provides for maximum borrowings of $2,000,000
         as determined by a formula based on trade accounts receivable and
         inventory. The term loan matures in January 1999 and has a remaining
         balance of $23,333 as of June 30, 1998. The line of credit matures
         December 14, 1998, bears interest at prime plus 2%, requires the
         maintenance of certain levels of income and tangible net worth and is
         secured by essentially all of the assets of the Company and the
         personal guarantees of certain stockholders and officers of the
         Company.

NOTE 6   LONG-TERM DEBT

         Long-term debt at June 30 consisted of the following:

<TABLE>
<CAPTION>
                                                                                 1998        1997
                                                                                -------     -------
<S>                                                                            <C>         <C>   
         Note payable to stockholder, due in monthly
            installments of $6,453 including interest
            at 10%  due November 1996 ....................................     $      0     $ 31,146

         Notes payable to banks/financing companies, due in monthly
            installments of $1,482 including interest ranging from 1.9% to
            4.8%, maturing at various dates through 2001 secured by
            vehicles .....................................................       45,582       54,359

         Note Payable to equipment manufacturer,
            due in monthly installments of $10,244 including
            interest at 10%  through 2001 ................................      254,387      168,930
</TABLE>



                                       20
<PAGE>

NOTE 6    LONG-TERM DEBT (Continued)

<TABLE>
<S>                                                                           <C>         <C>
         Butler Products Corporation Industrial Bonds due in
           monthly installments of $2,730 including interest
           at 5.5%  through March 2003 ..................................      134,693      159,203

         Butler Products Corporation Small Business Administration
           Loan due in monthly installments of $2,168 including
           interest at 9.259%  through June 2000 ........................       46,255       66,367

         Junior Subordinated Notes to Butler Products Corporation former
           owners at 8% annual interest with annual principal payments of
           $166,667 beginning September 30, 2001
           through 2003 .................................................      500,000      500,000
                                                                              --------     --------

                                                                               980,917      980,005
         Less current portion ...........................................      165,787      226,151
                                                                              --------     --------

         Total Long-Term Debt ...........................................     $815,130     $753,854
                                                                              --------     --------
                                                                              --------     --------
         </TABLE>

 Future maturities of long-term debt are as follows:

<TABLE>
<S>                                                                     <C>     
         1998 .......................................................   $165,787
         1999 .......................................................    179,571
         2000 .......................................................     83,152
         2001 .......................................................    190,686
         2002 .......................................................    195,055
         Thereafter .................................................    166,666
                                                                        --------
                                                                        $980,917
</TABLE>

NOTE 7   CONVERTIBLE DEBENTURES

         The Company sold Subordinated Convertible Debentures ("Debentures") in
         the amount of $500,000 to an individual ("Holder") in July 1996. The
         Debentures had an interest rate of 8% per year, payable semi-annually
         in common stock of Omni, at the Company's option and were due June 30,
         1999. The Company recorded the Debentures as equity in the amount of
         $477,150, after deducting $22,850 of costs related to the issuance. The
         obligations under these Debentures were subordinate to all senior
         indebtedness. From July 1996 to June 30, 1997, all Debentures were
         converted into 829,842 shares of Common Stock by the Holder. The number
         of shares issued on the conversion of the Debentures, including any
         issuances for payment of interest, was calculated based on 75% of the
         average closing bid price of the common stock for the five consecutive
         trading days preceding the conversion date.



                                       21
<PAGE>

NOTE 8   PREFERRED STOCK

         Effective June 30, 1997, the Company and Edward L. Daniel ("Edward
         Daniel"), Joan J. Daniel ("Joan Daniel") and certain affiliates
         ("Affiliates")(collectively, Edward Daniel, Joan Daniel and Affiliates
         referred to as "Daniel"), entered into a Mutual Release and Settlement
         Agreement (the "Agreement"). (See, Note 16, "Related Party
         Transactions," below).

         On September 6, 1997, the Company cancelled the Series A Preferred
         Stock, the Series B Convertible Preferred Stock and the Series C
         Convertible Preferred Stock.

NOTE 9   COMMON STOCK

         The Company has authorized 150,000,000 shares of common stock with a
         par value of $.004995 per share. At June 30, 1998, the Company had
         issued 3,580,592 shares with 3,523,592 shares outstanding and 57,500
         treasury shares. At June 30, 1997, 3,529,592 shares were issued and
         outstanding.

         During fiscal 1997, the Company issued 150,000 shares of restricted
         common stock related to the purchase of Butler Products Corporation,
         45,000 shares of restricted common stock in lieu of legal fees, 829,842
         shares on the conversion of subordinated debentures and 375,000 shares
         each to Edward L. Daniel and Joan J. Daniel pursuant to the Agreement.
         (See, Note 16, "Related Party Transactions," below).

         The Company purchased 57,500 of its common shares on the open market
         for $57,141 (average of $0.99 per share) from November, 1996 through
         June 30, 1998 pursuant to a repurchase program announced in November
         1996 which authorized the repurchase of up to 100,000 common shares.

NOTE 10  EQUITY CONTRACT NOTES

         Under the Agreement, the Company offset its obligation under the Equity
         Contract Notes ("ECN") against all receivables due from Daniel,
         including the DDC Receivable and LaPlante Receivable. Pursuant to the
         terms of the ECN, the Company accrued interest in the aggregate amount
         of $73,464 in fiscal 1997, and treated all ECN interest as dividends.
         (See, Note 16, "Related Party Transactions," below).

NOTE 11  WARRANTS TO PURCHASE COMMON STOCK

         In 1997, under the Agreement, Edward L. Daniel and Joan J. Daniel
         transferred to the Company 656,101 Class A Warrants and 656,101 Class B
         Warrants. (See, Note 16, "Related Party Transactions," below).

         Subsequent to the transfer, the Company has Class A and Class B
         Warrants which entitle the holder to purchase shares of common stock as
         follows:

<TABLE>
<CAPTION>
                                                                            Number of
                                                              Per Share     Warrants
                                        Expiration Date          Price       Issued
                                        ---------------          -----       ------
<S>                                     <C>                   <C>           <C>    
         Class A ...................    March 15, 1999         $   4.00      946,565
         Class B ...................    March 15, 2001         $   6.00      706,372
</TABLE>



                                       22
<PAGE>

NOTE 12  STOCK OPTION PLANS

         The Company maintains a Non-Qualified Stock Option Plan (the "NQSOP")
         and a 1996 Incentive Stock Option Plan (the "1996 ISOP"). The NQSOP
         covers 600,000 shares of Common Stock and the 1996 ISOP covers 900,000
         shares of Common Stock. The purpose of the NQSOP and 1996 ISOP is to
         offer eligible employees of the Company and its subsidiaries an
         opportunity to acquire or increase their proprietary interests in the
         Company and provide additional incentive to contribute to its
         performance and growth.

         On June 6, 1997, the Board, upon recommendation from the Compensation
         Committee, repriced all options previously granted and existing to
         current Company employees under the 1996 ISOP and NQSOP from $4.00 per
         share to $1.00 per share. The repriced options vest 50% on June 6, 1997
         and 50% on June 6, 1998.

         The repricing reflected in the table below was implemented in 1997 on
         the recommendation of the Compensation Committee in place at that time
         to conform the options to prevailing market prices and provide an
         incentive for which the options were designed.

         The Board of Directors has reserved 1,500,000 shares under the Plans.

<TABLE>
<CAPTION>
                                                           Total         $4.00        $1.00
               Stock Option Summary:                       Number        Priced       Priced
                                                          Of  Shares     Options      Options
                                                          ----------     -------      -------
<S>                                                       <C>          <C>           <C>      
         Options outstanding at July 1, 1996 .......        740,000       740,000          -0-
         Options granted ...........................        450,000       450,000          -0-
         Options canceled ..........................        (90,000)      (90,000)         -0-
         Options Repriced ..........................            -0-    (1,030,000)   1,030,000
                                                          ---------    ----------    ---------
         Options outstanding at June 30, 1997 ......      1,100,000        70,000    1,030,000

         Options granted ...........................         65,000           -0-       65,000
         Options canceled ..........................        (60,000)          -0-      (60,000)
         Options Repriced ..........................            -0-           -0-          -0-
                                                          ---------    ----------    ---------
         Options outstanding at June 30, 1998 ......      1,105,000        70,000    1,035,000

         Exercisable at June 30, 1998 ..............        465,000        70,000      395,000
         Exercisable at June 30, 1997 ..............        130,000        70,000       60,000

         Available for future grant at June 30, 1998        395,000           -0-      395,000
         Available for future grant at June 30, 1997        400,000           -0-      400,000
</TABLE>

NOTE 13  INCOME TAXES

         For the years ended June 30, 1998 and 1997, the Company utilized net
         operating loss carry-forwards amounting to approximately $1,150,000 and
         554,000 to decrease income tax expense by $390,000 and $188,000
         respectively.

         At June 30, 1998, the Company has net operating loss carry-forwards
         amounting to $382,000 tax basis which may be offset against future
         taxable income through 2008.

         No tax benefit has been reported in the accompanying financial
         statements, however, because the Company believes there is at least a
         50% chance that the carry-forwards will expire unused. Accordingly, the
         tax benefit of the loss carry-forwards has been offset by a valuation
         allowance of the same amount.



                                       23
<PAGE>

NOTE 13  INCOME TAXES (Continued)

         Deferred income taxes result from timing differences in reporting
         income and expenses for financial statement and income tax purposes.
         The primary sources of deferred income taxes result from: (1) the use
         of different methods of depreciation for income tax and financial
         statement purposes, (2) the uniform capitalization of inventory for
         income tax purposes, and (3) direct write-off of bad debts for income
         tax purposes.

         The components of the Company's deferred tax assets and liabilities at
         June 30 are as follows:

<TABLE>
<CAPTION>
                                                      1998          1997
                                                   ---------      ---------
<S>                                                <C>            <C>      
         Current deferred tax assets:
             Accounts receivable .............     $  14,000      $   1,228
             Inventory .......................         7,000          3,359
             Related party payables ..........           -0-         81,600
             Net operating loss carry-forwards       130,000        402,449
                                                   ---------      ---------
             Deferred tax assets .............       151,000        488,636

         Non-current deferred tax, asset:
             Depreciation ....................       (20,000)       (19,064)
                                                   ---------      ---------
         Net deferred income tax assets ......       131,000        469,572
         Valuation allowance .................      (131,000)      (469,572)
                                                   ---------      ---------
         Net deferred income taxes ...........     $     -0-      $     -0-
                                                   ---------      ---------
                                                   ---------      ---------
         </TABLE>

         The valuation allowance has decreased $338,572 and $163,029 in 1998 and
         1997, respectively due to utilization of net operating loss carry
         forwards to offset current taxable income.

         The Company has not provided for income taxes on the undistributed
         earnings of its foreign subsidiaries because it intends to reinvest
         these earnings in the continuing operations of these subsidiaries. The
         cumulative amount of undistributed losses of its foreign subsidiaries
         is approximately $1,600,000 at June 30, 1998.

         The difference between the effective rate of income tax expense at June
         30, 1998 and 1997 and the amounts which would be determined by applying
         the statutory U.S. income tax rate of 34% to income before income tax
         expense are explained below according to the tax implications of
         various items of income or expense.

<TABLE>
<CAPTION>
                                                             1998           1997
                                                           ---------      ---------
<S>                                                        <C>            <C>       
         Provision for income tax/(benefit) expense at
           U.S. statutory rates ......................     $  75,000      $ (59,595)
         Increase (decrease) in tax provision
           resulting from:
              Non-deductible losses on foreign
                subsidiaries .........................       255,000        242,366
              Non-deductible expense, other ..........         8,572          5,236
              Equity contract note interest ..........           -0-        (24,978)
              Change in valuation reserve ............      (338,572)      (163,029)
                                                           ---------      ---------
         Income tax expense ..........................     $     -0-      $     -0-
                                                           ---------      ---------
                                                           ---------      ---------
         </TABLE>



                                       24
<PAGE>

NOTE 14  VENDOR OBLIGATION

         The Company wrote off approximately $255,000 of amounts owed to a China
         state-owned factory for purchases of inventory in years prior to 1995.
         Company management believes that the vendor will not pursue payments of
         these amounts since there have been no demands for payment for three
         years and because the Company has unrecorded claims against the factory
         for defective products. In the Company's experience, business
         relationships in China are not governed by written agreements of
         contract, and the Chinese legal system is not sufficiently developed to
         provide for the enforcement of contracts or remedies to an aggrieved
         party in the event of a breach of contract.

NOTE 15  COMMITMENTS AND CONTINGENCIES

         Operating Leases - The Company leases equipment and office, warehouse
         and manufacturing space in Houston, Shanghai and Japan. The Houston
         lease is $8,000 per month through 2002. The Shanghai lease began in
         1996 and has a thirty-year term at approximately $20,000 per month. At
         June 30, 1998, the future minimum rental payments required under the
         leases were approximately:

<TABLE>
<S>                                                             <C>       
         1999 ..............................................    $  360,000
         2000 ..............................................       360,000
         2001 ..............................................       360,000
         2002 ..............................................       360,000
         2003 ..............................................       264,000
         Thereafter ........................................     5,520,000
                                                                ----------
         Total .............................................    $7,224,000
                                                                ----------
                                                                ----------
</TABLE>

         Rent expense was approximately $360,000 and $293,000 during the years
         ended June 30, 1998 and 1997, respectively.

         Insurance Coverage - The Company is self-insured against product
         liability and completed operations. This development, while not unique
         to the Company or its industry, may subject the Company to some future
         liability. The Company maintained in face and effect, product liability
         and completed operations insurance held by BPC at the time of
         acquisition. The Company maintains directors' and officers' insurance
         coverage.

         Shanghai Omni Gear Co., Ltd. (Shanghai Omni Gear) - During fiscal year
         1995, Omni Resources entered into an agreement with a Chinese company
         for the operation of a manufacturing facility in Shanghai, China. The
         agreement calls for an aggregate investment by Omni Resources of
         $2,625,000 in cash, equipment and inventory. Substantially all profits
         or losses will be allocated to Omni Resources. The land and facilities
         are leased from the Chinese company for thirty years and are included
         in the operating lease commitments elsewhere in this footnote. Omni
         Gear has the option to purchase the assets subject to this lease for
         approximately $1.8 million.

         As of June 30, 1998, Omni Resources and Omni USA have advanced Shanghai
         Omni Gear approximately $3,494,000. These advances are reflected in the
         accompanying financial statements as follows:

<TABLE>
<S>                                                          <C>       
         Current assets ..........................           $1,260,000
         Property and equipment ..................            1,257,000
</TABLE>



                                       25
<PAGE>

NOTE 15  COMMITMENTS AND CONTINGENCIES (Continued)

<TABLE>
<S>                                                        <C>        
         Intangible assets and organizational costs ..          48,000
         Current liabilities .........................      (1,311,000)
         Retained deficit from operations ............       2,240,000
                                                           -----------
           Total .....................................     $ 3,494,000
                                                           -----------
                                                           -----------
</TABLE>

         Tooling Advance - At June 30, 1996, Omni Resources had paid $120,000
         for tooling costs under an agreement with a vendor. During 1997 this
         amount was offset against accounts payable and will be recovered from
         the vendor through discounts on future purchases of inventory.

         Employment - Twelve percent of the Company's employees, (specifically,
         twenty-two of twenty-eight Butler employees) are unionized and are
         covered by a collective bargaining agreement.

         Employee Benefits - The Company maintains a 401(k) plan, which covers
         substantially all employees. Contributions by the Company are
         discretionary. During the years ended June 30, 1998 and 1997, no
         contributions were made by the Company.

NOTE  16 RELATED PARTY TRANSACTIONS

         The Company and Edward L. Daniel, former Chairman of the Board and
         principal shareholder of the Company, have the following arrangements:
         (i) lease of the Houston facility from Daniel Development Corporation
         ("DDC"), a Washington partnership controlled by Edward L. and Joan J.
         Daniel in the amount $8,000 monthly through March 31, 1998; and (ii)
         the Company pays Edward L. Daniel and Joan J. Daniel $20,000 per month,
         through July 31, 1998, in consideration of terminating all previous
         agreements to provide services to the Company.

         Under the terms of the Agreement, (1) the Company was released from any
         obligation under the Equity Contract Notes ("ECN") in the principle
         amount of $918,304, together with accrued interest in the amount of
         $222,516; (2) Edward Daniel and Joan Daniel transferred to the Company
         all 10,180 Series B Convertible Preferred shares held by them; (3)
         Edward Daniel and Joan Daniel released the Company from any accrued
         dividends under the Series B Convertible Preferred shares; (4) Edward
         Daniel and Joan Daniel transferred all warrant holdings consisting of
         656,101 Class A Warrants and 656,101 Class B Warrants held by them; and
         (5) the Company was released from its obligation under previous
         consulting agreements which provided for the payment of consulting fees
         through December 1999 in the amount of $20,000 per month.

         Upon execution of the Agreement, the Company (a) paid Edward Daniel and
         Joan Daniel $35,000; (b) released a note receivable from an affiliate
         of Edward Daniel, Daniel Development Corporation (the "DDC Receivable")
         in the principle amount of $853,397, together with accrued interest
         thereon in the amount of $208,310; (c) cancelled an account receivable
         in the amount of $63,199 from LaPlante Compressor Company ("LaPlante"),
         an affiliate of Edward Daniel; and (d) in exchange for the release of
         the ECN and the transfer of all Preferred Stock, all of which had
         rights to convert into Common Stock, the Company issued each Edward
         Daniel and Joan Daniel 375,000 shares of Common Stock, which shares
         cannot be voted by them or their affiliates until August 1999. The
         Company granted Edward Daniel and Joan Daniel demand registration and
         piggyback rights through 2001 subject to certain conditions and
         limitations set forth in the Registration Rights Agreement executed in
         connection with the Agreement. Pursuant to the terms of the ECN, the
         Company accrued interest in the aggregate amount of $73,464 in both
         fiscal 1997 and fiscal 1996, and treated all ECN interest as dividends.
         The Company paid Edward Daniel consulting fees equal to $132,274 in
         fiscal 1997.



                                       26
<PAGE>

NOTE  16 RELATED PARTY TRANSACTIONS (Continued)

         The Company offset its obligation under the ECN against all receivables
         due from Daniel, including the DDC Receivable and LaPlante Receivable.
         In addition, the Company accrued in the fiscal year ended June 30,
         1997, all amounts due under the Agreement, including payments due
         Edward Daniel through July 1998. As a result of the offset and
         accrual, the Company expensed $246,317 for the fiscal year ended June
         30, 1997. No amount or charges related to the Agreement or Daniel will
         be recorded after June 30, 1997.

         As a result of the Agreement, Edward Daniel and Joan Daniel own
         1,054,136 shares of Company Common Stock (including 750,000 shares of
         Common Stock delivered under the Agreement).

         Lease of Real Property - The Company leases its Houston facility from
         Daniel Development Corporation ("DDC"), a Washington partnership
         controlled by Edward L. Daniel and Joan J. Daniel. The lease was
         amended pursuant to the Agreement to provide for a five-year term at
         $8,000 per month; provided, however, that the lease may be terminated
         by DDC upon six months notice. The Company made aggregate lease
         payments to DDC of $72,000 in 1998 and $90,000 in 1997. On March 6,
         1998, effective April 1, 1998, the building was sold to Phenix
         Investment Company, a real estate investment company located in Houston
         Texas. Phenix Investment Company is not affiliated with Daniel
         Development Corporation, Edward L. Daniel or Joan J. Daniel. The terms
         of the lease were not changed as a result of the sale.

NOTE 17  SEGMENT INFORMATION

         The Company and its subsidiaries are engaged in the business of
         designing, developing and distributing power transmissions and trailer
         and implement components used for agricultural, industrial and other
         purposes. Selected financial information by business segment with
         respect to these activities for the years ended June 30 are as follows:

<TABLE>
<CAPTION>
                                                   1998              1997
                                               ------------      ------------
<S>                                            <C>               <C>         
         Net Sales
           Omni USA, Inc. (Domestic) .....     $ 11,029,929      $ 11,003,528
          Butler Products, Inc. ..........        3,617,321         2,814,028
           Omni USA, Inc.  (Foreign) .....        2,160,099           702,696
                                               ------------      ------------
           Total Net Sales .............       $ 16,807,349      $ 14,520,252
                                               ------------      ------------
                                               ------------      ------------
         Operating Income (Loss)
           Omni USA, Inc. (Domestic) .....     $  1,038,750      $    576,260
          Butler Products, Inc. ..........          207,378           489,317
          Omni USA, Inc.(Foreign) ........         (763,471)         (719,939)
                                               ------------      ------------
             Total Operating Income (Loss)     $    482,657      $    345,638
                                               ------------      ------------
                                               ------------      ------------
          Net Income/(Loss)
            Omni USA, Inc. (Domestic) ....     $    792,531      $     60,299
           Butler Products, Inc. .........          154,425           476,063
            Omni USA, Inc.(Foreign) ......         (721,464)         (712,230)
                                               ------------      ------------
              Total Income/(Loss) ........     $    225,492      $   (175,868)
                                               ------------      ------------
</TABLE>
                                               ------------      ------------



                                       27
<PAGE>

NOTE 17  SEGMENT INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                   1998             1997
                                               ------------      ------------
<S>                                            <C>               <C>         
         Assets
            Omni USA, Inc. (Domestic) ...      $  3,995,092      $  2,922,464
           Butler Products, Inc. ........         2,109,425         2,273,956
            Omni USA, Inc.(Foreign) .....         2,220,460         2,056,624
                                               ------------      ------------
             Total Assets ...............      $  8,324,977      $  7,253,044
                                               ------------      ------------
                                               ------------      ------------
</TABLE>

         Substantially all the capital expenditure in 1998 and 1997 were for 
         Omni USA, Inc. (Foreign).

NOTE 18  MAJOR CUSTOMERS AND SUPPLIERS

         During fiscal years 1998 and 1997, the Company and its subsidiaries had
         consolidated sales of $3,300,000 and $2,700,000 to a domestic
         customer for a total of 20% and 19% of consolidated sales,
         respectively.

         Approximately 72% and 71% of the Company's products were purchased from
         two companies in China in 1998 and 1997, respectively.

NOTE 19  SUPPLEMENTAL CASH FLOW INFORMATION

         During 1998 the Company recorded the following non-cash investing and
         financing activities:

           Plant and equipment acquired for $222,000 in exchange for notes
           payable.

         During 1997 the Company recorded the following non-cash investing and
         financing activities:

           Plant and equipment acquired for $244,720 in exchange for notes
           payable

           $120,000 tooling advance offset against trade accounts payable

           $85,346 net write-off of prepaid royalties of $199,376 and related
           note payable of $114,030 to other expense

           $50,010 of series A preferred stock issued in lieu of consulting
           services

           $92,373 of common stock issued in lieu of trade payables

           $80,000 issued in exchange for trade receivable

           Eliminated various related party receivables and payables in exchange
           for preferred stock and warrants (See Note 16.)

         Cash paid for interest during 1998 and 1997 amounted to approximately
         $316,000 and $256,000, respectively.

NOTE 20  PENDING ACQUISITION

         On May 27, 1998, the Company executed a Purchase Agreement to acquire
         Agritrans BV and its subsidiaries, Agdrive BV and Agritrans KFT
         (collectively, "Agritrans"). Agritrans is a Netherlands-based
         manufacturer and worldwide distributor of drivelines, clutches, CV
         joints, shields and spare parts for agricultural equipment. The
         acquisition is contingent on obtaining acceptable outside financing and
         completion of due-diligence.


                                       28
<PAGE>

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

        None.


                                    PART III

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


        The directors, executive officers, promoters and control persons of the
Company are set forth below.  All directors hold office for a term of one year
or until their successors are duly elected and qualified. Each executive officer
of the Company is appointed by the Board of Directors at each annual meeting and
serves until a successor is duly elected and qualified.

<TABLE>
<CAPTION>

 Name                      Age        Position
 ----                      ---        ---------
<S>                     <C>        <C>
 Jeffrey K. Daniel          37        President, Chief Executive Officer and Director 

 Craig L. Daniel            38         Vice President-Manufacturing and Director

 Michael A. Zahorik         35         Executive Vice President, Chief Operating Officer, General
                                       Counsel and Secretary 

 James L. Davis             50         Director

 John F. Lillicrop          63         Director

</TABLE>

_________________

JEFFREY K. DANIEL has been an employee of Omni since 1985 and is currently the
Chief Executive Officer and President of the Company.  He has a Bachelors degree
in business administration from the University of Colorado. He was Vice
President from 1987 until May 1994, when he was elected Chief Executive Officer
and President. Jeffrey K. Daniel is the brother of Craig L. Daniel. Jeffrey K.
Daniel has served as a director of the Company since January 1988.

CRAIG L. DANIEL has been a full time employee of Omni since April, 1989, and is
currently Vice President-Manufacturing for the Company, Managing Director of
Omni Resources, Limited and General Manager of Shanghai Omni Gear Company,
Limited. Craig L. Daniel is the brother of Jeffrey K. Daniel. Craig L. Daniel
has served as a director of the Company since December 1993.

MICHAEL A. ZAHORIK joined the Company as its General Counsel in November 1994. 
In June 1995, Mr. Zahorik became Vice President of the Company, and in July
1996, became Executive Vice President and Secretary of the Company. In January
1998, Mr. Zahorik became Chief Operating Officer. Mr. Zahorik has a Bachelors
Degree from the University of Colorado and a Juris Doctorate from the University
of Denver. Prior to his employment with the Company, Mr. Zahorik was senior
litigation and corporate counsel for McGeady Sisneros & Wollins, P.C., in
Denver, Colorado.  Mr. Zahorik is admitted to practice law in Colorado, Texas,
and other Federal districts and circuits.

JAMES L. DAVIS provides financial advice to mid-sized companies through
Waterford Capital, Inc., a financial services firm he has owned since 1988. 
Before  founding Waterford Capital, Inc., Mr. Davis was a partner at the
accounting firm of Deloitte & Touche.  From September 1991 through December
1995, Mr. Davis was a director of Entourage International, Inc., a skin care
products company.  Mr. Davis has a Bachelor of Business Administration degree
from Texas Tech University and is a Certified Public Accountant. Mr. Davis has
served as a director of the Company since December 1996.

                                       29

<PAGE>

JOHN F. LILLICROP is President and Chief Executive Officer of OECO Corporation
("OECO"), a defense and aerospace electronics manufacturer in Portland, Oregon.
From April 1994 through March 1996, Mr. Lillicrop was Senior Vice President of
investment banking at Black and Company, Inc. in Portland, Oregon.  From
December 1990 through April 1994, Mr. Lillicrop was Chairman of Springtime, Inc.
I, a wholesale grower of nursery products in Hillsboro, Oregon.  Mr. Lillicrop
is a director of OECO, Black and Company, Inc., Tycom Corporation, and
Springtime, Inc. I. Mr. Lillicrop is a graduate of the University of Colorado
and received his EMBA from the Peter Drucker Graduate Management Center of the
Claremont Graduate School. Mr. Lillicrop has served as a director of the Company
since December 1996.

W. WAYNE PATTERSON is President of HWG Capital, L.L.C. and a principal
shareholder of Harris Webb & Garrison, Inc.  Mr. Patterson also serves as
Chairman of the Board of Integrated Service and Industrial Supply, a
consolidator of industrial distribution companies and of U.S Graphics
Industries. Mr. Patterson was formerly the Chairman, CEO and founder of Texas
Micro Systems, a manufacturer of computers primarily for the telecommunications
industry. Mr. Patterson also served as Chairman and CEO of BriskHeat
Corporation, a manufacturer of thermal management products to the laboratory,
aerospace and semiconductor industries. Prior to founding Texas Micro and
BriskHeat in 1989, Mr. Patterson served as Executive Vice President of Keystone
International, Inc., a NYSE listed manufacturer of flow control products. In
this position, he led Keystone's merger and acquisition activities in addition
to his operational responsibilities. Mr. Patterson continued to serve as
Director and Chairman of the Audit Committee of Keystone until its merger with
TYCO in August of 1997. Mr. Patterson holds BBA and LLD degrees from the
University of Texas, is a CPA and a member of the Texas State Bar.

                                       30
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

        The following table sets forth certain information regarding
compensation paid to the Company's executive officers in each of the three most
recent fiscal years:

<TABLE>
<CAPTION>

                                Annual Compensation                         Long Term Compensation
                   -------------------------------------     ------------------------------------------------
                                                                        Awards                       Payouts
                                                             ----------------------------           ---------
                                                             Restricted        Securities
Name and                                    Other Annual        Stock          Underlying             LTIP           All Other
Position           Year   Salary   Bonus    Compensation       Awards        Options/ SARs           Payouts       Compensation
--------           ----   ------   -----    ------------     -----------     -------------           -------       ------------
<S>              <C>    <C>       <C>     <C>             <C>               <C>                  <C>            <C>
Jeffrey K. Daniel
President & CEO   1996  76,500     ---         ---               ---             160,000*              ---              ---
                  1997  76,500     ---         ---               ---             136,000**             ---              ---
                  1998  76,500      ---        ---               ---                 ---               ---              ---

Craig L. Daniel
Vice President-   1996   76,500    ---         ---               ---             160,000*              ---              ---
Manufacturing     1997   76,500    ---         ---               ---             136,000**             ---              ---
                  1998   76,500     ---        ---               ---                 ---               ---              ---

Michael A. Zahorik
Executive Vice
President, COO &  1996      ---    ---         ---               ---              70,000*               ---             --- 
Gen. Counsel      1997   68,500     ---        ---               ---              68,000**              ---             ---
                  1998   68,500     ---        ---               ---                 ---                ---             ---

</TABLE>

No other current executive officer's annual salary or bonus exceeded $100,000
for any of the three most recent fiscal years ended June 30, 1998.
___________________________

*       On January 31, 1996, under the 1996 ISOP, Jeffrey K. Daniel and Craig L.
Daniel were granted options to purchase 160,000 shares of Common Stock and
Michael A. Zahorik was granted options to purchase 70,000 shares of Common
Stock. These grants were at an exercise price of $4.00 and were immediately
vested. On June 6, 1997, under the 1996 ISOP, the option price on these grants
was reduced to $1.00 and the vesting schedule for these grants was changed to
vest 50% in twelve (12) months and 50% in twenty-four (24) months. SEE "STOCK
OPTION PLANS" below.

**      On June 6, 1997, under the 1996 ISOP, Jeffrey K. Daniel and Craig L.
Daniel were granted additional options to purchase 136,000 shares of Common
Stock and Michael A. Zahorik was granted additional options to purchase 68,000
shares of Common Stock. These grants are at an exercise price of $1.00 and vest
100% three (3) years from date of grant. SEE "STOCK OPTION PLANS" below.

        None of the executive officers are employed by the Company pursuant to
any employment contract or other agreement, and there are no arrangements or
understandings for the payment of bonuses or other payments upon a change of
contract, termination of employment, or otherwise.

                                       31
<PAGE>

        STOCK OPTION PLANS AND STOCK OPTIONS

        The Company maintains a Non-Qualified Stock Option Plan (the "NQSOP")
and a 1996 Incentive Stock Option Plan (the "1996 ISOP"). The NQSOP covers
600,000 shares of Common Stock and the 1996 ISOP covers 900,000 shares of Common
Stock. The purpose of the NQSOP and 1996 ISOP is to offer eligible employees of
the Company and its subsidiaries an opportunity to acquire or increase their
proprietary interests in the Company and provide additional incentive to
contribute to its performance and growth. 

        On June 6, 1997, the Board, upon recommendation from the Compensation
Committee, repriced all options granted and existing to current Company
employees under the 1996 ISOP and NQSOP from $4.00 per share to $1.00 per share.
The repriced options vest 50% twelve (12) months from date of grant and 50%
twenty-four (24) months from date of grant.  

         In addition, the Board, upon recommendation of the Compensation
Committee, granted options to purchase 136,000 shares of Common Stock at $1.00
per share to each Jeffrey K. Daniel and Craig L Daniel, and granted options to
purchase 68,000 shares of Common Stock at $1.00 per share to Michael A. Zahorik,
all such options to vest three years from date of grant. On June 6, 1997, the
Board granted options to purchase 30,000 shares of Common Stock at $1.00 per
share to each outside director James L. Davis and John F. Lillicrop. Messrs.
Davis and Lillicrop's options were immediately vested.

        On February 7, 1998, the Board granted 10,000 options to purchase 
Company Common Stock to James L. Davis and John F. Lillicrop, and 20,000 
options to purchase Company Common Stock to W. Wayne Patterson. All director 
options were immediately vested.

        The following table provides repricing information for options held by
any of the Company's five most highly compensated executive officers.  The
repricing reflected in the table was implemented in 1997 on the recommendation
of the Compensation Committee in place at that time to conform the options to
prevailing market prices and provide an incentive for which the options were
designed.

<TABLE>
<CAPTION>

                                               Ten-Year Options/SAR Repricings

                                Number of                                                Length
                                Securities      Market          Exercise                 of Original
                                Underlying      Price of Stock  Price of Stock           Option Term
                                Options/SARs    at Time of      at Time of      New      Remaining at
                                Repriced or     Repricing or    Repricing or    Exercise Date of
Name                      Date  Amended         Amendment       Amendment       Price    Repricing   
----                      ----  ------------   ---------------- --------------  -------- ------------
<S>                   <C>     <C>           <C>               <C>             <C>      <C>
Jeffrey K. Daniel       6/6/97   160,000         $0.75           $4.00           $1.00    9 years
Craig L. Daniel         6/6/97   160,000         $0.75           $4.00           $1.00    9 years
Michael A. Zahorik      6/6/97    70,000         $0.75           $4.00           $1.00    9 years

</TABLE>

                                       32
<PAGE>

        Under the 1996 ISOP, options for 900,000 shares had been granted as of
June 6, 1997.  As of that date, the market value of Common Stock subject to the
1996 ISOP was below the option exercise price of $1.00 per share. The following
table shows how the 1996 ISOP options are distributed to groups within the
Company based on the dollar value of exercisable options in effect during fiscal
year 1998 based on the closing price of Common Stock at June 30, 1998 of $3.188:

<TABLE>
<CAPTION>

                                                                             1996 Incentive Stock Option Plan
                                                              -----------------------------------------------------------------

 Name and Position                                            Dollar Value / Shares                     Total Number of Shares
                                                                   Exercisable                           Represented by Options
-------------------                                           ----------------------                    -----------------------
<S>                                                        <C>                                      <C>
 Jeffrey K. Daniel                                               $255,040/80,000                                296,000
 President and CEO

 Craig L. Daniel                                                 $255,040/80,000                                296,000
 Vice President-Manufacturing

 Michael A. Zahorik                                              $115,580/35,000                                138,000
      Executive Vice President, COO 
      & General  Counsel 

 Executive Officer Group                                        $625,660/195,000                                730,000

 Non-Executive Officer  Employee Group                           $239,100/75,000                                155,000

 Total                                                           $864,760/270,000                               885,000

</TABLE>

                                       33
<PAGE>


            AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END 
                                  OPTION/SAR VALUES

<TABLE>
<CAPTION>

                                                                                             Value of Unexercised
                                                              Number of Unexercised          in-the-money Options/
                              Shares Acquired     Value      Options/SARs at FY-End           SARs at FY-End (2)
Name                            on Exercise     Realized  (1) Exercisable/Unexercisable    Exercisable/Unexercisable
-----                         ----------------  --------  ------------------------------   -------------------------
<S>                         <C>               <C>       <C>                             <C>
Jeffrey K. Daniel
President & CEO                     N/A             N/A              296,000                          3,700  
                                                                80,000/216,000                  $255,040/$688,608  
Craig L. Daniel
Vice President-
        Manufacturing               N/A             N/A              296,000                          3,700  
                                                                80,000/216,000                  $255,040/$688,608
Michael A. Zahorik
Exec. Vice President, COO
& General Counsel                  N/A              N/A              138,000                          1,725  
                                                                35,000/103,000                  $115,580/$328,364

</TABLE>

________________________

N/A Not applicable. No options were exercised during the fiscal year 
ended June 30, 1998.
(1)     Indicates number of options exercisable and unexercisable as of June 30,
        1998.
(2)     Based upon closing price of Common stock at June 30, 1998 of $3.188.

        OTHER COMPENSATION

        The Company has paid no bonuses to its executive officers.  The Company
has a group medical plan which provides medical and hospital benefits and term
life insurance to its employees, including its officers, at no cost to the
employee. Jeffrey K. Daniel and Craig L. Daniel are not compensated as
directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

CAPITALIZATION

        The Company's currently authorized equity securities are as follows: (i)
150,000,000 shares of Common Stock, par value $.004995 per share, (ii) 2,312,773
Class A Common Stock Purchase Warrants ("Class A Warrants"); and (iii) 1,362,773
Class B Common Stock Purchase Warrants ("Class B Warrants"). As of September 1,
1998, the Company had outstanding 3,523,092 shares of Common Stock, and has
issued Class A Warrants to purchase 946,565 shares of Common Stock and Class B
Warrants to purchase 706,372 shares of Common Stock. 

        On or about September 6, 1997, the Company cancelled the Series A
Preferred Stock, the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock.

        CLASS A AND B WARRANTS.  There are 946,565 Class A Warrants and 706,372
Class B Warrants to purchase Common Stock. The Class A Warrants may be exercised
by the holder thereof at any time between 90 days after issuance and March 15,
1999, at $4.00 per share, and the Class B Warrants may be exercised at any time
between 90 days after issuance and March 15, 2001, at $6.00 per share.  

        EQUITY CONTRACT NOTES. Effective June 30, 1997, pursuant to the
Agreement, the Company was released from any future obligation under the Equity
Contract Notes. (For a complete description of the treatment of the Equity
Contract Notes, SEE, "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," below). 

                                       34
<PAGE>

        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of the close of business on June 30,
1998, by each person who is known to the Company to be a beneficial owner of 5%
or more of the Common Stock, by each current and Nominee director, and by all
directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                                Amount and Nature
                                                                    Of Beneficial
Name and Address of Beneficial Owner                                  Ownership    Percent of Class(1)
------------------------------------                                  ---------    -------------------
<S>                                                                <C>           <C>
Edward L. Daniel (3)(6) ............................................. 527,068             15.0%
Joan J. Daniel (4)(6) ............................................... 527,068             15.0%
Jeffrey K. Daniel (2)(8) ............................................ 125,355              3.5%
Craig L. Daniel (2)(9) .............................................. 143,416              4.0%
Michael A. Zahorik (2)(10) ..........................................  71,900              2.0%
Websters Publishing, Ltd. (5) ....................................... 735,018             18.3%
James L. Davis (7) ..................................................  90,000              2.5%
John F. Lillicrop (11) ..............................................  45,000              1.3%
W. Wayne Patterson (12) .............................................  20,000                 *
Executive Officers and
Directors as a Group ................................................ 495,671              12.8%

</TABLE>

* less than 1% of the total number of shares outstanding

______________________

(1)     Based upon 3,523,092 shares of Common Stock outstanding as of June 30,
        1998.
(2)     The address for all officers is 7502 Mesa Road, Houston, Texas 77028. 
(3)     Includes 375,000 shares of Common Stock issued to Edward Daniel under
        the Agreement which shares cannot be voted by him until August 1999.
(4)     Includes 375,000 shares of Common Stock issued to Joan Daniel under the
        Agreement which shares cannot be voted by her until August 1999. 
(5)     Includes 245,006 shares purchasable under A Warrants exercisable within
        60 days at $4.00 per share and 245,006 shares purchasable under B
        Warrants exercisable within 60 days at $6.00 per share.  The address of
        such beneficial owner is Caroline Center, 10th Floor, 28 Yun Ping Road,
        Causeway Bay, Hong Kong.
(6)     The address for such beneficial owner is 2476 Bolsover, #626, Houston,
        Texas 77005.
(7)     Includes 50,000 shares purchasable under A Warrants exercisable within
        60 days at $4.00 per share and 40,000 shares purchasable under options
        exercisable within 60 days at $1.00 per share. The address of such
        beneficial owner is One Park Ten Place, Suite 340, Houston, Texas 77084.
(8)     Includes 80,000 shares purchasable under options exercisable within 60
        days at $1.00 per share and 3,763 shares held in street name and 770
        shares held of record by the Jeffrey K. Daniel Individual Retirement
        Account, a self-directed IRA and 7,489 shares purchased through the
        Company's 401(k) plan.
(9)     Includes 80,000 shares purchasable under options exercisable within 60
        days at $1.00 per share and 6,800 shares held of record by the Craig L.
        Daniel Individual Retirement Account, a self-directed IRA.
(10)    Includes 35,000 shares purchasable under options exercisable within 60
        days at $1.00 per share and 19,300 shares held of record by the Michael
        A. Zahorik Individual Retirement Account, a self-directed IRA and 2,100
        shares purchased through the Company's 401(k) plan.
(11)    Includes 40,000 shares purchasable under options exercisable within 60
        days at $1.00 per share. Owned jointly with Stella J. Lillicrop. The
        address of such beneficial owners is 1220 Skyland Drive, Lake Oswego,
        Oregon 97034.
(12)    Includes 20,000 shares purchasable under options exercisable within 60
        days at $1.00 per share.  The address of such beneficial owner is 
        5599 San Felipe, Suite 301, Houston, Texas 77056.


                                       35
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        EDWARD L DANIEL AND AFFILIATES

        The Company and Edward L. Daniel, former Chairman of the Board and
principal shareholder of the Company, have the following arrangements: (i) lease
of the Houston facility from Daniel Development Corporation ("DDC"), a
Washington partnership controlled by Edward L. and Joan J. Daniel, in the amount
$8,000 monthly through March 31, 1998; and (ii) the Company pays Edward L. and
Joan J. Daniel $20,000 per month, through July 1998, in consideration of
terminating all previous agreements to provide services to the Company.

        From time to time, the Company has been a party to various transactions
with Edward L. Daniel ("Edward Daniel"), Joan J. Daniel ("Joan Daniel") and
certain affiliates ("Affiliates")(collectively, Edward Daniel, Joan Daniel and
Affiliates will be referred to as "Daniel"). The Company and Daniel have had a
series of disputes regarding the validity of certain agreements between the
parties. As a result of such disputes, the Company and Daniel have entered into
a Mutual Release and Settlement Agreement, effective June 30, 1997 (the
"Agreement") which supersedes and replaces all prior negotiations, statements
and agreements of the parties.

        The Agreement has the effect of simplifying the Company's capital 
structure, resolving outstanding contractual disputes and reducing Company 
costs in the future. Under the terms of the Agreement, (1) the Company was 
released from any obligation under the Equity Contract Notes ("ECN") in the 
principle amount of $918,304, together with accrued interest in the amount of 
$222,516; (2) Daniel transferred to the Company all 10,180 Preferred B 
shares; (3) Daniel released the Company from any accrued dividends under the 
Preferred B shares; (4) Daniel transferred all warrant holdings consisting of 
656,101 A Warrants and 656,101 B Warrants; and (5) released the Company from 
any obligation to pay $20,000 per month in consulting fees through December 
1999. 

        Upon execution of the Agreement, the Company (a) paid Edward Daniel 
and Joan Daniel $35,000; (b) released a note receivable from an affiliate of 
Edward Daniel, Daniel Development Corporation (the "DDC Receivable") in the 
principle amount of $853,397, together with accrued interest thereon in the 
amount of $208,310; (c) cancelled an account receivable in the amount of 
$63,199 from LaPlante Compressor Company ("LaPlante"), an affiliate of Edward 
Daniel; and (d) issued Edward Daniel and Joan Daniel 750,000 shares of Common 
Stock, which shares cannot be voted by Daniel until August 1999. The Company 
granted Edward Daniel and Joan Daniel demand registration and piggyback 
rights through 2001 subject to certain conditions and limitations set forth 
in the Registration Rights Agreement executed in connection with the 
Agreement. Under the Agreement, the Company will pay Daniel $20,000 per month 
for twelve months through July 1998.
        
        Pursuant to the terms of the ECN, the Company paid interest in the 
aggregate amount of $73,464 in fiscal 1996 and $73,464 in fiscal 1997. The 
Company also paid Edward Daniel consulting fees equal to $132,274 in fiscal 
1997.

        The Company recorded as an expense for the fiscal year ended June 30,
1997, all amounts due under the Agreement and offset the DDC Receivable against
the forgiveness of the ECN. No amounts or charges related to the Agreement or
Edward Daniel will be recorded after June 30, 1997.
        
        As a result of the Agreement, Edward Daniel and Joan Daniel own
1,054,136 shares of Company Common Stock (including 750,000 shares of Common
Stock delivered under the Agreement). Subsequent to the execution of the
Agreement, on or about September 6, 1997, the Company cancelled the Series A
Preferred Stock, the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock.
        
         LEASE OF REAL PROPERTY.  The Company leases its Houston facility from
Daniel Development Corporation ("DDC"), a Washington partnership controlled by
Edward L. Daniel and Joan J. Daniel. The lease was amended pursuant to the
Agreement to provide for a five-year term at $8,000 per month; provided,
however, that the lease may be terminated by DDC upon six months notice. The
Company made aggregate lease payments to DDC of $72,000 in 1998 and $90,000 in
1997. On March 6, 1998, effective April 1, 1998, the building was sold to Phenix
Investment Company, a real estate investment company located in Houston Texas.
Phenix Investment Company is not affiliated with Daniel Development Corporation,
Edward L. Daniel or Joan J. Daniel. The terms of the lease were not changed as a
result of the sale. 

                                       36
<PAGE>

        ESTATE OF MRS. JANE DANIEL

        In November 1993, the Company borrowed $200,000 from Mrs. Jane Daniel
(now deceased), Edward Daniel's mother and a shareholder. The loan was an
unsecured note that was fully paid during the year ended June 30, 1998. 

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

        None.
                                          
                                     SIGNATURES
                                          
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.


                                        OMNI U.S.A., INC.





                                BY:     /s/ JEFFREY K. DANIEL   
                                        ------------------------
                                        JEFFREY K. DANIEL
                                        CHIEF EXECUTIVE OFFICER
                                        and President 


Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons on behalf of the Company and in the capacities
and on the date indicated.


        Signature                      Title                       Date
        ---------                      -----                       ----


/s/ JEFFREY K. DANIEL   CHIEF EXECUTIVE OFFICER & PRESIDENT  SEPTEMBER 29, 1998
---------------------
JEFFREY K. DANIEL 



/s/ MICHAEL A. ZAHORIK       CHIEF OPERATING OFFICER  &      SEPTEMBER 29, 1998
----------------------       EXECUTIVE VICE PRESIDENT 
MICHAEL A. ZAHORIK    

                                       37
<PAGE>


                                 INDEX OF EXHIBITS


EXHIBIT NO.                     NAME OF EXHIBIT
-----------                   -------------------

3.1     Amended and Restated Articles of the Company, as amended November 30,
        1994.  Incorporated by reference from the Company's Amendment No. 1 to
        Registration Statement on Form SB-2 filed with the Commission on
        December 22, 1994.

3.2     Certificate of Designation of Series A Redeemable Convertible Preferred
        Stock.  Incorporated by reference from the Company's Registration
        Statement on Form SB-2 filed with the Commission on October 12, 1994.

3.3     Certificate of Designation of Series B Convertible and Series C
        Convertible Preferred Stock.  Incorporated by reference from the
        Company's Registration Statement on Form SB-2 filed with the Commission
        on October 12, 1994.

3.4     By-laws of the Company.  Incorporated by reference from the Company's
        Registration Statement on Form SB-2 filed with the Commission 
        on October 12, 1994.

4.1     Certificate of Designation of Series A Redeemable Convertible Preferred
        Stock.  Incorporated by reference from the Company's Registration
        Statement on Form SB-2 filed with the Commission on October 12, 1994.

4.2     Certificate of Designation of Series B Convertible and Series C
        Convertible Preferred Stock.  Incorporated by reference from the
        Company's Registration Statement on Form SB-2 filed with the Commission
        on October 12, 1994.

4.3     Form of Class A Common Stock Purchase Warrant.  Incorporated by
        reference from the Company's Registration Statement on Form SB-2 filed
        with the Commission on October 12, 1994.

4.4     Form of Class B Common Stock Purchase Warrant.  Incorporated by
        reference from the Company's Registration Statement on Form SB-2 filed
        with the Commission on October 12, 1994.

4.5     Equity Contract Note dated as of June 30, 1994 issued to Edward L.
        Daniel in the original principal amount of $918,304.  Incorporated by
        reference from the Company's Amendment No. 1 to Registration Statement
        on Form SB-2 filed with the Commission on December 22, 1994.

4.6     Equity Contract Note dated as of November 29, 1991 issued to Edward L.
        Daniel in the principal amount of $1,000,000.  Incorporated by reference
        from the Company's Amendment No. 2 to Registration Statement on Form 
        SB-2 filed with the Commission on January 30, 1995.

4.7     Corrected Registered Equity Contract Note dated as of June 30, 1993
        issued to Edward L. Daniel in the original principal amount of
        $1,968,304.02.  Incorporated by reference from the Company's Amendment
        No. 2 to Registration Statement on Form SB-2 filed with the Commission
        on January 30, 1995.

10.1    Settlement Agreement dated as of June 30, 1994 by and among the Company,
        Edward L. Daniel, Joan J. Daniel, and Daniel Development Corporation. 
        Incorporated by reference from the Company's Registration Statement on
        Form SB-2 filed with the Commission on October 12, 1994.

10.2    1994 Qualified Stock Option Plan.  Incorporated by reference from the
        Company's Registration Statement on Form SB-2 filed with the Commission
        on October 12, 1994.

10.3    1994 Non-Qualified Stock Option Plan.  Incorporated by reference from
        the Company's Registration Statement on Form SB-2 filed with the
        Commission on October 12, 1994.

                                       38
<PAGE>

10.4    Stock Option Grant to Jeffrey Daniel.  Incorporated by reference from
        the Company's Registration Statement on Form SB-2 filed with the
        Commission on October 12, 1994.

10.5    Stock Option Grant to Craig Daniel.  Incorporated by reference from the
        Company's Registration Statement on Form SB-2 filed with the Commission
        on October 12, 1994.

10.6    Letter Agreement dated November 1, 1994 between the Company, Edward L.
        Daniel, and LaPlante Compressor Limited.  Incorporated by reference from
        the Company's Amendment No. 1 to Registration Statement on Form SB-2
        filed with the Commission on December 22, 1994.

10.7    Articles of Association for Omni Gear Shanghai Ltd. dated December 21,
        1994 between the Company and Shanghai Shengang Metallurgical Industry
        Company.  Incorporated by reference from the Company's Amendment No. 6
        to Registration Statement on Form SB-2 filed with the Commission on
        April 17, 1995.

10.8    Cooperative Joint Venture Contract for the Formation and Operation of
        Shanghai Omni Gear Co., Ltd. dated December 12, 1994 between Omni
        Resources (H.G.) Limited and Shanghai Shengang Metallurgical Industry
        Company.  Incorporated by reference from the Company's Amendment No. 6
        to Registration Statement on Form SB-2 filed with the Commission on
        April 17, 1995.

10.9    Butler Products Corporation Share Purchase Agreement dated October 1,
        1996, together with exhibits. Incorporated by reference from the
        Company's Form 8-K filed on October 18, 1996 and from the Company's
        Amended Form 8-K filed on December 11, 1996.

10.10   Mutual Release and Settlement Agreement between Edward L. Daniel, Joan
        J. Daniel and their affiliates effective June 30, 1997. Incorporated by
        reference from the Company's Form 8-K filed on September 10, 1997.

10.11   Registration Rights Agreement between Edward L. Daniel, Joan J. Daniel
        and their affiliates effective June 30, 1997. Incorporated by reference
        from the Company's Form 8-K filed on September 10, 1997. 

10.12   Amendment to Lease Agreement dated August 1, 1997. Incorporated by
        reference from the Company's Form 8-K filed on September 10, 1997.

10.13   Assignment Agreement between Edward L. Daniel, Joan J. Daniel and their
        affiliates dated August 15, 1997. Incorporated by reference from the
        Company's Form 8-K filed on September 10, 1997.

21.1    Subsidiaries of the Registrant.  Incorporated by reference from the
        Company's Registration Statement on Form SB-2 filed with the Commission
        on October 12, 1994.

27.1    Financial Data Schedule

99.1    Press Release dated September 10, 1997. Incorporated by reference from
        the Company's Form 8-K filed on September 10, 1997.


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