<PAGE>
 
--------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended January 2, 1999

                       Commission file number 333-37135
             _____________________________________________________


                             Omega Cabinets, Ltd.
                  ____________________________________________
            (Exact name of registrant as specified in its charter)

         Delaware                                    42-1423186
  ---------------------------             -----------------------------------
  State or other jurisdiction             (I.R.S. Employer Identification No.)
of incorporation or organization

                    1205 Peters Drive, Waterloo, Iowa  50703
___________________________________________________________________________
                    (Address of principal executive offices)

Registrant's telephone number, including area code:   (319) 235-5700

          Securities registered pursuant to Section 12(b) of the Act:   None
          Securities registered pursuant to Section 12(g) of the Act:    None

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes   X      No  
     ---        ---        

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

On March 15, 1999, all of the voting stock of Omega Cabinets, Ltd. was held by
Omega Holdings, Inc. ("Holdings"), a Delaware corporation.

As of March 15, 1999, Omega Cabinets, Ltd. had 1,000 shares of Common Stock
issued and outstanding.

                  DOCUMENTS INCORPORATED BY REFERENCE:  None
<PAGE>
 
                                FORM 10-K INDEX

                                                                            Page
                                                                            ----

Part I   .................................................................    3
Item 1.  Business.........................................................    3
Item 2.  Properties.......................................................   13
Item 3.  Legal Proceedings................................................   14
Item 4.  Submission of Matters to a Vote of Security Holders..............   14
 
Part II  .................................................................   14
Item 5.  Market for Registrant's Common Equity and Related 
           Stockholder Matters............................................   14
Item 6.  Selected Financial Data..........................................   15
Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operation.......................................   16
Item 8.  Financial Statements and Supplementary Data......................   25
Item 9.  Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure.......................................   25
 
Part III .................................................................   25
Item 10.  Directors and Executive Officers of the Registrant..............   25
Item 11.  Executive Compensation..........................................   29
Item 12.  Security Ownership of Certain Beneficial Owners and Management..   34
Item 13.  Certain Relationships and Related Transactions..................   38
 
Part IV   ................................................................   40
Item 14.  Exhibits, Financial Statements Schedules, and Reports 
            on Form 8-K...................................................   40

     Reference in this Annual Report on Form 10-K is made to the Omega(TM),  
HomeCrest(TM), Kitchen Craft(R), and Kitchen Craft (registered in Canada) 
trademarks, which are owned by Holdings.
<PAGE>
 
                                     Part I

 Item 1.  Business.

     Omega Cabinets, Ltd. (the "Company" or "Omega") is a leading manufacturer
of wood and laminate kitchen cabinetry, bathroom vanities and related
accessories. Headquartered in Waterloo, Iowa, the Company produces a wide array
of custom, semi-custom and stock kitchen cabinetry and bathroom vanities
primarily for use in residential remodeling and, to a lesser extent, in new
construction. Omega manufactures its products in state-of-the-art, highly-
integrated facilities under the Omega (custom), Dynasty (semi-custom), Embassy
(semi-custom), and Legend (stock) brand names.  Omega's HomeCrest division
("HomeCrest") manufactures its products under the HomeCrest (stock) brand name.
The Company sells to a broad network of kitchen and bath dealers, home centers,
builders/contractors and independent distributors.

     Kitchen Craft of Canada Ltd., based in Winnipeg, Manitoba, and an indirect
subsidiary of the Company, is the second largest manufacturer of kitchen
cabinetry and laminated countertops in Canada and the largest Canadian
manufacturer of semi-custom kitchen cabinetry. Kitchen Craft is also a leading
competitor in the United States semi-custom cabinet market. In contrast to the
Company, 100% of Kitchen Craft's cabinetry sales are generated by full access
products.

Company History

  Omega was founded in 1977 by Robert J. Bertch. In its early years, Omega
principally manufactured bath vanities. In 1984, Omega began manufacturing
custom kitchen cabinetry under the Omega Custom brand name. In 1990, Omega
introduced a semi-custom kitchen cabinetry line under the Dynasty brand name as
a lower price alternative to the Omega Custom line.

  In June 1994, Code, Hennessy & Simmons, Inc. led a group of private investors,
including the Company's current senior management team, in the acquisition of
Omega from its founder. In May 1995, Omega acquired HomeCrest Corporation, a
manufacturer of stock cabinetry under the HomeCrest brand name.

  On or about April 28, 1997, Omega Holdings, Inc. ("Holdings"), the sole
stockholder of the Company, and Holdings' stockholders entered into a
recapitalization agreement (as amended to date, the "Merger Agreement") with
Omega Merger Corp. ("OMC"), a Company formed by affiliates of Butler Capital
Corporation ("BCC"), which provided for a merger (the "Merger") of OMC with and
into Holdings, and a recapitalization (the "Recapitalization") of Holdings, with
Holdings as the surviving corporation (the "OMC Merger").  Concurrently with the
OMC Merger, which occurred on June 13, 1997, aggregate consideration of

                                      -3-
<PAGE>
 
approximately $201.9 million was paid to certain selling stockholders of
Holdings, including approximately $89.3 million of debt which was repaid in
connection therewith. The merger consideration was subject to a post-closing
working capital adjustment of $2.0 million, which was paid by the Company in
March 1998.

  On January 29, 1999, the Company consummated the acquisition of Kitchen Craft
of Canada Ltd.  In a series of transactions described more fully below, the
Company, through certain of its subsidiaries, acquired all of the outstanding
capital stock (the "Kitchen Craft Stock") of Kitchen Craft of Canada Ltd.

  As contemplated by the Master Transaction Agreement dated as of January 29,
1999 (the "Master Transaction Agreement") among (i) 3578275 Canada Inc., a
Canadian corporation and an indirect subsidiary of the Company; (ii) Holdings;
and (iii) the Selling Participants (as defined in the Master Transaction
Agreement), the following transactions occurred in the following order:

(1) Omega Kitchen Craft Holdings Corp., a Delaware corporation and a direct
    wholly owned subsidiary of the Company, purchased 100,000 shares of Class A
    Common Stock of 3578275 Canada Inc. representing all of the issued and
    outstanding shares of Class A Common Stock of 3578275 Canada Inc. other than
    1 share issued to the incorporator of 3578275 Canada Inc.

(2) Omega Kitchen Craft U.S. Corp., a Delaware corporation and an indirect
    wholly owned subsidiary of the Company, acquired all of the outstanding
    capital stock of Bulrad Illinois, Inc., an Illinois corporation, from
    Kitchen Craft of Canada Ltd. for cash consideration equal to approximately
    $600,000.

(3) 3578275 Canada Inc. acquired all of the outstanding Kitchen Craft Stock and
    retired all related party indebtedness of Kitchen Craft of Canada Ltd. in
    exchange for approximately (Cdn) $70.4 million and 2,904.7728 shares of
    Class B Common Stock of 3578275 Canada Inc., exchangeable on a 1-for-1 basis
    into shares of common stock, $.01 par value per share (the "Common Stock"),
    of Holdings. In addition, all other indebtedness of Kitchen Craft of Canada
    Ltd. existing as of January 29, 1999 was retired in exchange for
    approximately (Cdn) $4.5 million cash.

(4) 3578275 Canada Inc. and Kitchen Craft of Canada Ltd. amalgamated under
    Canadian law to form a new corporation, Kitchen Craft of Canada Ltd., a
    Canadian corporation ("Kitchen Craft"). In the amalgamation (i) each
    outstanding share of Class A Common Stock of 3578275 Canada Inc. was
    converted into one share of Class A Common Stock of Kitchen Craft, (ii) each
    outstanding share of Class B Common Stock of 3578275 Canada Inc. was
    converted into one share of Class B Common Stock of Kitchen Craft, which
    shares are exchangeable on a 1-for-1 basis into shares of Holdings Common
    Stock, and (iii) each outstanding share of Kitchen Craft of Canada Ltd.
    owned by 3578275 Canada Inc. was canceled for no consideration.

                                      -4-
<PAGE>
 
  In order to finance the transactions described above, (i) Holdings sold
9,674.5734 shares of its Common Stock to Mezzanine Lending Associates III, L.P.
("MLA III") for aggregate consideration of $13,272,296.14 and a portion of such
consideration was contributed down to 3578275 Canada Inc. through the Company
and Omega Kitchen Craft Holdings Corp.; (ii) the Company amended and restated
its existing senior credit agreement to provide for an additional term loan of
$25.0 million and the Company borrowed $25.0 million under the new term loan and
loaned the proceeds therefrom to 3578275 Canada Inc. in return for an
intercompany note (the "Intercompany Note"); and (iii) 3578275 Canada Inc.
entered into a Canadian dollar denominated senior credit agreement (the
"Canadian Senior Credit Agreement") supplemental to the amended and restated
senior credit agreement of the Company pursuant to which it borrowed
approximately (Cdn) $22.0 million under a term loan and approximately (Cdn) $2.0
under a revolving loan. The proceeds from the sale of Holdings Common Stock to
MLA III together with the borrowings evidenced by the Intercompany Note and the
borrowings under the Canadian Senior Credit Agreement were used to pay the
purchase price to the selling stockholders of Kitchen Craft of Canada Ltd. and
to pay certain related fees and expenses.

     In connection with the transactions contemplated by the Master Transaction
Agreement, the Company solicited the consent of the holders of its 10-1/2%
Senior Subordinated Notes due 2007 (the "Notes") to certain amendments to the
Indenture dated as of July 24, 1997 (the "Indenture") between the Company,
Panther Transport, Inc., HomeCrest Corporation and The Chase Manhattan Bank, as
trustee. On January 28, 1999, the Company, Panther Transport, Inc. and The Chase
Manhattan Bank, as trustee, entered into the First Supplemental Indenture to
effect the amendments to the Indenture described in the Company's Consent
Solicitation Statement dated January 12, 1999, as supplemented by Supplement No.
1 thereto dated January 26, 1999, Supplement No. 2 thereto dated January 27,
1999, and Supplement No. 3 thereto dated January 27, 1999.

  Immediately following consummation of the acquisition of Kitchen Craft
pursuant to the terms of the Master Transaction Agreement, the Company, Panther
Transport, Inc., Omega Kitchen Craft U.S. Corp., Bulrad Illinois, Inc., and The
Chase Manhattan Bank, as trustee, entered into the Second Supplement Indenture
dated January 29, 1999 pursuant to which each of Omega Kitchen Craft U.S. Corp.
and Bulrad Illinois, Inc. agreed to guarantee the Company's obligations under
the Notes and the Indenture in accordance with the terms and provisions of the
Indenture.

                                      -5-
<PAGE>
 
Products

  The Company specializes in manufacturing kitchen cabinetry and bathroom
vanities and accessories.  The Company offers its customers one of the most
extensive product lines in the cabinetry industry and believes that it is one of
only two national manufacturers that produces a full line of kitchen cabinetry
for all three market price points: custom, semi-custom and stock. The Company's
cabinetry is distinguished by its high quality materials, superior finishes and
expert construction. The following chart illustrates the Company's fiscal 1998
sales by product line:

                           Sales by Product Line (1)
                             (dollars in millions)

<TABLE>
<CAPTION>
Product                         1996             1997              1998
-------                   ---------------  ----------------  ---------------- 
                                   % of              % of              % of
                            $     Sales       $     Sales       $     Sales
                          ------  -------  -------  -------  -------  -------
<S>                       <C>     <C>      <C>      <C>      <C>      <C>
Custom Cabinetry          $ 11.4     8.4%   $ 12.3     7.9%   $ 13.1     7.7%

Semi-Custom Cabinetry     $ 41.7    30.6%   $ 44.3    28.4%   $ 50.7    30.0%

Stock Cabinetry           $ 67.0    49.2%   $ 82.9    53.1%   $ 87.8    51.9%

Bath Vanities &  Other    $ 16.1    11.8%   $ 16.4    10.6%   $ 17.6    10.4%
                          ------   -----    ------   -----    ------   -----
Total                     $136.2   100.0%   $155.9   100.0%   $169.2   100.0%
                          ======   =====    ======   =====    ======   =====
</TABLE>

(1) These sales do not include Kitchen Craft which was acquired on January 29,
1999.

   Custom Cabinetry.   The Company manufactures and markets custom kitchen
cabinetry under the Omega Custom brand name. Omega Custom cabinets are
manufactured for each individual customer and are distinguished by their high
quality design, premium materials and superior construction. Omega Custom offers
the consumer the widest choice of cabinetry configurations, door styles and wood
species within the Company's product lines. The Company believes it is one of
the few custom cabinetry manufacturers capable of offering national distribution
as well as an unlimited choice of finishes through its  "custom color match"
program. The Company's custom cabinetry is primarily sold to kitchen and bath
dealers and is also sold through Home Depot Expo locations.

   Semi-Custom Cabinetry.   The Company manufactures and markets semi-custom
kitchen cabinetry under the Dynasty and Embassy brand names. Dimensional
modifications of size are available in both the Dynasty and Embassy lines, but
not to the extent available with the Omega Custom line. Approximately 34% of
Dynasty/Embassy cabinetry sales are produced from maple, with the balance made
up of oak (33%), cherry (18%) and pecan (15%). The Dynasty line is sold
primarily to kitchen and bath dealers, while the Embassy line is sold primarily
through home centers and lumber yards such as Home Depot/Home Depot Expo.

                                      -6-
<PAGE>
 
   Stock Cabinetry.   The Company manufactures and markets stock cabinetry under
the HomeCrest and Legend brand names. The HomeCrest brand is sold through
HomeCrest's distribution network of dealers, builder/contractors and independent
distributors. In September 1995, the Company launched its Legend line of stock
cabinetry that was developed subsequent to the acquisition of HomeCrest in order
to cross-sell stock cabinetry through the Omega dealer network.

   The Company provides a number of options and option combinations for its
stock cabinetry. These options include dovetailed wood drawers, plywood
cabinetry side material options (instead of furniture board) and premium drawer
slides, which allow for a level of customization even at this lowest price
point. The Company manufactures 54 different stock door styles in six types of
wood including oak (46%), maple (13%), hickory (10%), ash (3%) and others (10%),
as well as white foil on medium-density fiberboard (18%).

   Bathroom Vanities and Accessories.   The Company manufactures and markets
bathroom vanities under a variety of brand names, including Classic, Coventry,
Hallmark, Lancaster, Monticello, Montrose, Omega Custom, and Sunrise. The
Company's vanity line has ten different price points covering the market from
value-priced, frameless cabinetry through high-end, furniture quality custom
vanities. The Company's vanity line includes the same materials, construction
and finishes found in the Company's kitchen cabinetry lines. Vanities are sold
to kitchen and bath dealers, home centers and, on a private-label basis, to one
distributor.

   Full Access Cabinetry.  Kitchen Craft manufactures and markets full access
semi-custom and stock kitchen cabinetry under the Integra and Aurora brand
names.  Full access, or European style, cabinetry differs from framed cabinetry
in that front frames are not used during cabinet construction and appearance is
similar to a full-overlay framed cabinet.  Integra retails at a higher price
point than Aurora resulting from a broader range of styles, all-wood door
construction, and quality of the drawer boxes.  Both product lines are sold
primarily through kitchen and bath dealers and company-owned retail stores
located in Canada and the United States.

   New/Other Products.   Although the Company manufactures numerous standard
wall and base cabinetry sizes, the Company also manufactures various corner
cabinets, peninsula cabinets, special wall cabinets, medicine cabinets, special
use cabinets, sink bases, appliance cabinets and tall storage cabinets. The
Company also manufactures furniture products, such as bookcases, entertainment
centers, hutches and desks and offers a line of kitchen and bath-related
accessory products.

                                      -7-
<PAGE>
 
   In December 1996, the Company began marketing a line of all-wood, value-
priced home entertainment centers. The Company currently offers this line in
five styles. Initial distribution plans include some of the larger selling
locations in the Company's distribution network.

   Kitchen Craft manufactures laminated countertops which are sold through
company-owned retail stores in Canada.

   The markets for the Company's cabinetry products are cyclical and are
affected by the same economic factors that affect the remodeling and housing
industries in general, including the availability of credit, changes in interest
rates, market demand and general economic conditions, all of which are beyond
the  Company's control.  Any deterioration in these markets could have a
material adverse effect on the Company's business, financial conditions and
results of operations.

Manufacturing

  General.   The Company operates four manufacturing facilities located in
Waterloo, Iowa; Goshen, Indiana; Clinton, Tennessee; and Winnipeg, Manitoba.
Custom and semi-custom kitchen cabinetry and bathroom vanities are manufactured
in Waterloo, and stock cabinetry and vanities are manufactured and assembled in
Goshen. Finished cabinetry frames and flat panel doors for stock cabinetry are
manufactured in Clinton.  Full access cabinetry and laminated countertops are
manufactured in Winnipeg.

  The plants are primarily machining, assembly and finishing operations. Raw
materials used by the plants consist of raw, kiln-dried lumber and plywood. At
the Waterloo facility, the lumber is cut and molded in a manner designed to
maximize material usage and minimize waste. At the Goshen facility, dimensioned
lumber and particle board is supplied by third-party vendors and the Waterloo
facility. Prior to assembly, plywood and furniture board is laminated and
machined. Panels, shelves, drawers, drawer fronts, floors and back parts are
then assembled. Semi-custom and stock cabinetry are finished (sanded, stained,
varnished and cured) and then assembled. Custom products are finished after
assembly. Hardware is then added, and the final product is inspected, packaged
and staged for shipment.

  Suppliers and Raw Materials.   In 1998, the Company purchased roughly $60
million of lumber and other raw materials from approximately 60 different
suppliers, the largest of which represented approximately 6% of such purchases.
The Company is not dependent upon any specific supplier for any of its raw
materials or component parts. The Company believes that its sources of supply
are adequate for its needs. Additionally, the Company recently formed a
dedicated materials management team to monitor its materials purchasing with the
goal of reducing costs.

  The Company's results of operations are affected significantly by fluctuations
in the market prices of hardwood lumber, which represent approximately 20% of
the total cost of goods sold by the Company. The Company buys its hardwood
supplies at market-based prices from numerous 

                                      -8-
<PAGE>
 
independent sawmill operators. The cost of hardwood lumber is subject to
fluctuation and is affected by levels of supply as well as development in the
timber cutting industry. Significant increases in the price of lumber would
increase the cost of goods sold. Unless the Company was able to increase the
prices of its products, such price increases could have a materially adverse
affect on the Company's results of operation.

  Transportation/Freight.   Panther Transport, Inc. ("Panther"), a wholly-owned
subsidiary of the Company, provides trucking and freight services to the Company
for its Omega product lines. Panther leases 31 tractors, two trucks and 51
trailers. HomeCrest and Kitchen Craft products are primarily shipped through
contract carriers to customers.

Sales and Marketing - Omega

  The Company sells its products in the United States principally through its
network of nearly 1,300 active kitchen and bath dealer locations, as well as
through home centers, builder/contractors and independent distributors. An
individual dealer may maintain more than one store location. Active kitchen and
bath dealer selling locations are defined by the Company as only those dealer
locations which have purchased over $10,000 of products in the past year. The
sales force and distribution network for the Company's Omega product lines is
separate and distinct from the distribution of stock product lines manufactured
by HomeCrest. The following chart illustrates the growth in the Company's active
selling locations from 1996 to 1998:

                            Active Selling Locations
<TABLE>
<CAPTION>
          Kitchen &     Home
Year    Bath Dealers   Centers  Other(1)  Total Locations
----    -------------  -------  --------  ---------------
<S>     <C>            <C>      <C>       <C>
1996       1,119         243       17          1,379
1997       1,248         235       20          1,503
1998       1,297         276       27          1,600
</TABLE>
_______________________
(1) Includes independent distributors and builders/contractors.

  In 1998, approximately 81% of the Company's sales were through kitchen and
bath dealers. The Company has established strong relationships with its dealers
through superior customer service, timely delivery, quality products and
competitive pricing. Extensive interviews of kitchen and bath cabinetry dealers
indicate that service, timeliness of delivery, perceived value,  and product
quality are all more important than price in choosing a cabinetry supplier.  In
1998 the Company had an on-time, accurate completion record of 95%, which is
aided by its bar coding systems for tracking work-in-progress and finished goods
inventory. These systems enable the Company to provide its dealers with rapid
order status and product 

                                      -9-
<PAGE>
 
information and options. The Company seeks to establish long-term relationships
with quality dealers and has experienced very low dealer turnover rates,
creating what management believes is a significant competitive advantage within
the industry.

  Kitchen and bath dealers primarily service the remodeling market and provide
design consultation services to the consumer. These dealers primarily sell
custom and semi-custom products. The Company added 330 new kitchen and bath
dealer selling locations in 1998 and believes that the addition of new dealers
is important to future sales growth. It has been the Company's experience that
new selling locations generally mature within a 9- to 18-month time period. The
Company has focused particularly on adding dealers for its stock products in an
effort to increase sales of stock cabinetry into the remodeling market which is
less cyclical than the new construction market.

  The Company further markets its products through home centers such as Home
Depot, Home Depot Expo, Sears' The Great Indoors, Menards and Eagle. The Company
has selectively targeted certain national and regional chains to distribute its
custom and semi-custom cabinetry and bath vanities. In 1998, the Company
increased sales through its home center channel by 17.1% by adding 41 new home
center locations to its distribution network. In 1998, sales in the home center
distribution channel represented approximately 9% of the Company's total net
sales.

  The Company also sells products through two independent distributors which
accounted for approximately 10% of total sales in 1998.

  In early 1996, the Company also began targeting the manufactured housing
market and generated $3.5 million in sales in fiscal 1998 from one manufacturer.
The Company is uniquely positioned to serve the manufactured housing segment
through its Goshen, Indiana stock cabinetry manufacturing facility, which
geographically neighbors Elkhart, Indiana, the center of the U.S. manufactured
housing industry.

  The Company produces its cabinetry primarily in response to firm orders. By
producing products only to order, the Company reduces its inventory risk by
lowering its work-in-progress inventory and improving inventory turns, all of
which contribute to the Company's low overall working capital requirements. The
Company generally ships its custom cabinetry within five weeks of order, its
semi-custom cabinetry within four weeks of order and its stock cabinetry within
10 days of order. The Company possesses an on-time, accurate order completion
record of over 95% which management believes is among the highest in the
industry. Order accuracy and lead times have been enhanced by the implementation
of the bar code system.

  The Company maintains separate sales forces for products produced by Omega and
HomeCrest consisting of 80 independent sales representatives, five Company-
employed salespersons and 30 customer service professionals. The sales force
assists the Company's dealers with training, promotions, cabinetry displays and
other services. All orders are placed directly with the Company.

                                      -10-
<PAGE>
 
Sales and Marketing - Kitchen Craft

  Kitchen Craft sells it products in Canada and the United States principally
through its network of 430 kitchen dealer locations and 14 company-owned retail
stores.  In 1998, dealer locations contributed 60% of sales, retail stores 37%,
and one regional homecenter, Beaver Lumber, contributed 3%.

  Kitchen Craft generates approximately 54% of its sales from the Canadian
market, which is supported by a broad distribution network including 180
dealers, 12 company-owned retail stores, and Beaver Lumber.  The retail stores
were created due to the lack of a strong distribution channel of independent
kitchen and bath dealers in Canada.  Management attributes this industry dynamic
primarily to the prevalence of nearly exclusive manufacturer representation by
dealers and the lack of population density in Canada.  Kitchen Craft's company-
owned stores function in essentially the same manner and provide substantially
equivalent customer services as independent dealers.

  The United States generates approximately 46% of Kitchen Craft sales and is
supported by 250 dealers and 2 company-owned stores located in Seattle and
Austin.  In 1992, the company aggressively expanded its United States
distribution network and the company-owned stores were created to overcome
initial difficulties in penetrating the independent dealer network.

  Kitchen Craft maintains a sales force consisting of 21 company-employed
salespersons. The sales force assists the company's dealers with training,
promotion, cabinetry displays and other services.

Employees

  As of January 2, 1999, the Company employed approximately 1,675 people of
which 238 were salaried and 1,437 were hourly, none of whom are covered by a
union or collective bargaining agreement.  In addition, Kitchen Craft has
approximately 1,050 workers, none of whom are covered by a union or a collective
bargaining agreement.

Industry Overview

  The kitchen and bath cabinetry industry consists of three primary price
points: custom, semi-custom and stock. Custom cabinetry is made-to-order and is
offered in an unlimited choice of design and construction styles, wood species,
configurations, finishes and colors. Semi-custom cabinetry is less expensive and
is made-to-order from a more limited set of options than custom cabinetry. Stock
cabinetry is the least expensive price point and offers the fewest number of
styles, wood species and finishes, with choices generally limited to the

                                      -11-
<PAGE>
 
standard guidelines established by the manufacturer.  Kitchen cabinetry and
bathroom vanities are generally distributed through four separate channels:
kitchen and bath dealers, home centers, builders/contractors and independent
distributors. Management estimates that there are over 10,000 kitchen and bath
dealers in the United States.

   The United States kitchen and bath cabinetry industry is highly fragmented
with over 4,700 manufacturers.  However, management believes that the industry
continues to consolidate, and that this trend toward industry consolidation will
continue as larger competitors with broader product offerings and more extensive
distribution networks will displace smaller, less-capable competitors.

Competition

  The cabinetry industry is mature, competitive, regional and fragmented, with
approximately 4,700 manufacturers, many of which are small and compete primarily
on a local or regional basis.  There are relatively low capital requirements for
cabinetry assembly, and therefore it is relatively easy for small competitors to
enter the industry.

  Despite the relatively low barriers to entry facing small potential industry
entrants, ongoing consolidation is occurring due to customer demands for shorter
lead times and product innovation and the need for manufacturers to invest in
automation and technology. Such consolidation is making it more difficult for
smaller players to compete with larger, more integrated manufacturers on a cost-
effective basis. Management therefore believes that its principal competitors
include only those cabinetry manufacturers with strong dealer networks and
adequate capital supplies to invest in technology and develop the economies of
scale in manufacturing and purchasing required to deliver the important
combination of service, product quality and competitive pricing demanded by
customers.

  Key competitive factors in the cabinetry industry include product quality,
breadth of offering, customer service, speed of delivery, value and price. The
cabinetry industry is subject to price competition, especially in the stock
cabinetry price point of the market. The Company believes that it competes
favorably with other manufacturers due to the breadth of its product offerings,
its production capacity and its delivery and service. Some of the Company's
competitors, however, are larger and have greater financial resources than the
Company.

Intellectual Property

  Holdings, the Company's sole stockholder, owns the Omega, HomeCrest and
Kitchen Craft trademarks.  The Company believes that its trademarks are
important to its business operations and that the expiration or loss of such
trademarks could have a material adverse effect on the Company.

                                      -12-
<PAGE>
 
Environmental Matters

     The Company's operations are subject to extensive federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Permits are
required for certain of the Company's operations, and these permits are subject
to revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations, and
violations may result in the payment of fines or the entry of injunctions, or
both. The Company does not believe it will be required under existing
environmental laws and enforcement policies to expend amounts that will have a
material adverse effect on its results of operations or financial condition. The
requirements of such laws and enforcement policies, however, have generally
become stricter in recent years. Accordingly, the Company is unable to predict
the ultimate cost of compliance with environmental laws and enforcement
policies.

 Item 2.  Properties.

     The following are the Company's principal manufacturing facilities and
properties:

<TABLE>
<CAPTION>
Location              Owned/Leased          Products          Square Ft.
--------------------  ------------  ------------------------  ----------
<S>                   <C>           <C>                       <C>
Waterloo, Iowa (1)    Owned         Custom and semi-custom       366,323
                                    cabinetry and vanities

Goshen, Indiana       Owned         Stock cabinetry              476,607

Clinton, Tennessee    Owned         Finished frames and          200,757
 (2)                                flat panel doors

Winnipeg, Manitoba    Owned         Stock and semi-custom        300,000
                                    cabinetry

Winnipeg, Manitoba    Leased        Laminated countertops         30,000
</TABLE>

(1)  The square footage of the Waterloo property excludes an additional 50,000
sq. ft. facility expected to be completed in 1999 to expand rough mill
operations.

(2)  The Clinton property is a flexible facility currently utilized for the sub-
assembly of cabinetry and vanities.

  The Company believes that its plants and properties are generally very well
maintained and in excellent operating condition. While the Company maintains
adequate insurance coverage on all of its properties, the loss of those
facilities could have an adverse effect on the Company's operations.

                                      -13-
<PAGE>
 
 Item 3.  Legal Proceedings.

  The Company is a party to various legal actions arising in the ordinary course
of its business. The Company believes that the resolution of these legal actions
will not have a material adverse effect on the Company's financial position or
results of operations.

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

  The Company did not submit any matters during the fourth quarter of the fiscal
year covered by this report to a vote of security holders through the
solicitation of proxies or otherwise.

                                    Part II

 Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

  As of March 15, 1999, Omega had 10,000 authorized shares of common stock, par
value $.01 per share, of which 1,000 were issued and outstanding and held by
Holdings.  There is no established public trading market for Omega common stock.
Omega's ability to pay dividends is limited under the Indenture, as amended.

                                      -14-
<PAGE>
 
 Item 6. Selected Financial Data


  Set forth below is selected financial data of the Company and its predecessor.
The Statement of Income and Balance Sheet Data of the Company for the periods
from June 17, 1994 (the date of the acquisition by the Company of its
predecessor) to January 2, 1999 have been derived from the Company's audited
consolidated financial statements for those periods. The Statement of Income
Sheet Data of the predecessor for the period from January 1, 1994 through
June 16, 1994 have been derived from its audited financial statements for that
period. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                           Predecessor (1)                              The Company (1)
                                           -------------    ------------------------------------------------------------------
                                             Period            Period
                                              from              from
                                           January 1,         June 17,                               Year Ended
                                            1994 to           1994 to      ---------------------------------------------------
                                            June 16,          December      December     December    December       January     
                                             1994             31, 1994      30, 1995     28, 1996    27, 1997       2, 1999  
                                           ----------       ------------   -----------   ---------   ---------    -----------
<S>                                        <C>              <C>           <C>           <C>          <C>          <C> 
                                                              (in thousands, except ratios and statistical data)
Statement of Income Data                   
Net sales                                   $  24,917       $     33,893    $  97,958    $ 136,225   $ 155,899    $   169,220
Cost of goods sold                             17,564             22,485       72,690       97,287     112,557        121,767
                                            ---------       ------------    ---------    ---------   ---------    -----------  
Gross profit                                    7,353             11,408       25,268       38,938      43,342         47,453
                                           
Selling, general and administrative        
  expenses                                      5,235              3,708       10,964       15,309      22,171(4)      20,101
Amortization of goodwill                            -                519        1,163        1,332       1,398          1,440
                                            ---------       ------------    ---------    ---------   ---------    -----------  
Operating income                                2,118              7,181       13,141       22,297      19,773(4)      25,912
                                           
Interest expense                                   22              4,123        9,701       10,441      16,313         15,074
                                            ---------       ------------    ---------    ---------   ---------    -----------  
                                                2,096              3,058        3,440       11,856       3,460         10,838
Income tax expense                                 --              1,110        1,360        4,700       1,695          4,180
                                            ---------       ------------    ---------    ---------   ---------    -----------  
Income before extraordinary item                2,096              1,948        2,080        7,156       1,765          6,658
                                           
Extraordinary loss on debt refinancing (5)         --                 --           --          --          947             --
                                            ---------       ------------    ---------    ---------   ---------    -----------  
Net income                                  $   2,096(3)    $      1,948    $   2,080    $   7,156   $     818    $     6,658
                                            =========       ============    =========    =========   =========    ===========
                                           
Ratio of earnings to fixed charges (6)          14.3x               1.7x         1.3x         2.1x        1.2x           1.7x
                                           
Other Data                                 
EBITDA (3), (7)                             $   2,643       $      7,993    $  15,500    $  25,527   $  28,710    $    29,703
EBITDA margin (3), (7)                           10.6%              23.6%        15.8%        18.7%       18.4%          17.6%
                                           
Gross margin                                     29.5%              33.7%        25.8%        28.6%       27.8%          28.0%
Capital expenditures                            1,727              2,565        3,045        1,421       3,041          3,932
                                           
Depreciation and amortization                     538                964        2,781        3,731       4,067          4,527
Net cash provided (used) by:               
 Operating activities                           3,635              6,088        9,077       13,262         849         13,220
 Investing activities                          (1,727)           (58,598)     (33,175)      (2,181)     (6,673)        (3,932)
 Financing activities                          (2,134)            52,510       24,103      (11,083)      5,978         (8,795)
Ratio of EBITDA to interest expense                                 1.9x         1.6x         2.4x        1.8x           2.0x
Number of active selling locations                                 1,057        1,097        1,379       1,503          1,600
  (at end of year) (8)                     
                                           
Balance Sheet Data (at end of period)      
Working capital (deficit)                                      $  (4,101)    $ (1,971)    $   (850)  $   1,951       $  5,225
Total assets                                                      69,434      102,206      103,577     117,346        114,208
Long-term debt, including current portion                         68,000       92,539       81,636     146,120        141,855
Stockholder's equity (deficit)                                    (7,084)      (4,354)       2,790     (43,152)       (40,309)
</TABLE>

(1) The Company commenced operations on June 17, 1994, upon acquiring its
    predecessor, Omega Cabinets, Ltd. The Company has not paid or declared any
    cash dividends during the periods presented and is restricted in paying cash
    dividends under the terms of its borrowing agreements. Beginning in fiscal 
    year 1995, the Company follows a 52/53 week fiscal year. Fiscal 1998
    consisted of 53 weeks and all other periods since fiscal 1995 consisted of
    52 weeks. 
(2) In May 1995, the Company acquired the operating assets of HomeCrest
    Corporation in a transaction accounted for as a purchase.
(3) In the predecessor period from January 1, 1994 to June 16, 1994, net income,
    EBITDA and EBITDA margin were adversely affected due to special employee
    bonuses totaling $2,231 which were paid in connection with the sale of the
    predecessor. Excluding the effect of such bonuses, EBITDA and EBITDA margin
    would have been $4,874 and 19.6%, respectively.

                                      -15-
<PAGE>
 
(4) Selling, general and administrative expenses for the year ended December 27,
    1997 includes non-cash expenses relating to stock option and warrant grants
    of $5,481 (before related income tax benefit of $1,972).
(5) As a result of the 1997 recapitalization and related refinancing, in June
    1997 the Company wrote off existing unamortized deferred financing costs of
    $1,554, resulting in an extraordinary loss of $947 (net of a related income
    tax benefit of $607).
(6) For purposes of calculating the ratio, earnings consist of income or loss
    before income taxes plus fixed charges. Fixed charges consist of interest
    expense, amortization of deferred financing costs, and 25% of the rent
    expense from operating leases which management believes is a reasonable
    approximation of the interest factor included in the rent.
(7) EBITDA margin represents EBITDA as a percentage of net sales.  EBITDA
    represents income from operations before interest expense (including
    amortization of deferred financing costs), income taxes, depreciation,
    amortization of goodwill and non-cash stock option and warrant expense. Non-
    cash expense of $57, $5,481, and $4 relating to stock option and warrant
    grants was incurred in fiscal years ended December 28, 1996, December 27,
    1997 and January 2, 1999, respectively.  EBITDA is presented because it is a
    widely accepted financial indicator of a leveraged company's ability to
    service and/or incur indebtedness and because management believes that
    EBITDA is a relevant measure of the Company's ability to generate cash
    without regard to the Company's capital structure or working capital needs.
    EBITDA as presented may not be comparable to similarly titled measures used
    by other companies, depending upon the non-cash charges included. When
    evaluating EBITDA, investors should consider that EBITDA (i) should not be
    considered in isolation but together with other factors which may influence
    operating and investing activities, such as changes in operating assets and
    liabilities and purchase of property and equipment, (ii) is not a measure of
    performance calculated in accordance with generally accepted accounting
    principles, (iii) should not be construed as an alternative or substitute
    for income from operations, net income or cash flows from operating
    activities in analyzing the Company's operating performance, financial
    position or cash flows and (iv) should not be used as an indicator of the
    Company's operating performance or as a measure of its liquidity.
(8) Active selling locations represent customer locations which have purchased
    over ten thousand dollars of product in the prior year.

  Item 7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations.

  The following is management's discussion and analysis of the financial
condition and results of operations of the Company for the fiscal years ended
January 2, 1999, December 27, 1997 and  December 28, 1996. This discussion and
analysis should be read in conjunction with, and is qualified in its entirety
by, the sections entitled "Selected Financial Data" and the Consolidated
Financial Statements of the Company and its predecessor and the notes thereto
including elsewhere in this annual report on Form 10-K.

Previous Acquisitions

     In June 1994, Omega acquired all of the outstanding common stock of the
predecessor to Omega for an aggregate purchase price of approximately $71.1
million. The transaction was accounted for by the purchase method and resulted
in goodwill of approximately $43.1 million, which is being amortized over 40
years. In May 1995, Omega acquired HomeCrest for a total purchase price of $29.8
million, which was accounted for by the purchase method and resulted in goodwill
of approximately $13.5 million, which is being amortized over 40 years.

                                      -16-
<PAGE>
 
Potential Acquisitions

  The Company plans to capitalize on its position as one of the largest domestic
manufacturers of kitchen cabinetry and bathroom vanities by acquiring other
cabinetry companies as the industry consolidates. The Company currently is
exploring potential acquisition opportunities and evaluates potential
acquisition candidates on a regular basis. The Company believes that acquiring
additional cabinetry manufacturers will facilitate growth in product line,
broaden its geographic distribution and promote additional operating
efficiencies.

1997 Merger

  Concurrently with the OMC Merger, Mezzanine Lending Associates III, L.P. ("MLA
III"), an affiliate of BCC, purchased stock of Holdings for approximately $61.9
million and loaned Holdings an additional $10.0 million represented by a junior
subordinated note, and existing management shareholders and the Company's
founder retained approximately 11.1% of common stock with a fair value of
approximately $7.8 million in Holdings. In addition, the Company entered into an
agreement with various banks including First Bank National Association as a bank
lender and as agent for the bank lenders party thereto (the "New Bank Credit
Facility"). The OMC Merger was accounted for as a recapitalization. As a result,
the historical basis of the Company's assets and liabilities was not affected by
the OMC Merger.

1999 Kitchen Craft Acquisition

  On January 29, 1999, the Company consummated the acquisition of Kitchen Craft
for $53.4 million. Concurrently with the acquisition, (i) MLA III purchased
stock of Holdings for approximately $13.3 million, (ii) the Company amended and
restated its existing senior credit agreement to provide for an additional term
loan of $25.0 million, (iii) the Company entered into the Canadian Senior Credit
Agreement pursuant to which it borrowed (Cdn) $22.0 million under a term loan
and approximately (Cdn) $2.0 million under a revolving loan and (iv) the
existing Kitchen Craft management received shares of Class B Common Stock of
Kitchen Craft with a fair value of approximately $4.0 million, which are
exchangeable on a 1-for-1 basis into shares of common stock of Holdings. The
transaction was accounted for as a purchase and accordingly the results of
Kitchen Craft will be consolidated with the Company in fiscal 1999 effective
from the acquisition date forward.

Results of Operations

Fiscal 1998 Compared to Fiscal 1997

     Net Sales for fiscal 1998 were $169.2 million compared to $155.9 million
for 1997, an increase of 8.5%.  Net sales of the Omega traditional lines (custom
and semi-custom cabinetry and bath vanities) were $81.4 million in 1998 compared
to $73.0 in fiscal 1997, an increase of 11.4%, with sales increases in all three
lines.  This increase in net sales reflects an increase in 

                                      -17-
<PAGE>
 
the number of dealer locations, further penetration in specialty home centers
such as Home Depot Expo and Sears' The Great Indoors, and favorable customer
reaction to upgraded Omega Bath and Custom offerings. Net sales of stock
cabinetry were $87.8 million in fiscal 1998 compared to $82.9 million in fiscal
1997, a 6.0% increase, as a result of an increase in dealer locations and the
introduction of 17 new product lines, which was partially offset by an unplanned
sales decline at the largest customer (due to customer's system implementation
issues).

     Gross Profit for fiscal 1998 was $47.5 million compared to $43.3 million in
fiscal 1997, an increase of 9.5%.  As a percentage of net sales, gross profit
increased to 28.0% in fiscal 1998 from 27.8% in fiscal 1997 primarily as a
result of a larger share of the sales coming from the Omega product lines which
carries higher margins.

     Selling, General and Administrative Expenses for fiscal 1998 were $20.1
million, compared to $22.2 million in fiscal 1997, a decrease of 9.3%.  Fiscal
1997 included non-cash stock option and warrant expense of $5.5 million.  Fiscal
1998 included certain non-recurring acquisition and severance expenses of $1.1
million.  Selling, general and administrative expenses without giving effect to
these charges would have been $19.0 million in fiscal 1998 compared to $16.7
million in 1997, an increase of 13.7%.  As a percentage of net sales, selling,
general and administrative expenses, excluding the charges referred to above,
increased to 11.2% in fiscal 1998 from 10.7% in fiscal 1997 primarily due to
higher salary expenses to support sales growth initiatives and improve customer
support and training; higher advertising costs for cooperative advertising
participation; higher literature expense associated with new product
introductions; and higher legal and accounting expenses incurred from increased
external reporting requirements.

     Operating Income for fiscal 1998 was $25.9 million, or 15.3% of net sales,
compared to $19.8 million, or 12.7% of net sales, for fiscal 1997, an increase
of 31.1%.  The increase in operating income in fiscal 1998 was primarily due to
higher sales and favorable product mix in 1998 and non-cash stock option and
warrant expenses in 1997 as discussed above.  For fiscal 1998, operating income,
without giving effect to non-recurring acquisition and severance costs referred
to above, was $27.0 million, or 16.0% of net sales, compared to $25.2 million,
or 16.1% of net sales for fiscal 1997 (as adjusted for non-cash stock option and
warrant expense). The primary reason for this decrease in operating income as a
percentage of net sales was higher selling, general and administrative expenses
referred to above.

     Interest Expense for fiscal 1998 was $15.1 million compared to $16.3
million for fiscal 1997, a decrease of 7.6%, primarily due to bridge loan
expenses incurred in fiscal 1997 associated with the recapitalization, partially
offset by higher full year interest on increased borrowings from
recapitalization.

     Income Taxes for fiscal 1998 were $4.2 million compared to $1.7 million for
fiscal 1997.  Fiscal 1998 reflected a normalized tax rate of 38.6% while fiscal
1997 reflected variations in the effective tax rate due to the recapitalization
and related transactions.

                                      -18-
<PAGE>
 
     Net Income for fiscal 1998 was $6.7 million compared to $0.8 million in
fiscal 1997 primarily due to non-cash stock option and warrant expense, the
extraordinary loss on debt refinancing and amortization of bridge loan fees in
fiscal 1997 as well as strong sales growth in fiscal 1998.

Fiscal 1997 Compared to Fiscal 1996

     Net Sales for fiscal 1997 were $155.9 million compared to $136.2 million
for 1996, an increase of 14.4%.  Net sales of the Omega traditional lines
(custom and semi-custom cabinetry and bath vanities) were $73.3 million in
fiscal 1997 compared to $69.1 million in fiscal 1996, an increase of 6.0%, with
sales increases in all three lines.  This increase in net sales reflects an
increase in the number of dealer locations and a general price increase in
February 1997 of 2.0%.  Net sales of stock cabinetry were $82.6 million in
fiscal 1997 compared to $67.1 million in fiscal 1996, a 23.2% increase, as the
result of an increase in dealer locations, entry into the manufactured housing
channel and additional product enhancements, including additional door styles,
wood species and colors, introduced in mid-1996.

     Gross Profit for fiscal 1997 was $43.3 million compared to $38.9 million in
fiscal 1996, an increase of 11.3%.  As a percentage of net sales, gross profit
declined to 27.8% in fiscal 1997 from 28.6% in fiscal 1996 primarily as a result
of a larger share of the sales coming from the stock line which carries lower
margins, higher costs for maple lumber, the need to outsource component parts
for HomeCrest because of the increased sales levels, and increased display costs
associated with dealer base growth.

     Selling, General and Administrative Expenses for fiscal 1997 were $22.2
million, compared to $15.3 million in fiscal 1996, an increase of 44.8%.  The
increase of $6.9 million for fiscal 1997 is primarily attributable to non-cash
compensation expense for employee stock options granted of $4.9 million and non-
cash warrant expense issued in conjunction with the 1997 recapitalization and
related transactions in the amount of $0.6 million.  Selling, general and
administrative expenses without giving effect to these charges would have been
$16.7 million in fiscal 1997 compared to $15.3 million in fiscal 1996, an
increase of 9.5%.  As a percentage of net sales, selling, general and
administrative expenses, excluding the non-cash stock option and warrant expense
referred to above, decreased to 10.8% in fiscal 1997 from 11.2% in fiscal 1996,
primarily due to higher sales volume and, lower cooperative advertising, legal,
and accounting costs for fiscal 1997 compared to fiscal 1996.

     Operating Income for fiscal 1997 was $19.8 million, or 12.7% of net sales,
compared to $22.3 million, or 16.4% of net sales, for fiscal 1996, a decrease of
11.2%.  The decrease in operating income in fiscal 1997 was primarily due to a
lower gross profit percent and non-cash compensation and warrant expenses in
1997 as discussed above.  For fiscal 1997, operating 

                                      -19-
<PAGE>
 
income, without giving effect to the non-cash stock option and warrant expense
referred to above, was $25.2 million, or 16.1% of net sales, compared to $22.3
million, or 16.4% of net sales, for fiscal 1996. The primary reason for this
decrease in operating income as a percentage of net sales was lower gross profit
percent, as discussed above.

     Interest Expense for fiscal 1997 was $16.3 million compared to $10.4
million for fiscal 1996, an increase of 56.2%, primarily due to amortization of
fees paid pursuant to bridge loans incurred in connection with the 1997
recapitalization and increased borrowings associated with the 1997
recapitalization and related transactions.

     Income Taxes for fiscal 1997 consisted of an expense of $1.7 million
compared to $4.7 million for fiscal 1996.  Variations in the effective tax rate
in 1997 were due to the state tax effect of the relative mix of pretax
income/loss of consolidated entities, which was impacted in 1997 for expenses in
connection with the 1997 recapitalization and related transactions.

     Extraordinary Loss On Debt Refinancing for fiscal 1997 was $0.9 million,
consisting of a $1.6 million write-off of deferred financing costs associated
with the prior long term debt repaid as a result of the 1997 recapitalization
and related transactions, net of $0.7 million of income tax benefits.

     Net Income for fiscal 1997 was $0.8 million compared to $7.2 million in
fiscal 1996, a decrease of 88.9%, primarily due to the non-cash stock option and
warrant expense, the extraordinary loss on debt refinancing, amortization of
bridge loan fees and higher interest costs reflecting increased borrowings
associated with the 1997 recapitalization and related transactions.

Liquidity and Capital Resources

  The Company's primary cash needs are working capital, capital expenditures and
debt service. The Company has financed these cash requirements primarily through
internally generated cash flow and funds borrowed under the Company's credit
facilities.

  Net cash provided by operating activities for fiscal 1998 was $13.2 million
compared to $0.8 million for fiscal 1997, an increase of $12.4 million.  The
increase was primarily due to changes in operating assets and liabilities.  Net
income as adjusted for non-cash charges was $13.1 million for fiscal 1998
compared to $13.2 million for fiscal 1997.  The cash increase from net changes
in operating assets and liabilities was $0.1 million for fiscal 1998 compared to
a decrease of $12.4 million for fiscal 1997, primarily due to 1997 changes in
accruals related to the recapitalization and related transactions.  The net
change in 1998 was also impacted by lower receivables resulting from the timing
of the 1998 fiscal year-end, and the amount and timing of income tax payments.

                                      -20-
<PAGE>
 
  The Company used cash for investing activities of $3.9 million in fiscal 1998
compared to $6.7 million in fiscal 1997. During 1997, additional contingent
purchase price was paid for a prior acquisition of $3.3 million.  In addition,
capital expenditures for fiscal 1998 were $3.9 million compared to $3.0 million
for fiscal 1997.

  Cash used in financing activities was $8.8 million for fiscal 1998 compared to
cash provided by financing activities of $6.0 million for fiscal 1997.  Fiscal
1997 reflected the debt and equity refinancing associated with the 1997
recapitalization and related transactions.  Net debt activities for fiscal 1998
primarily included scheduled payments on the bank term loan of $3.2 million and
a net reduction in the revolving loan of $2.1 million.  In addition, in fiscal
1998 cash payments to the parent were made of $2.0 million for a post-closing
adjustment related to the 1997 recapitalization, and $1.5 million for the
redemption of certain parent stockholders.

  The Company's ability to make scheduled payments of principal of, or to pay
the interest or premium, if any, on, or to refinance, its indebtedness, or to
fund planned capital expenditures will depend on its future performance, which,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. Based
upon the current level of operations, management believes that cash flow from
operations and available cash, together with available borrowings under its bank
loans, will be adequate to meet the Company's anticipated future requirements
for working capital, budgeted capital expenditures and scheduled payments of
principal and interest on its indebtedness for the next several years. There can
be no assurance that the Company's business will generate sufficient cash flow
from operations or that future borrowings will be available under bank loans in
an amount sufficient to enable the Company to service its indebtedness or make
anticipated capital expenditures.

  As a result of the 1999 acquisition of Kitchen Craft, the Company's long-term
debt structure has changed substantially.  At January 29, 1999, the Company's
long-term debt consisted of (i) the $100.0 million of Senior Subordinated Notes;
(ii) an Amended and Restated Senior Credit Facility, consisting of a $60.5
million term facility (the "U.S. Term Facility") and a $20.0 million revolving
facility (the "U.S. Revolving Facility"); and (iii) a Canadian Senior Credit
Facility, consisting of a (Cdn) $22.0 million term facility (the "Canadian Term
Facility") and a (Cdn) $15.0 million revolving facility (the "Canadian Revolving
Facility"). As of March 23, 1999, the Company had additional borrowing
availability of $16.0 million under the U.S. Revolving Facility and (Cdn) $10.5
million under the Canadian Revolving Facility.  The U.S. Term Facility requires
quarterly principal payments beginning in April 1999 at $1.0 million per quarter
and increasing at each September anniversary.  Subsequent payments will be
approximately $1.4 million, $1.5 million, $1.9 million and $2.2 million per
quarter during the four quarter periods beginning September 1999, 2000, 2001,
and 2002, respectively, with $2.8 million payments due September and December of
2003 and approximately $6.3 million payments due each quarter in 2004.  The
Canadian Senior Term Facility requires quarterly payments beginning in April
1999 at approximately (Cdn) $0.4 million per quarter and increasing at each
anniversary.  Subsequent payments will be approximately (Cdn) $0.5 million,
(Cdn) $0.6 million, (Cdn) $0.8 million, (Cdn) $0.9 million and (Cdn) $2.3
million per quarter during 2000, 2001, 2002, 2003, and 2004.  Both the U.S. and
Canadian Term Facilities mature on December 31, 2004.  Revolving Facilities will
mature on December 26, 2003 and have no scheduled interim amortization.

                                      -21-
<PAGE>
 
Inflation

  The Company does not expect inflation to have a major impact on future
operations. While the average annual price of lumber has fluctuated somewhat
over the past several years, the Company has historically been able to pass the
major portion of most lumber price increases on to the customer over time.

Computer Systems and Year 2000

  The Year 2000 issue, common to most companies, concerns the inability of
information technology, ("IT") and non-information technology ("non-IT") systems
to recognize and process date-sensitive information after 1999 due to the use of
only the last two digits to refer to a year.  This problem could affect both
information systems (hardware and software) and other equipment that relies on
microprocessors.  This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, schedule production, send invoices, or engage
in similar normal business activities.

  The Company has completed an assessment of its IT systems, both hardware and
software, and has developed a plan to timely address the Year 2000 issue.
Systems that interact with customers and that focus on the core business
functions of buying, manufacturing, selling and accounting have been given the
highest priority.  Systems and equipment, particularly production equipment that
utilize embedded chips, that are not Year 2000 compliant have been identified
and remediation efforts are in process.  Management estimates that nearly 70% of
the remediation efforts were completed as of January 2, 1999.  Some of the
Company's current systems are being upgraded and others are being replaced with
Year 2000-compliant systems. System upgrades and replacements are being unit-
tested as they are completed.  All remediation efforts and testing of
replacement systems are expected to be completed by September 1, 1999.  The
Company is monitoring the need to develop contingency plans to remediate
information systems scheduled to be replaced in case delays in the installation
schedule for the new systems make remediation of the older systems necessary.
The Company currently believes that it will complete all phases of its plan
without any material adverse consequences to its business, operation, or
financial condition.

  The Company's assessment of its non-IT systems (including phone, voicemail,
heating/air-conditioning, electricity and security systems) was completed and
will be followed by any required renovations.  The Company used internal
resources to address the Year 2000 Issue of its non-IT systems and has not
incurred significant separately identifiable costs and does not expect to incur
significant additional costs in order to upgrade its non-IT systems.  All
validation and implementation of these non-IT systems is expected to be
completed by mid-1999.

                                      -22-
<PAGE>
 
  The Company has spent approximately $1.2 million, to date, in the execution of
its Year 2000 plan.  Total costs to address Year 2000 issues are currently
estimated not to exceed $2.0 million and consist primarily of costs for the
remediation of internal systems, including internal programming time.  Funds for
these costs are expected to be provided by the operating cash flows of the
Company.

  The Company is also in the process of monitoring the progress of significant
third parties in their efforts to become Year 2000 compliant.  Those third
parties include, but are not limited to product suppliers, large customers,
financial institutions, third party benefit administrators, and utilities.  The
Company has requested confirmation from all material third parties as to when
they will be Year 2000 compliant.  The Company expects that this assessment will
be completed by June 1, 1999.  If the Company's customers and suppliers do not
achieve Year 2000 compliance before the end of 1999, the Company may experience
a variety of problems, which may have a material adverse effect on the Company.
The Company has obtained responses from approximately 50% of material third
parties.  To the extent such suppliers are not Year 2000 compliant by the end of
1999, such suppliers may fail to deliver ordered materials and products to the
Company and may fail to bill the Company properly and promptly.  Consequently,
the Company may experience delays in manufacturing product to send to its
customers.  The Company plans to address potential problems with its suppliers
by identifying and arranging for alternative sources of supplies.  Due to the
nature of its product, the Company does not believe it has any exposure to
contingencies related to the Year 2000 Issue for the products it has sold.

  The Company could be faced with severe consequences if Year 2000 issues are
not identified and resolved in a timely manner by the Company and significant
third parties.  A worst-case scenario would result in the short-term inability
to manufacture adequate amounts of product to support incoming customer orders
resulting in lost revenues and customer loyalty.  The amount would be dependent
on the length and nature of the disruption, which cannot be predicted or
estimated.  In light of the possible consequences, the Company is devoting the
resources needed to address Year 2000 issues in a timely manner.  Management
receives monthly (if not more often) updates as to project status.  While
management expects a successful resolution of these issues, there can be no
guarantee that material third parties, on which the Company relies, will address
all Year 2000 issues on a timely basis or that their failure to timely and
successfully address all issues would not have an adverse effect on the Company.

Forward Looking Statements

  When used in this annual report on Form 10-K, the words "believes,"
"anticipates" and 

                                      -23-
<PAGE>
 
similar expressions are used to identify forward looking statements. Such
statements are subject to risks and uncertainties which could cause actual
results to differ materially from those projected. The Company wishes to caution
readers that the following important factors and others in some cases have
affected and in the future could affect the Company's actual results and could
cause the Company's results for 1998 to differ materially from those expressed
in any forward statements made by the Company: (i) economic conditions in the
remodeling and housing markets, (ii) availability of credit, (iii) increases in
interest rates, (iv) cost of lumber and other raw materials, (v) inability to
maintain state-of-the-art manufacturing facilities, (vi) heightened competition,
including intensification of price and service competition, the entry of new
competitors and the introduction of new products by existing competitors, (vii)
inability to capitalize on opportunities presented by industry consolidation,
(viii) loss or retirement of key executives and (ix) inability to grow by
acquisition of additional cabinetry manufactures or to effectively consolidate
operations of businesses acquired.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

  The Company is subject to interest rate market risk in connection with its
long-term debt. These financial instruments are entered into for purposes other
than trading.  As of January 2, 1999, the Company's debt instruments consisted
of certain obligations which bear a fixed interest rate and others which bear
interest at variable rates.  The following table provides information about the
Company's debt instruments that are sensitive to changes in interest rates, and
presents the principal cash flows and related interest rates by expected
maturity dates (in thousands):

<TABLE> 
<CAPTION> 
                                 Variable Rate (a)    Fixed Rate (b)
 
Maturing in:
<S>                                   <C>            <C>
        1999                          $10,250           $     --
        2000                            5,750                 --
        2001                            6,750                 --
        2002                            8,250                 --
        2003                           10,000                 --
        Thereafter                         --            100,000
                                      -------           --------
     Total                            $41,000           $100,000
                                      =======           ========
 
     Fair value at January 2, 1999    $41,000  $100,000
</TABLE>

(a)  Primarily at LIBOR plus 2.25%, except for $5,500 maturing in 1999 which is
     at a variety of defined floating rate options (8.23% weighted average at
     January 2, 1999).
 
(b)  All at 10.5%.

     The Company's interest expense is most sensitive to changes in the general
level of U.S. and certain foreign (LIBOR) interest rates.  In this regard,
changes in such interest rates 

                                      -24-
<PAGE>
 
affect the interest paid on certain of its debt. To manage the impact of
fluctuations in interest rates, the Company continually monitors and may select
a variety of rate options on its variable-rate debt. In addition, the Company
has maintained a majority of its debt borrowings as fixed-rate debt. Although it
has not historically done so, the Company in the future may consider entering
into interest rate swaps or similar transactions in order to fix certain
interest costs on variable-rate debt.
 
  Item 8.  Financial Statements and Supplementary Data.

  The information required by this Item 8 is set forth on pages F-1 to F-19 of
this annual report on Form 10-K and is incorporated herein by reference.

  Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

  None.

                                    Part III

 Item 10.  Directors and Executive Officers of the Registrant.

  The following table sets forth certain information regarding the Company's
directors and executive officers, including their respective ages, as of
March 1, 1999.

                                      -25-
<PAGE>
 
        Name           Age                          Position
---------------------  ---                          -------- 

Robert L. Moran         44  Director, Chief Executive Officer, President

John S. Horton          38  Senior Vice President, Treasurer, Chief Financial 
                            Officer

Craig S. Rae            39  Vice President, Sales & Marketing

Earl M. Lytle           39  Vice President, Manufacturing

John A. Goebel, Jr.     55  President, HomeCrest

Michael Hagan           46  Vice President, Administration, HomeCrest

Thomas Schmidt          45  Vice President, Marketing, HomeCrest

Douglas J. Conley       42  Vice President, Manufacturing, HomeCrest

Robert J. Bertch        52  Director

Gilbert Butler          61  Director

Donald E. Cihak         50  Director

Costa Littas            42  Director

David Kim               32  Director

Herbert D. Buller       57  Director
 
  Robert L. Moran has served as Director, Chief Executive Officer and President
of Omega since October 1998.  Mr. Moran served as President of Omega since
December 1997 and as Vice President, Operations of Omega from October 1995 to
December 1997.  In his current role, Mr. Moran has executive management
responsibilities for Omega's business units, with particular focus on strategic
planning, business development and acquisitions.  From August 1992 to October
1995, Mr. Moran was employed at Newell Company, a mass merchandise retailer of
consumer products, where he was the Vice President of Operations for the Home
Hardware Division.   From 1989 to 1992 he served as President of various
divisions at GWH Holdings, representing equipment and robotic companies.

                                      -26-
<PAGE>
 
  John S. Horton has served as Senior Vice President, Treasurer and Chief
Financial Officer of Omega since November 1998.  Mr. Horton has responsibility
for all aspects of accounting, planning and analysis, SEC reporting, treasury
and investor relations.  From 1997 to 1998, Mr. Horton was a Vice President at
Allied Signal Engines in various positions including Chief Financial Officer,
Business Development, and Productivity.  Prior to 1997, Mr. Horton spent 15
years at General Electric, most recently as Chief Financial Officer for several
major business units including the Military and Small Commercial Engines
business and the Gas Turbines business.

  Craig S. Rae has served as Vice President, Sales and Marketing of Omega since
December 1997.  Mr. Rae was employed at Leucadia National Corporation, General
Marble Division, a manufacturer of cultured marble vanity countertops and
bathroom cabinetry, from June 1995 to December 1997, where he was Vice President
of Sales and Marketing.  Prior to General Marble, Mr. Rae was employed as Vice
President of Sales for Newell Company, Newell Home Hardware Division from June
1994 to June 1995.  From June 1992 to June 1995, Mr. Rae was Vice President of
Sales for BernzOmatic Division of the Newell Company.

  Earl M. Lytle has served as Vice President, Manufacturing of Omega since July
1998. From June 1997 to June 1998, he served as a Manufacturing Division
Manager.  Mr. Lytle is responsible for all aspects of Omega Operations including
manufacturing and engineering. From 1995 to 1997, Mr. Lytle was employed at
Newell Company, a mass merchandise retailer of consumer products, where he was
the Operations Manager for the Home Hardware Division.  From 1989 to 1995, Mr.
Lytle was employed at Conair, an auxiliary equipment manufacturer for the
plastics industry, where he advanced from a design engineer to operations
manager.

  John A. Goebel, Jr. has served as President of HomeCrest since 1995. Mr.
Goebel has been with HomeCrest since 1986. He was plant manager at the Clinton
facility from 1986 to 1990, and served as Vice President, Operations at
HomeCrest from 1990 to 1995. Mr. Goebel also has certain strategic planning
responsibilities at HomeCrest.

  Michael Hagan has served as Vice President, Administration, HomeCrest since
1991. Mr. Hagan has been with HomeCrest since 1978.

  Thomas Schmidt has served as Vice President, Marketing, HomeCrest since 1991.
Mr. Schmidt is responsible for sales and marketing at HomeCrest.

  Douglas J. Conley has served as Vice President, Manufacturing, HomeCrest since
1995. From May 1991 to May 1995, Mr. Conley served as Vice President, Human
Resources for HomeCrest. Mr. Conley has been with HomeCrest since 1989.

  Robert J. Bertch has been a director of Omega since its inception. Mr. Bertch
founded the Company in 1977 and served as its President and Chief Executive
Officer until Omega was sold to Code, Hennessy & Simmons in 1994. Since January 
1998, Mr. Bertch has served as President of Phoenix Door Manufacturing.

                                      -27-
<PAGE>
 
  Gilbert Butler became a director of the Company in June 1997. Since its
formation in 1981, he has been the President of BCC, a private investment firm
providing management advisory services to five investment limited partnerships,
including MLA III, that provide financing for leveraged buyouts, other
acquisitions and business expansions. Mr. Butler is also the managing general
partner of five limited partnerships that serve as the respective general
partners of the five investment limited partnerships. Mr. Butler is a trustee
and member of the investment committee of Corporate Property Investors, a real
estate investment trust.

  Donald E. Cihak became a director of the Company in June 1997. Mr. Cihak has
served as Managing Director of BCC Industrial Services, Inc. ("ISI"), a
management consulting company wholly owned by certain investment funds managed
by BCC, since September 1993. From April 1990 to September 1993, Mr. Cihak was
the Vice President/Finance and Administration for the Marine Group of Brunswick
Corporation.

  Costa Littas became a director of the Company in June 1997. He has been a
Managing Director of BCC since February 1994, a principal from April 1991 to
February 1994 and a Vice President from October 1989 to April 1991. Mr. Littas
is also a general partner of four limited partnerships that serve as the
respective general partners of four of the investment limited partnerships
advised by BCC, including MLA III. From 1978 to 1989, Mr. Littas was employed by
Bank of Boston, most recently as a Vice President and Manager.

  David Kim became a director of the Company in February 1999.  He has been with
BCC since September 1994 and became a Principal in 1997.  From 1992 to 1994, Mr.
Kim attended Harvard Business School, where he received a Masters in Business
Administration in June 1994.

  Herbert D. Buller became a director of the Company in February 1999 following
the acquisition of Kitchen Craft.  Mr. Buller, the founder of Kitchen Craft of
Canada Ltd., previously served as the President and a director of Kitchen Craft
of Canada Ltd. since 1971. Mr. Buller is currently a director and the Chief
Executive Officer of Kitchen Craft.

  At present, all Directors are elected and serve until a successor is duly
elected and qualified or until the earlier of his death, resignation or removal.
There are no  family relationships between any of the Directors or executive
officers of Holdings or the Company. Executive officers of Holdings and the
Company are elected by and serve at the discretion of their respective boards of
directors.

Compensation of Directors

  The Company pays no compensation to its independent directors, and pays no
additional remuneration to its employees or to executives of the Company for
serving as directors. There are no family relations among any of the directors
or executive officers.

                                      -28-
<PAGE>
 
 Item 11.  Executive Compensation.

  The following table sets forth information concerning the compensation for the
fiscal years ended January 2, 1999, December 27, 1997, and December 28, 1996 of
Mr. Key, the former Chief Executive Officer of the Company, Mr. Moran, the Chief
Executive Officer of the Company and the four other most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers").

                                      -29-
<PAGE>
 
                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                 Annual Compensation                      Long Term Compensation
-------------------------------------------------------------------------------------------------------------------
                                                                           Other       Securities
                                                                          Annual       Underlying       All Other
Name and Principal Position            Salary           Bonus          Compensation      Options       Compensation
                               Year     ($)              ($)                ($)            (#)             ($)
-------------------------------------------------------------------------------------------------------------------
<S>                            <C>   <C>          <C>                  <C>            <C>            <C>       
Henry P. Key (1)               1998  285,387(2)       103,125             --- (3)      115.73(4)       1,883,556(7)
  Former Chief Executive       1997  225,000          134,076             --- (3)       18.17(5)           4,575(8)
  Officer                      1996  191,644          150,000             --- (3)        2.00(5)           5,358(8)
-------------------------------------------------------------------------------------------------------------------
Robert L. Moran                1998  163,923           80,000             --- (3)       32.75(6)          30,905(10)
  President and Chief          1997  130,000           46,475             --- (3)        5.27(5)           3,750(9)
  Executive Officer            1996  120,000           47,000             --- (3)        0.34(5)             ---
-------------------------------------------------------------------------------------------------------------------
John A. Goebel, Jr.            1998  140,000           70,000             --- (3)       41.66(6)          23,234(11)
  President, HomeCrest         1997  130,000           48,750             --- (3)        4.32(5)           1,284(9)
                               1996  124,407           77,797             --- (3)        0.34(5)             930(9)
-------------------------------------------------------------------------------------------------------------------
Thomas J. Schmidt              1998  123,832           37,150             --- (3)       23.15(6)          17,307(12)
  Vice President,              1997  118,832           44,563             --- (3)        2.83(5)           1,172(9)
  Marketing, HomeCrest         1996  115,253           72,003             --- (3)        0.20(5)             183(9)
-------------------------------------------------------------------------------------------------------------------
Craig Rae                      1998  124,615           36,000             --- (3)        9.26(6)           1,800(9)
  Vice President, Sales        1997    6,923           10,000             ---             ---                ---
  and Marketing                1996      ---              ---             ---             ---                ---
-------------------------------------------------------------------------------------------------------------------
Michael Hagan                  1998  106,209           31,875             --- (3)       23.15(6)          16,947(13)
  Vice President,              1997  101,029           37,886             --- (3)        2.83(5)             997(9)
  Administration, HomeCrest    1996   97,990           61,242             --- (3)        0.20(5)             148(9)
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Mr. Key resigned from the Company effective October 30, 1998.  In 
     connection with his resignation, the Company agreed to pay Mr. Key
     severance equal to 12 months base salary, payable in the form of
     continuation of salary in accordance with the Company's normal payroll
     practices and a bonus for fiscal 1998 equal to $103,125. In addition, the
     Company agreed to repurchase the shares of Common Stock and options to
     purchased shares of Common Stock of Holdings at a price per share equal to
     $1,362.68, less any applicable exercise price.
(2)  Represents salary payable through October 14, 1998 as well as severance
     payments, in the form of salary continuation, from October 15, 1998 through
     January 2, 1999.
(3)  The perquisites and other benefits paid did not exceed the lesser of 
     $50,000 or 10% of the total annual salary and bonus of such Named 
     Executive Officer.
(4)  The options represent options to purchase shares of the Common Stock of
     Holdings following the Merger, at an exercise price per share of $1,000.00.
     All of such options were repurchased by the Company in connection with Mr.
     Key's resignation from the Company.
(5)  The options represent options to purchase shares of common stock of Omega
     Holdings, Inc. prior to the Merger, at an exercise price per share of
     $12,963.51.
(6)  The options represent options to purchase shares of the Common Stock of
     Holdings following the Merger, at an exercise price per share of $1,000.00.
(7)  Represents $1,745,324 received from the repurchase of Mr. Key's equity in
     Holdings in connection with his resignation, $134,213 received as a result
     of the working capital adjustment in connection with the OMC Merger and
     Recapitalization, and $4,019 as amounts matched by the Company under the
     Company's 401(k) Profit Sharing Plan.

                                      -30-
<PAGE>
 
(8)  Mr. Key's additional compensation reflects a $2,000 annual premium on a 
     life insurance policy maintained by the Company as well as amounts 
     matched by the Company under a 401(k) Profit Sharing Plan.
(9)  Additional compensation amounts refer to amounts matched by the Company
     under the Company's 401(k) Profit Sharing Plan.
(10) Represents $25,987 received as a result of the working capital adjustment
     in connection with the OMC Merger and Recapitalization, and $4,918 as
     amounts matched by the Company under the Company's 401(k) Profit Sharing
     Plan.
(11) Represents $19,997 received as a result of the working capital adjustment
     in connection with the OMC Merger and Recapitalization, and $3,237 as
     amounts matched by the Company under the Company's 401(k) Profit Sharing
     Plan.
(12) Represents $14,063 received as a result of the working capital adjustment
     in connection with the OMC Merger and Recapitalization, and $3,244 as
     amounts matched by the Company under the Company's 401(k) Profit Sharing
     Plan.
(13) Represents $14,063 received as a result of the working capital adjustment
     in connection with the OMC Merger and Recapitalization, and $2,834 as
     amounts matched by the Company under the Company's 401(k) Profit Sharing
     Plan.

Option Grants

     The following table sets forth information concerning grants of options to
purchase Common Stock of Holdings made to the Named Executive Officers during
the fiscal year ended January 2, 1999.
 

                          OPTION GRANTS IN FISCAL 1998
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                   Individual Grants 
                                                Percent                                 Potential Realizable
                                               of Total                                   Value at Assumed 
                             Number of          Options                                   Annual Rates of  
                             Securities       Granted to         Exercise                   Stock Price    
                             Underlying      Employees in        Price Per                  Appreciation   
                              Options         Fiscal 1998          Share     Expiration   for Option Term (3) 
Name                          Granted (#)(1)             (%)(2)     ($)         Date      5% ($)   10% ($)
<S>                          <C>             <C>                 <C>         <C>         <C>      <C>    
 
Henry P. Key                     115.73               26.4           1,000    2/24/2008  72,782   184,444

Robert L. Moran                   32.75                7.5           1,000    2/24/2008  20,596    52,195

John A. Goebel, Jr.               41.66                9.5           1,000    2/24/2008  26,200    66,395

Thomas J. Schmidt                 23.15                5.3           1,000    2/24/2008  14,559    36,894

Craig Rae                          9.26                2.1           1,000    2/24/2008   5,824    14,758

Michael Hagan                     23.15                5.3           1,000    2/24/2008  14,559    36,895
</TABLE>

                                      -31-
<PAGE>
 
-------------------------------------
(1) Represents shares of Common Stock of Holdings following the Merger.
(2) Percentages are based upon the total number of options to purchase shares of
    Common Stock of Holdings granted to employees in fiscal 1998.
(3) There is currently no market for the Common Stock of Holdings.  For purposes
    of the calculations in this table, the fair market value of the Common Stock
    was determined by the Board of Directors based upon arms length sales of
    shares of Common Stock of Holdings.  There have been no arms length sales of
    the Common Stock of Holdings since February 26, 1999.  In accordance with
    the rules of the Securities and Exchange Commission, the amounts shown on
    this table represent hypothetical gains that could be achieved for the
    respective options if exercised at the end of the option term. These gains
    are based on assumed rates of stock appreciation of 5% and 10% compounded
    annually from the date the respective options were granted to their
    expiration date. The gains shown are net of the option exercise price, but
    do not include deductions for taxes or other expenses associated with the
    exercise. Actual gains, if any, on stock option exercises will depend on the
    future performance of Holdings' Common Stock, the optionholder's continued
    employment through the option period, and the date on which the options are
    exercised.

Option Exercises and Fiscal Year-End Values

     The following table sets forth information with respect to options awarded
under the Holdings Stock Option Plan, including the number and aggregate value
of unexercised options outstanding on January 2, 1999.

                   AGGREGATED OPTION EXERCISES IN FISCAL 1998
                       AND FISCAL YEAR-END OPTIONS VALUES
-------------------------------------------------------------------------------
<TABLE>
<CAPTION> 

                                                                Number of Securities             Value of Unexercised
                                                               Underlying Unexercised           In-The-Money Options At
                       Shares Acquired                       Options At Fiscal Year-End             Fiscal Year-End
                         On Exercise     Value Realized      (Exercisable/Unexercisable)      (Exercisable/Unexercisable)
Name                         (#)             ($)(2)                     (#)(3)                          ($)(2)(3)
<S>                    <C>               <C>                 <C>                              <C>
Henry P. Key                --- (1)          --- (1)                      ---                              ---

Robert L. Moran             ---              ---                        32.75/0                         12,179/0

John A. Goebel, Jr.         ---              ---                        41.66/0                         15,492/0

Thomas J. Schmidt           ---              ---                        23.15/0                          8,609/0

Craig Rae                   ---              ---                         9.26/0                          3,444/0

Michael Hagan               ---              ---                        23.15/0                          8,609/0
</TABLE>

-------------------------------------
(1)      In connection with Mr. Key's resignation from the Company effective
         October 30, 1998, the Company agreed to repurchase all of Mr. Key's
         options to purchase shares of Common Stock of Holdings at a price per
         share equal to $1,362.68.  The gross proceeds to Mr. Key from the sale
         of options to purchase 115.73 shares of Common Stock of Holdings,
         representing all of the options to purchase shares of Common Stock of
         Holdings owned by Mr. Key, was $41,973.

                                      -32-
<PAGE>
 
(2)      Value is based on the difference between the option exercise price and
         the fair market value at January 2, 1999.  The fair market value of the
         Common Stock of Holdings ($1,371.87 per share) was determined by the
         Board of Directors based upon arms length sales of shares of Common
         Stock of Holdings.  There have been no arms length sales of the Common
         Stock of Holdings since February 26, 1999.
(3)      Represents options to purchase shares of Common Stock of Holdings at an
         exercise price of $1,000 per share.


Employment Contracts, Termination of Employment and Change of Control
Arrangements

  Mr. Moran is currently employed with the Company pursuant to an agreement
dated September 11, 1995, as amended on June 13, 1997. Under this agreement, Mr.
Moran receives an annual salary of $120,000, subject to annual increases, and is
eligible for a bonus of up to 30% of base salary. Mr. Moran is entitled to
receive twelve months' continued salary and benefits if he is terminated for
reasons other than cause. Following Mr. Moran's promotion to President and Chief
Executive Officer of Omega, the Company agreed to increase his salary to 
$190,000 and his bonus to 50%.

  Mr. Horton is currently employed as Senior Vice President, Treasurer, and
Chief Financial Officer, Omega pursuant to an agreement dated October 15, 1998.
Under this agreement, Mr. Horton is entitled to receive a base salary, subject
to annual increases, and a bonus in accordance with the Company's Executive
Bonus Plan for senior management ("Bonus Plan"). Mr. Horton is also entitled to
receive restricted stock equivalent to a value of $50,000. In addition, Mr.
Horton is eligible to purchase shares of stock in Holdings which may be
purchased with the proceeds of a bank loan for up to 50% of the purchase price.
Mr. Horton is also eligible to receive stock options to be granted over a five-
year period.

  Mr. Goebel is currently employed as President, HomeCrest pursuant to an
agreement dated April 10, 1995, as amended on June 13, 1997. Under this
agreement, Mr. Goebel is entitled to receive a base salary, subject to annual
increases, and a bonus in accordance with the Company's Bonus Plan. Mr. Goebel
is also entitled to receive twelve months' continued salary and benefits if he
is terminated from the Company without cause. Mr. Goebel has the right under a
put agreement dated June 13, 1997 to cause Holdings to repurchase his Common
Stock in the event of his normal retirement from Holdings.

  Mr. Rae is currently employed as Vice President, Sales & Marketing, Omega
pursuant to an agreement dated October 22, 1997.  Under this agreement, Mr. Rae
is entitled to receive a base salary, subject to annual increases, and a bonus
in accordance with the Company's Bonus Plan.  Mr. Rae is also entitled to
receive six months' continued salary and benefits if he is terminated from the
Company without cause.  In addition, Mr. Rae is eligible to participate in the
equity ownership of Holdings in an amount up to $100,000 and to receive
additional fully-diluted option shares under the management stock option
program.

                                      -33-
<PAGE>
 
  Mr. Hagan is currently employed as Vice President, Administration, HomeCrest
pursuant to an agreement dated April 10, 1995. Under this agreement, Mr. Hagan
is entitled to receive a base salary, subject to annual increases, and a bonus
in accordance with the Company's Bonus Plan. Mr. Hagan is also entitled to
receive six months' continued salary and benefits if he is terminated from the
Company without cause.

  Mr. Schmidt is currently employed as Vice President, Marketing, HomeCrest
pursuant to an agreement dated April 10, 1995. Under this agreement, Mr. Schmidt
is entitled to receive a base salary, subject to annual increases, and a bonus
in accordance with the Company's Bonus Plan. Mr. Schmidt is also entitled to
receive six months' continued salary and benefits if he is terminated from the
Company without cause.

  The Named Executive Officers of the Company participate in the Bonus Plan
whereby they are eligible to receive a base bonus potential of 30-50% of base
salary, with the Chief Executive Officer having a base bonus potential of 50% of
salary. Payout is on a sliding scale based on operating profit performance
against budget starting at 85% of budget. There is an opportunity to earn up to
125% of the base potential based on achieving 105% of planned operating income
performance.

  Mr. Key resigned from Holdings and the Company effective October 30, 1998.
Pursuant to a Severance Agreement dated October 30, 1998, and in consideration
for the termination of Mr. Key's employment agreement with the Company, the
Company agreed to pay Mr. Key 12 months continued salary at his then current
base rate and a bonus equal to $103,125 for fiscal 1998.  The Company also
agreed to pay Mr. Key $62,855 contingent upon the Company meeting specified
financial targets for fiscal 1998.  In addition, the Company agreed to
repurchase all of Mr. Key's equity of Holdings at a purchase price equal to
approximately $1,745,324, which amount is equal $1,362.68 per share, less
applicable exercise prices. Pursuant to the Severance Agreement, Mr. Key agreed
to release all present and future claims against the Company and its affiliates,
including past and present officers, directors and stockholders of the Company.

Compensation Committee Interlocks and Insider Participation

  The Company does not have a compensation committee.  Instead, compensation
decisions for fiscal 1998 regarding the Company's executive officers were made
by the Board of Directors.  Mr. Key, an executive officer of the Company prior
to his resignation, served on the Board of Directors prior to his resignation.
Mr. Moran, an executive officer of the Company, has served on the Board of
Directors since November 4, 1998.  The compensation for Mr. Key and Mr. Moran
for the year ended January 2, 1999 was established pursuant to the terms of
their respective employment agreements.

 Item 12.  Security Ownership of Certain Beneficial Owners and Management.

  All of Omega's issued and outstanding capital stock is owned by Holdings.  As
of March 1, 1999, the outstanding capital stock of Holdings consisted of
79,946.8 shares of Common Stock, $.01 par value per share.

                                      -34-
<PAGE>
 
  The following table sets forth certain information as of March 1, 1999
regarding the beneficial ownership of (i) each class of voting securities of
Holdings by each person known to Holdings to own more than 5% of any class of
outstanding voting securities of Holdings, and (ii) the equity securities of
Holdings by each Director of Holdings and the Company, each Named Executive
Officer and all of Holdings' and the Company's directors and executive officers
as a group. To the knowledge of Holdings, each such stockholder has sole voting
and investment power as to the shares shown unless otherwise noted.  Beneficial
ownership of the securities listed in the table has been determined in
accordance with the applicable rules and regulations promulgated under the
Securities Exchange Act of 1934, as amended.

                                      -35-
<PAGE>
 
<TABLE>
<CAPTION>
                                                   Shares Beneficially Owned
                                                   -------------------------
                                                         Common Stock
                                                   -------------------------
                                                      Number     Percentage
                Name and Address                    of Shares     of Class
-------------------------------------------------  -----------  ------------
<S>                                                <C>          <C>
Principal Stockholder:
Mezzanine Lending
  Associates III, L.P. (1).......................     74,345.9          86.5
 c/o Butler Capital Corporation
767 Fifth Avenue, 6th Floor
New York, New York 10153

Directors and Executive Officers:

Gilbert Butler(2)................................     74,345.9          86.5

Costa Littas(2)..................................     74,345.9          86.5

Donald E. Cihak..................................          ---           ---

David Kim........................................          ---           ---

Robert J. Bertch.................................      3,500.0           4.1

Robert L. Moran(3)...............................        822.8           1.0

John A. Goebel, Jr.(4)...........................        768.6           1.0

Thomas J. Schmidt(5).............................        315.9             *

Craig Rae(6).....................................        209.3             *

Earl M. Lytle (7)................................         59.6             *

Michael Hagan(8).................................        315.9             *

John S. Horton(9)................................        600.0           1.0

Douglas J. Conley(10)............................        315.9             *

Herbert D. Buller(11)............................        960.3           1.1

All Directors and executive officers as a group
 (14 persons)(12)................................      7,868.3           9.2
</TABLE>

-------------------------------
*    Represents less than one percent.
(1)  Includes warrants to purchase 2,806.3 shares of Common Stock held by ISI, a
     corporation wholly-owned by certain investment funds managed by BCC,
     including MLA III.  Does not include shares owned by other stockholders
     that are subject to the Stockholders Agreement.  See "Certain Relationships
     and Related Transactions -- Stockholders Agreement."

                                      -36-
<PAGE>
 
(2)  The shares of Common Stock included in the table represent shares held by
     MLA III and ISI. Messrs. Butler and Littas are Managing General Partner and
     General Partner, respectively, of  Mezzanine Lending Management III, L.P.
     ("MLM III"), the general partner of MLA III, and, accordingly, may be
     deemed to beneficially own shares beneficially owned by MLA III. Each such
     person disclaims beneficial ownership of any such shares in which he does
     not have a pecuniary interest.  The address of each such person is c/o
     Butler Capital Corporation, 767 Fifth Avenue, 6th Floor, New York, New York
     10153.
(3)  The shares of Common Stock included in the table include 340.0 shares that
     are held in the Rabbi Trust, see "Certain Relationships and Related
     Transactions -- Deferred Compensation Plan and Rabbi Trust", 32.8 shares
     that can be acquired upon the exercise of outstanding options, and 450.0
     shares subject to a Stock Pledge Agreement between Mr. Moran and the
     Company.  See "Certain Relationships and Related Transactions -- Certain
     Loans to Executive Officers."
(4)  The shares of Common Stock included in the table include 323.4 shares that
     are held in the Rabbi Trust, see "Certain Relationships and Related
     Transactions -- Deferred Compensation Plan and Rabbi Trust", 41.7 shares
     that can be acquired upon the exercise of outstanding options and 200.0
     shares subject to Stock Pledge Agreement between Mr. Goebel and the
     Company.  See "Certain Relationships and Related Transactions -- Certain
     Loans to Executive Officers."
(5)  The shares of Common Stock included in the table include 195.4 shares that
     are held in the Rabbi Trust, see "Certain Relationships and Related
     Transactions -- Deferred Compensation Plan and Rabbi Trust", and 23.2
     shares that can be acquired upon the exercise of outstanding options.
(6)  The shares of Common Stock included in the table include 9.3 shares that
     can be acquired upon the exercise of outstanding options and 100.0 shares
     subject to a  Stock Pledge Agreement between Mr. Rae and the Company.  See
     "Certain Relationships and Related Transactions -- Certain Loans to
     Executive Officers."
(7)  The shares of Common Stock included in the table include 9.6 shares that
     can be acquired upon the exercise of outstanding options.
(8)  The shares of Common Stock included in the table include 195.0 shares that
     are held in the Rabbi Trust, see "Certain Relationships and Related
     Transactions -- Deferred Compensation Plan and Rabbi Trust", and 23.2
     shares that can be acquired upon the exercise of outstanding options.
(9)  The shares of Common Stock included in the table include 39.5 shares that
     are subject to vesting and 521.0 shares subject to a Stock Pledge Agreement
     between Mr. Horton and the Company.  See "Certain Relationships and Related
     Transactions -- Certain Loans to Executive Officers."
(10) The shares of Common Stock included in the table include 195.0 shares that
     are held in the Rabbi Trust, see "Certain Relationships and Related
     Transactions -- Deferred Compensation Plan and Rabbi Trust", and 23.2
     shares that can be acquired upon the exercise of outstanding options.
(11) The shares of Common Stock included in the table represent 960.3 shares of
     Class B Common Stock of Kitchen Craft held by HEB2 Holdings Ltd., which are
     exchangeable into an equal number of shares of Holdings Common Stock in
     accordance with the terms thereof.  The shares of Class B Common Stock of
     Kitchen Craft are exchangeable at any time upon the request of the holder
     into shares of Holdings Common Stock and are required to be exchanged by
     the holder upon the request of the Company in connection with any merger,
     sale, disposition or other significant transaction affecting Holdings or
     Kitchen Craft, upon the termination of such holder's employment with the
     Company and its subsidiaries, or, at any time after January 29, 2006.  Mr.
     Buller disclaims beneficial disclaims beneficial ownership of any such
     shares in which he does not have a pecuniary interest.
(12) Excludes shares deemed to be beneficially owned by Messrs. Butler and
     Littas.

                                      -37-
<PAGE>
 
 Item 13.  Certain Relationships and Related Transactions.

OMC Merger and Related Agreements

  The OMC Merger occurred on June 13, 1997. Concurrently with the OMC Merger, an
aggregate consideration of $201.6 million was paid, subject to adjustment based
on the working capital of Holdings at the closing date. The merger agreement
contains customary representations, warranties, covenants and indemnification
provisions. In connection with the OMC Merger, pursuant to a Merger Financing
Agreement (the "Financing Agreement") with MLA III, MLA III purchased 61,865
shares of Common Stock of Holdings for $61.9 million and Holdings issued an 11%
junior subordinated note to MLA III (the "Junior Subordinated Note").  The
Junior Subordinated Note was repaid in July 1997 with proceeds from an offering
by the Company under Rule 144A of the Securities Act of 1933, as amended (the
"Act") for $100 million in aggregate principal amount of 10 1/2% senior
subordinated notes.  Under the Financing Agreement, the Company has agreed to
indemnify and pay certain expenses of BCC and its affiliates and their advisors
and consultants under certain circumstances.

Stockholders Agreement

  In connection with the Merger, MLA III, ISI, management, the American National
Bank and Trust Company of Chicago, as trustee of the Rabbi Trust, each
participant in the Rabbi Trust, and all of the other stockholders and
optionholders of Holdings entered into a stockholders agreement (the
"Stockholders Agreement"), that, among other things, provides for tag-along
rights, drag-along rights, registration rights, restrictions on the transfer of
shares held by parties to the Stockholders Agreement and certain preemptive
rights for certain stockholders including management. The Stockholders Agreement
also provides that the parties thereto will vote their shares in the same manner
as MLA III and ISI in connection with certain transactions and that MLA III and
ISI will be entitled to fix the number of directors of Holdings.  Pursuant to
the Stockholders Agreement, MLA III and ISI will be entitled to designate all of
the directors except for one, which will be the chief executive officer.

Management Agreement

  In connection with the OMC Merger, the Company and Holdings entered into a
management agreement ("Management Agreement") with ISI, a management
consulting company wholly owned by investment funds managed by BCC.  The
Management Agreement was supplemented by Supplement No. 1 thereto.  Pursuant to
the Management Agreement, as supplemented, the Company and Holdings agree to pay
ISI $425,000 per year plus certain fees and expenses, including legal and
accounting fees and any out-of-pocket expenses incurred by ISI in connection
with providing services to the Company, and to indemnify ISI under certain
circumstances. In addition, ISI received warrants to purchase an aggregate of
2,391.4 shares of Common Stock of Holdings at an exercise price of $1,000 per
share and 414.9 shares of Common Stock of Holdings at an exercise price of
$1,371.87 per share. The warrants expire in 2007 and 2009, respectively.

                                      -38-
<PAGE>
 
Deferred Compensation Plan and Rabbi Trust

  In connection with the OMC Merger, Holdings and its subsidiaries adopted the
1997 Omega Holdings, Inc. Deferred Compensation Plan (the "Plan") for the
purpose of providing the following benefits to those employees of Holdings and
its subsidiaries whose options to purchase shares of Holdings were canceled as a
result of the OMC Merger (the "Plan Participants"). Under the terms of the
Merger agreement, upon consummation of OMC Merger, each option to purchase
shares of Holdings stock held by the Plan Participants prior to the merger was
canceled, and Holdings established a deferred compensation obligation pursuant
to the Plan for the benefit of each Plan Participant. Benefits under the Plan
are payable in cash and in shares of Holdings stock, and are payable to Plan
Participants upon termination of employment or, under certain limited
circumstances, prior to termination. The benefits provided by the Plan represent
the unsecured obligations of Holdings.

  As contemplated by the Plan and pursuant to the Rabbi Trust Agreement dated as
of June 13, 1997 between Holdings and American National Bank and Trust Company
of Chicago, as trustee, Holdings established the Rabbi Trust to hold
approximately 3,224.5 shares of Holdings Common Stock to satisfy Holdings'
obligations as provided in the Plan. In 1998, certain shares of Holdings were 
redeemed under terms of the Rabbi Trust Agreement and the Plan. Currently 
1,674.5 shares of Holdings Common Stock are held in the Plan. The Rabbi Trust
maintains separate accounts for each Plan Participant, which accounts are
intended to reflect the obligation of the Company to distribute cash and shares
of Holdings stock to each Plan Participant. The Rabbi Trust may, at the
direction of the Company, make such distributions to satisfy the obligations of
the Company under the Plan. The Plan does not provide for elective deferrals by
Plan Participants.

Management Equity Arrangements

  Holdings adopted a stock option plan for the benefit of employees of Holdings
and its subsidiaries in June 1997 (the "Stock Option Plan"). Pursuant to the
Stock Option Plan, 7,812.0 shares of Holdings Common Stock have been reserved
for issuance pursuant to the plan. The Stock Option Plan is administered by the
Board of Directors of Holdings, which has discretionary authority to grant
options and determine the terms and conditions of each award. No awards may be
granted under the Stock Option Plan after the completion of ten years from its
adoption, but awards previously granted may extend beyond that date.

  In addition, pursuant to the Stockholders Agreement, certain management
stockholders have the right to cause Holdings to repurchase Holdings Common
Stock held by such management stockholders upon their death or disability. In
addition, Mr. Goebel has entered into a put agreement with Holdings dated as of
June 13, 1997, whereby Mr. Goebel has the right, in addition to his rights under
the Stockholders Agreement, to cause Holdings to repurchase Holdings Common
Stock held by him in the event of normal retirement from Holdings.

                                      -39-
<PAGE>
 
Sale of Land to the Company

  Pursuant to the Offer and Acceptance Contract dated September 15, 1998, the
Company purchased Lots Nos. 1 and 2 and a portion of Lot No. 3 in the Airline-
Burton Industrial Park, Waterloo, Iowa from Robert J. Bertch, a director of the
Company, and Mary H. Bertch.  The Company paid a purchase price of $70,535.20
and took possession of the property on October 1, 1998.  In connection with the
sale, the Company agreed to compensate the tenant for any loss to the crops
caused by the Company.

Certain Loans to Executive Officers

  In connection with the purchase of shares of Common Stock of Holdings,
Holdings accepted as payment from certain executive officers purchasing such
shares a note bearing interest at the Applicable Federal Rate.  Mr. Moran, Mr.
Goebel, Mr. Rae and Mr. Horton received loans of approximately $617,343,
$274,375, $137,187 and $681,019, respectively, in connection with the purchase
of 450.0, 200.0, 100.0 and 521.0 shares, respectively, of Common Stock of
Holdings.  The Company has agreed to permit such executive officers to repay
their respective loan obligations with proceeds received from the sale or other
disposition of the Common Stock purchased therewith.  Repayment of each of the
loans is secured by a pledge of the Common Stock purchased by such executive
officer.


                                    Part IV

 Item 14.  Exhibits, Financial Statements Schedules, and Reports on Form 8-K.

(a)(1) Financial Statements

  See Index to Financial Statements appearing at page F-1.
 
(a)(2)  Financial Statement Schedules

  The following Financial Statement Schedule is included at page F-19:

  Schedule II - Valuation and Qualifying Accounts.
 
  Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the consolidated financial statements or
notes thereto.

                                      -40-
<PAGE>
 
(a)(3)  Exhibits

2.1   Master Transaction Agreement dated as of January 29, 1999 (Incorporated by
      reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the
      Commission on February 12, 1999).
3.1   Certificate of Incorporation, as amended, of the Registrant*
3.2   By-laws of the Registrant*
4.1   Indenture dated as of July 24, 1997*
4.2   First Supplemental Indenture dated January 28, 1999 (Incorporated by
      reference to Exhibit 99.1 to the Current Report on Form 8-K filed with the
      Commission on February 12, 1999).
4.3   Second Supplemental Indenture dated January 29, 1999 (Incorporated by
      reference to Exhibit 99.2 to the Current Report on Form 8-K filed with the
      Commission on February 12, 1999).
10.1  First Amended and Restated Credit Agreement dated as of January 29
      (Incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K filed with the Commission on February 12, 1999).
10.2  Panther Security Agreement dated as of January 29, 1999.
10.3  Omega Security Agreement dated as of January 29, 1999.
10.4  Omega Pledge Agreement dated as of January 29, 1999.
10.5  Collateral Assignment of Trademarks dated as of June 13, 1997.*
10.6  Management Agreement dated June 13, 1997*
10.7  Financing Agreement dated June 13, 1997*
10.8  Deferred Compensation Plan dated June 13, 1997*
10.9  Rabbi Trust Agreement dated June 13, 1997*
10.10 Key Employment Agreement dated September 16, 1997*
10.11 Key Severance Agreement dated October 30, 1998.
10.12 Moran Employment Agreement dated September 11, 1995, as amended June 13,
      1997*
10.13 Moran Severance Agreement dated April 24, 1997*
10.14 [Reserved]
10.15 [Reserved]
10.16 Goebel Employment Agreement dated April 10, 1995, as amended June 13,
      1997*
10.17 Goebel Severance Agreement dated April 24, 1997*
10.18 Hagan Employment Agreement dated April 10, 1995*
10.19 Hagan Severance Agreement dated April 24, 1997*
10.20 Schmidt Employment Agreement dated April 10, 1995*
10.21 Schmidt Severance Agreement dated April 24, 1997*
10.22 Deferred Non-Qualified Compensation Agreement dated June 28, 1997*
10.23 Company Bonus Plan*
10.24 Stockholders Agreement dated June 13, 1997*
10.25 Omega Holdings, Inc. Stock Option Plan*
10.26 Key Put Agreement dated June 13, 1997*
10.27 Goebel Put Agreement dated June 13, 1997*

                                      -41-
<PAGE>
 
10.28 Bulrad Illinois Security Agreement dated as of January 29, 1999.
10.29 Omega Kitchen Craft Holdings Pledge Agreement dated as of January 29,
      1999.
10.30 Omega Kitchen Craft U.S. Corp. Pledge Agreement dated as of January 29,
      1999.
10.31 Bulrad Illinois Guaranty dated as of January 29, 1999.
10.32 Credit Agreement dated as of January 29, 1999 (incorporated by reference
      to Exhibit 4.2 to the Current Report on Form 8-K filed with the Commission
      on February 12, 1999).
10.33 3578275 Canada General Security Agreement dated as of January 29, 1999.
10.34 Omega Guarantee dated as of January 29, 1999.
10.35 Kitchen Craft Guarantee dated as of January 29, 1999.
10.36 Kitchen Craft Security Agreement dated as of January 29, 1999.
10.37 Supplement No. 1 to the Management Agreement dated January 29, 1999.
10.38 H. Buller Employment Agreement dated January 29, 1999.
10.39 M. Buller Employment Agreement dated January 29, 1999.
10.40 J. Horton Employment Agreement dated October 15, 1998.
10.41 C. Rae Employment Agreement dated October 22, 1997.
10.42 Offer and Acceptance Contract dated September 15, 1998 for sale of land
      to Company.
12.1  Statement regarding computation of ratio of earnings to fixed charges.
21.1  Subsidiaries of the Registrant.
27.1  Financial Data Schedules.
______________

*    Incorporated by reference to the similarly numbered exhibit in the
     Company's Registration Statement on Form S-4, No. 333-37135, filed October
     3, 1997.

(b)  Reports on Form 8-K.

     On November 12, 1998, Omega announced the election of Robert Moran as
President, Chief Executive Officer and a director of each of Holdings and the
Company, and the resignation of Henry P. Key as President, Chief Executive
Officer and a director of each of Holdings and the Company and from all offices
and positions held with each subsidiary of Holdings, including the Company.

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

          No annual report has been sent to security holders covering the
registrant's last fiscal year and no proxy materials have been sent to more than
10 of the registrant's security holders during the registrant's last fiscal
year.

                                      -42-
<PAGE>
 
                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
 
                                         OMEGA CABINETS, LTD.



                                         By: /s/ Robert L. Moran
                                             ---------------------------------
                                             Name: Robert L. Moran
                                             Title: Chief Executive Officer

  Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

 
/s/ Robert L. Moran      
----------------------    Director, Chief Executive   March 29, 1999
Robert L. Moran           Officer, President
                          (principal executive
                          officer)
                    
                    
/s/ John S. Horton  
----------------------    Senior Vice President,      March 30, 1999
John S. Horton            Treasurer, Chief Financial
                          Officer (Principal
                          Financial and Accounting
                          Officer)
                    
                    
/s/ Robert J. Bertch
----------------------    Director                    March 30, 1999
Robert J. Bertch    


/s/ Gilbert Butler  
----------------------    Director                    March 31, 1999
Gilbert Butler      
                    

/s/ Donald E. Cihak 
----------------------    Director                    March 31, 1999
Donald E. Cihak     
                    

/s/ Costa Littas    
----------------------    Director                    March 31, 1999
Costa Littas

                                      -43-
<PAGE>
 

/s/ David Kim
----------------------   Director                    March 30, 1999
David Kim


/s/ Herbert D. Bulller 
----------------------   Director                    March 31, 1999
Herbert D. Buller

                                      -44-
<PAGE>
 
                         INDEX TO FINANCIAL STATEMENTS
                                        



<TABLE>
<CAPTION>
 
 
                                                                  Page
                                                                  ----
<S>                                                               <C>
 
Consolidated Financial Statements of Omega Cabinets, Ltd.
 Report of Independent Auditors.................................   F-2
 Consolidated Balance Sheets as of January 2, 1999 and
December 27, 1997...............................................   F-3
 Consolidated Statements of Income for the years ended
  January 2, 1999, December 27, 1997 and December 28, 1996......   F-5
 Consolidated Statements of Stockholder's Equity (Deficit) for
  the years ended January 2, 1999, December 27, 1997
  and December 28, 1996.........................................   F-6
 Consolidated Statements of Cash Flows for the years ended
  January 2, 1999, December 27, 1997 and December 28, 1996......   F-7
 Notes to Consolidated Financial Statements.....................   F-9
 
Schedule II  Valuation and Qualifying Accounts..................   F-19
</TABLE>

                                      F-1
<PAGE>
 
                         Report of Independent Auditors



The Board of Directors
Omega Holdings, Inc.


We have audited the accompanying consolidated balance sheets of Omega Cabinets,
Ltd. (a wholly-owned subsidiary of Omega Holdings, Inc.) as of January 2, 1999
and December 27, 1997, and the related consolidated statements of income,
stockholder's equity (deficit), and cash flows for each of the three years in
the period ended January 2, 1999. Our audits also included the financial
statement schedule listed in Item 14(a). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Omega Cabinets,
Ltd. at January 2, 1999 and December 27, 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended January 2, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.


                                                               ERNST & YOUNG LLP


Des Moines, Iowa
February 19, 1999

                                      F-2
<PAGE>
 
                              Omega Cabinets, Ltd.

                          Consolidated Balance Sheets



<TABLE>
<CAPTION>
                                                            January 2         December 27
                                                              1999               1997
                                                      -------------------------------------
<S>                                                     <C>                <C>
Assets (Notes 4 and 10)
Current assets:
 Cash                                                       $    650,703       $    157,520
 Income tax receivable                                           284,228          1,839,854
 Accounts receivable, less allowance for doubtful
  accounts of $1,489,000 in 1998 and $1,804,000
  in 1997                                                     13,788,890         15,097,575
 Inventories (Note 3)                                         11,764,729         11,496,588
 Prepaid expenses and other                                      588,566            438,064
 Deferred income taxes (Note 6)                                  765,000          1,025,000
                                                            -------------------------------
Total current assets                                          27,842,116         30,054,601
 
Property, plant, and equipment, at cost:
 Land and improvements                                         1,217,517            931,330
 Buildings                                                    15,309,166         14,972,641
 Machinery and equipment                                      17,973,534         16,100,580
 Construction in progress                                      1,939,368            546,212
                                                            ------------------------------- 
                                                              36,439,585         32,550,763
 Less accumulated depreciation                                (7,602,297)        (5,298,501)
                                                            ------------------------------- 
                                                              28,837,288         27,252,262
 
Deferred financing costs, less accumulated
 amortization of $1,090,766 in 1998 and $350,281
 in 1997                                                       5,360,388          5,853,666
Goodwill, less accumulated amortization of $5,852,007
 in 1998 and $4,412,326 in 1997                               51,418,582         52,858,262
Deferred income taxes (Note 6)                                                      475,000
Other assets                                                     749,389            852,507
                                                            ------------------------------- 
Total assets                                                $114,207,763       $117,346,298
                                                            ===============================
</TABLE>

                                      F-3
<PAGE>
 
<TABLE>
<CAPTION>
                                                           January 2        December 27
                                                              1999              1997
                                                      -----------------------------------
<S>                                                 <C>                 <C>  
Liabilities and stockholder's equity (deficit)
Current liabilities:
 Accounts payable                                          $  3,790,367      $  6,802,096
 Accrued expenses                                             7,721,071         7,501,504
 Current portion of long-term debt (Note 4)                  11,105,324        13,800,000
                                                      -----------------------------------
Total current liabilities                                    22,616,762        28,103,600
 
Deferred income taxes (Note 6)                                1,150,000                 - 
 
Long-term debt, less current portion (Notes 4 and 10)       130,750,000       132,320,000
 
Other liabilities                                                     -            75,103
 
Commitments (Note 5)
 
Stockholder's equity (deficit) (Notes 2, 4, 8, 9 and
 10):
 Common stock, $.01 par value; 10,000 shares
  authorized; 1,000 shares issued and outstanding                    10                10
 Additional paid-in capital                                  61,072,025        62,835,425
 Predecessor basis adjustment                               (11,031,662)      (11,031,662)
 Retained earnings (deficit)                                (90,349,372)      (94,956,178)
                                                      -----------------------------------
Total stockholder's equity (deficit)                        (40,308,999)      (43,152,405)
 
 
 
 
 
                                                      -----------------------------------
Total liabilities and stockholder's equity (deficit)       $114,207,763      $117,346,298
                                                      ===================================
</TABLE>



See accompanying notes.

                                      F-4
<PAGE>
 
                              Omega Cabinets, Ltd.

                       Consolidated Statements of Income



<TABLE>
<CAPTION>
                                                              Year ended
                                        -----------------------------------------------------
                                             January 2        December 27       December 28
                                                1999              1997             1996
                                        -----------------------------------------------------
 
<S>                                       <C>               <C>               <C>
Net sales                                     $169,220,139      $155,898,769     $136,225,643
Cost of goods sold                             121,766,772       112,556,300       97,287,215
                                        -----------------------------------------------------
Gross profit                                    47,453,367        43,342,469       38,938,428
 
Selling, general and administrative
 expenses (Note 8)                              20,101,333        22,171,340       15,309,281
Amortization of goodwill                         1,439,681         1,398,479        1,331,941
                                        -----------------------------------------------------
Operating income                                25,912,353        19,772,650       22,297,206
 
Interest expense                                15,074,327        16,311,997       10,441,182
                                        -----------------------------------------------------
Income before income taxes and
 extraordinary item                             10,838,026         3,460,653       11,856,024
 
 
Income tax expense (Note 6)                      4,180,000         1,695,000        4,700,000
                                        -----------------------------------------------------
Income before extraordinary item                 6,658,026         1,765,653        7,156,024
 
Extraordinary loss on debt refinancing,
 net of income tax benefit of $607,000
 (Note 2)                                                -           947,443                -
                                        -----------------------------------------------------
Net income and comprehensive income           $  6,658,026      $    818,210     $  7,156,024
                                        =====================================================
</TABLE>



See accompanying notes.

                                      F-5
<PAGE>
 
                              Omega Cabinets, Ltd.

           Consolidated Statements of Stockholder's Equity (Deficit)



<TABLE>
<CAPTION>
                                                    Additional     Predecessor Basis  Retained Earnings
                                    Common Stock  Paid-In Capital     Adjustment          (Deficit)              Total 
                                  ------------------------------------------------------------------------------------------
 
<S>                                 <C>           <C>              <C>                <C>                 <C>
Balance at January 1, 1996                 $ 10      $ 2,649,915       $(11,031,662)      $   4,027,533        $  (4,354,204)
 Common stock issued for stock
  options exercised at
  parent-level credited to the                                                                                               
  Company                                     -            3,879                  -                   -                3,879 
 Redemption of common stock at
  parent-level charged to the                                                                                                 
  Company                                     -          (15,631)                 -                   -              (15,631) 
 Net income for 1996                          -                -                  -           7,156,024            7,156,024
                                  ------------------------------------------------------------------------------------------
Balance at December 28, 1996                 10        2,638,163        (11,031,662)         11,183,557            2,790,068
 Capital contribution by parent                                                                                              
  (Note 2)                                   10       62,248,425                  -                   -           62,248,435 
 Dividend to parent to redeem
  common stock and options at
  parent-level                                                                                                                
 (Note 2)                                   (10)      (2,638,163)                 -        (106,957,945)        (109,596,118) 
 Noncash capital contribution                                                                                                
  (Note 5)                                    -          587,000                  -                   -              587,000 
 Net income for 1997                          -                -                  -             818,210              818,210
                                  ------------------------------------------------------------------------------------------
Balance at December 27, 1997                 10       62,835,425        (11,031,662)        (94,956,178)         (43,152,405)
 Common stock issued at
  parent-level credited to the                                                                                               
  Company                                     -          118,627                  -                   -              118,627 
 Dividend to parent to pay
  additional redemption cost
  related to 1997                                                                                                             
  recapitalization (Note 2)                   -                -                  -          (2,051,220)          (2,051,220) 
 Redemption of common stock and
  options at parent-level charged
  to the Company (Note 9)                     -       (2,350,561)                 -                   -           (2,350,561)
 Income tax benefit related to
  redemption of stock (Note 9)                -          465,000                  -                   -              465,000
 Stock option expense (Note 8)                -            3,534                  -                   -                3,534
 Net income for 1998                          -                -                  -           6,658,026            6,658,026
                                  ------------------------------------------------------------------------------------------
Balance at January 2, 1999                 $ 10      $61,072,025       $(11,031,662)      $ (90,349,372)       $ (40,308,999)
                                  ==========================================================================================
</TABLE>



See accompanying notes.

                                      F-6
<PAGE>
 
                              Omega Cabinets, Ltd.

                     Consolidated Statements of Cash Flows



<TABLE>
<CAPTION>
                                                                                      Year ended
                                                             ---------------------------------------------------------
                                                                   January 2          December 27        December 28
                                                                      1999               1997                1996
                                                             ---------------------------------------------------------
<S>                                                            <C>                <C>                <C>
Operating activities
Net income                                                         $  6,658,026      $     818,210        $  7,156,024
Adjustments to reconcile net income to net cash provided
 by operating activities:
 Depreciation                                                         2,347,027          2,057,688           1,840,936
 Amortization                                                         2,180,165          2,009,640           1,889,739
 Noncash stock option and warrant expense                                 3,534          5,481,000              57,268
 Deferred income taxes                                                1,885,000          1,295,000           1,330,000
 Deferred financing costs written off                                         -          1,554,443                   -
 Changes in operating assets and liabilities:
  Income tax receivable                                               1,555,626         (1,839,854)                  -
  Accounts receivable                                                 1,308,685         (4,331,489)         (2,210,239)
  Inventories                                                          (268,141)        (2,200,709)           (808,820)
  Prepaid expenses and other                                           (150,502)          (106,037)            (98,722)
  Other assets                                                          103,118             (5,069)           (135,286)
  Accounts payable                                                   (3,011,729)         1,885,006             825,101
  Accrued expenses                                                      684,567         (5,783,422)          3,407,066
  Other liabilities                                                     (75,103)            14,900               9,267
                                                             ---------------------------------------------------------
Net cash provided by operating activities                            13,220,273            849,307          13,262,334
 
Investing activities
Purchases of property, plant, and equipment                          (3,932,053)        (3,041,213)         (1,420,951)
Additions to goodwill                                                         -         (3,632,046)           (759,894)
                                                             ---------------------------------------------------------
Net cash used in investing activities                                (3,932,053)        (6,673,259)         (2,180,845)
 
Financing activities
Proceeds from long-term debt                                         15,290,000        247,839,506           1,000,000
Payments for deferred financing costs                                  (247,207)        (6,207,229)           (168,165)
Payments of long-term debt                                          (20,410,000)      (186,355,651)        (11,903,022)
Capital contribution by parent                                          118,627         62,248,435               3,879
Payments to parent to redeem common stock and options
 at parent-level                                                     (3,546,457)      (111,547,386)            (15,631)
                                                             ---------------------------------------------------------
Net cash provided by (used in) financing activities                  (8,795,037)         5,977,675         (11,082,939)
                                                             ---------------------------------------------------------
Net increase (decrease) in cash                                         493,183            153,723              (1,450)
 
Cash at beginning of year                                               157,520              3,797               5,247
                                                             ---------------------------------------------------------
Cash at end of year                                                $    650,703      $     157,520        $      3,797
                                                             =========================================================
</TABLE>

                                      F-7
<PAGE>
 
                              Omega Cabinets, Ltd.

               Consolidated Statements of Cash Flows (continued)



<TABLE>
<CAPTION>
                                                                                    Year ended
                                                             ------------------------------------------------------
                                                                     January 2       December 27       December 28
                                                                       1999             1997              1996
                                                             ------------------------------------------------------
<S>                                                            <C>               <C>               <C>
Supplemental disclosures
Interest paid in cash                                               $14,349,607       $22,096,013        $8,533,032
Income taxes paid in cash, net of refunds received                  $   274,374       $ 2,400,275        $2,809,445
Noncash financing activities:
 Note issued for redemption of parent stock and options             $   855,324       $ 3,000,000                 -
 Noncash capital contribution from parent                                     -       $   587,000                 -
Noncash investing activity  accrued goodwill addition for
 additional purchase price payment                                            -                 -        $  831,046
 
</TABLE>



See accompanying notes.

                                      F-8
<PAGE>
 
                              Omega Cabinets, Ltd.

                   Notes to Consolidated Financial Statements

                      For the years ended January 2, 1999,
                    December 27, 1997 and December 28, 1996



1. Accounting Policies

Description of Business and Basis of Presentation

Omega Cabinets, Ltd. (the "Company") manufactures cabinetry for the home,
including primarily kitchen and bath cabinets, for sale to independent dealers,
home centers and lumber yards throughout the United States. The Company operates
in one business segment for financial reporting purposes.

The Company is a wholly-owned subsidiary of Omega Holdings, Inc. ("Holdings").
Holdings has no operations and its sole asset is its investment in the common
stock of the Company. Holdings' acquisition cost of acquiring the Company,
including a predecessor basis adjustment, have been "pushed down" and reflected
in the accounts of the Company.

Fiscal Year

The Company follows a 52/53 week fiscal year. Fiscal 1998 consisted of 53 weeks
and 1997 and 1996 each consisted of 52 weeks.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Panther Transport, Inc. ("Panther"). Significant
intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

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

Accounts Receivable

Concentrations of credit risk with respect to trade receivables are limited due
to the number of customers and their geographic dispersion. The Company performs
initial and periodic credit evaluations of its customers and generally does not
require collateral.

                                      F-9
<PAGE>
 
                              Omega Cabinets, Ltd.

             Notes to Consolidated Financial Statements (continued)



1. Accounting Policies (continued)

Inventories

The Company states inventories at the lower of cost or market using the first-
in, first-out (FIFO) method.

Property, Plant and Equipment

Depreciation is provided on the straight-line method over the estimated useful
lives of the assets, including 40 years for buildings and 5-10 years for
machinery and equipment.

Deferred Financing Costs and Goodwill

Deferred financing costs are amortized over the term of the related loans
ranging primarily from 6 to 10 years. Goodwill, representing the excess of
purchase price over the underlying net assets of businesses acquired, is
amortized on the straight-line method over 40 years. The carrying value of
goodwill is reviewed continually to determine whether any impairment has
occurred. This review takes into consideration the recoverability of the
unamortized amounts based on the estimated undiscounted cash flows of the
related business. To the extent that the estimated undiscounted future cash
flows were less than the carrying value of the related goodwill, an impairment
loss could be measured based upon various methods, including undiscounted cash
flows, discounted cash flows and fair value. Based upon undiscounted cash flows,
no impairment of goodwill was determined to exist and, accordingly, no
measurement was required.

Income Taxes

The Company files a consolidated income tax return with Holdings. All income
taxes allocated to the Company have been computed on a separate return basis.

The Company follows the liability method of accounting for income taxes, under
which deferred income tax assets and liabilities are determined based on the
difference between financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rates. Deferred income tax expense is
based on the changes in the asset or liability from period to period.

Stockholder's Equity

In connection with a previous acquisition, the former owners of the acquired
business retained a continuing ownership interest in Holdings. Generally
accepted accounting principles require Holdings and the Company to record a
reduction to stockholder's equity representing the cost in excess of the
predecessor basis attributable to the continuing ownership interest.
Accordingly, a predecessor basis adjustment of $11,031,662 has been reflected in
stockholder's equity.

                                      F-10
<PAGE>
 
                              Omega Cabinets, Ltd.

             Notes to Consolidated Financial Statements (continued)



1. Accounting Policies (continued)

Advertising

The Company expenses advertising costs as incurred. Advertising expense was
approximately $1,913,000 in 1998, $1,739,000 in 1997 and $1,677,000 in 1996.

Fair Value of Financial Instruments

Financial instruments include accounts receivable, accounts payable, and long-
term debt. Management believes the fair value of accounts receivable and
accounts payable approximate their carrying value in the balance sheet as of
each balance sheet date. The fair value of the long-term debt is estimated based
on anticipated interest rates which management believes would currently be
available to the Company for similar issues of debt, taking into account the
current credit risk of the Company and other market factors, and arms-length
trades for debt securities which are traded. The fair value of long-term debt,
other than the senior subordinated notes indicated below, is estimated to
approximate the carrying amount as of each balance sheet date. The estimated
fair value of the senior subordinated notes was $100 million and $105 million at
January 2, 1999 and December 27, 1997, respectively.

Emerging Accounting Issues

The Company is not aware of any accounting standards which have been issued and
which will require the Company to change current accounting policies or adopt
new policies, the effect of which would be material to the consolidated
financial statements.


2. 1997 Merger and Refinancing

Pursuant to an Agreement and Plan of Merger (the "OMC Merger") among Holdings,
the stockholders of Holdings, and Omega Merger Corp. ("OMC"), on June 13, 1997
OMC merged into Holdings, with Holdings as the surviving entity. Concurrent with
the Merger, certain investors affiliated with Butler Capital Corporation ("BCC")
invested approximately $61.9 million in the voting equity stock of Holdings.
This investment plus proceeds from new management investors resulted in total
new equity capital to Holdings of approximately $62.2 million, which in turn was
contributed by Holdings into the Company. These amounts plus the proceeds from
$100 million in bridge loans and $48.3 million borrowed under a senior credit
facility were used to repay debt of approximately $89.3 million (representing
all of the Company's outstanding long-term debt at that date), to repurchase the
majority of Holding's voting equity stock outstanding prior to the OMC Merger at
an aggregate cost of approximately $112.6 million, and to pay transaction fees
and expenses. The $100 million bridge loans were subsequently repaid with
proceeds from senior subordinated notes (see Note 4). The cost to repurchase
stock, which included $109.6 million cash and a $3.0 million note, was subject
to certain defined post-closing adjustments which had not been finalized as of
December 27, 1997. As a result of the OMC Merger and related transactions
described above, BCC owned 88.4% of Holdings subsequent to the OMC Merger.

                                      F-11
<PAGE>
 
                              Omega Cabinets, Ltd.

             Notes to Consolidated Financial Statements (continued)



2. 1997 Merger and Refinancing (continued)

The OMC Merger was accounted for as a recapitalization and, accordingly, did not
impact the historical basis of the Company's assets or liabilities. All OMC
Merger and recapitalization transactions of Holdings have been pushed down and
reflected in the accounts of the Company. The Company paid an aggregate of
$114.5 million to Holdings in 1997, representing the parent's cost to redeem
common stock and stock options and to pay merger expenses. The Company recorded
the $114.5 million as a charge to deferred compensation for $4.9 million to
redeem stock options, and the balance representing a dividend to parent of
$109.6 million was charged to stockholder's equity.

As a result of the OMC Merger and related debt refinancing, the Company wrote
off existing unamortized deferred financing costs of $1,554,443, resulting in an
extraordinary loss in 1997 of $947,443 (net of related income tax benefit of
$607,000).

The post-closing adjustments to the repurchase price were finalized in 1998,
resulting in additional redemption cost of $2,051,220 which was charged to
stockholder's equity as a dividend to parent.


3. Inventories

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                           January 2       December 27
                                                             1999             1997
                                                      ----------------------------------
 
<S>                                                     <C>              <C>
 Raw materials                                              $ 4,541,976      $ 4,933,935
 Work-in-process                                              4,837,431        3,910,231
 Finished goods                                               2,385,322        2,652,422
                                                      ----------------------------------
                                                            $11,764,729      $11,496,588
                                                      ==================================
</TABLE>

                                      F-12
<PAGE>
 
                              Omega Cabinets, Ltd.

             Notes to Consolidated Financial Statements (continued)



4. Long-Term Debt

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                           January 2        December 27
                                                                              1999              1997
                                                                      ------------------------------------
<S>                                                                     <C>               <C>
 Senior bank revolving loan, due December 2002, interest at defined
  rate options (8.23% weighted average at January 2, 1999)                  $  5,500,000      $  7,550,000
 Senior bank term loan, payable in increasing quarterly installments
  through December 2003, interest at LIBOR plus 2.25% (7.5% at
  January 2, 1999)                                                            35,500,000        35,570,000
 Senior subordinated notes, due June 2007, interest at 10.5%                 100,000,000       100,000,000
 Note payable for stock redemption (Note 9), interest at prime plus
  2.0% (9.75% at January 2, 1999), repaid in full in January 1999.               855,324                 -
 Note to selling stockholders (Note 2), due March 1998,
  interest at 8%.                                                                      -         3,000,000 
                                                                      ------------------------------------
                                                                             141,855,324       146,120,000
 
 Less amounts due within one year                                             11,105,324        13,800,000
                                                                      ------------------------------------
 Long-term debt, excluding current portion                                  $130,750,000      $132,320,000
                                                                      ====================================
</TABLE>

The Company has a senior bank credit facility consisting of a term loan facility
with an initial amount of $40 million and a revolving loan facility of up to $20
million. Interest on the term and revolving facilities is currently payable and
is determined at the Company's option of either a defined base rate plus a
margin ranging from .25% to 1.50% or a defined LIBOR plus a margin ranging from
1.25% to 2.50%. The applicable margin percentage is determined based upon the
Company's cash flow leverage ratio. Borrowings under the bank facility are
guaranteed by Holdings and secured by all of the stock and assets of the
Company.

The senior bank term loan is payable in graduated quarterly installments
increasing from $1,000,000 in 1999 to $2,750,000 in 2003. The revolving loan
matures in December 2002 and has no scheduled interim payments. The Company
projects that the January 2, 1999 revolving loan balance will be repaid during
fiscal 1999 based on available cash flow and, accordingly, such amount is
classified as current portion of long-term debt. The Company is required to pay
a commitment fee of 0.5% per annum on the unused amount of the revolving loan.
Additional loan payments are also due each year based on 75% of the Company's
defined excess cash flow, if any. These mandatory prepayments will be applied
first to repay the term loan and then to the permanent reduction of the
revolving

                                      F-13
<PAGE>
 
                              Omega Cabinets, Ltd.

             Notes to Consolidated Financial Statements (continued)



4. Long-Term Debt (continued)

loan. In addition, the Company is required to make prepayments on the term and
revolving loans under certain other circumstances, including certain sales of
assets or issuance of debt or equity securities. The agreement contains various
restrictive covenants including a restriction on payment of dividends and
requirements to meet certain financial covenants.

Interest on the senior subordinated notes is payable semiannually. The notes
mature June 2007 and have no scheduled interim payments. The senior subordinated
notes are subordinated in right and payment to the senior bank loans, and are
generally not redeemable at the Company's option prior to June 2002, except in
certain circumstances. Beginning in June 2002, the notes may be redeemed at the
Company's option at 105.25% of principal, declining 1.75% annually to 100% in
June 2005. The related indenture agreement contains various restrictive
covenants, including a restriction on payment of dividends.

The senior subordinated notes are fully and unconditionally guaranteed by
Panther, the Company's wholly-owned subsidiary. Separate financial statements or
summarized financial information for Panther have not been presented since its
operations are inconsequential and its accounts and transactions represent less
than 1% of each of the consolidated total assets, liabilities, equity, net
sales, operating income, and net income of the Company. Management believes that
the separate financial statements and summarized financial information of
Panther are not material to investors.

As of January 2, 1999, aggregate future maturities of long-term debt are as
follows:

<TABLE>
<S>                                  <C>
     1999                               $ 11,105,324
     2000                                  5,750,000
     2001                                  6,750,000
     2002                                  8,250,000
     2003                                 10,000,000
 Thereafter                              100,000,000
                                        ------------
                                        $141,855,324
                                        ============
</TABLE>

                                      F-14
<PAGE>
 
                              Omega Cabinets, Ltd.

             Notes to Consolidated Financial Statements (continued)



5. Commitments

The Company leases transportation equipment, facilities and equipment under
noncancelable operating leases with lease terms of 3 to 8 years. The Company
expects that generally leases will be renewed under renewal options or the
leased assets will be replaced in the normal course of business. Total rental
expense under operating leases was approximately $1,539,000 in 1998, $1,611,000
in 1997 and $1,686,000 in 1996.

Minimum future rental commitments applicable to operating leases at January 2,
1999 are as follows:

<TABLE> 
<S>                               <C>
   1999                                $  901,000
   2000                                   699,000
   2001                                   406,000
   2002                                   230,000
   2003                                   165,000
                                       ----------
                                       $2,401,000
                                       ==========
</TABLE>

In June 1997, the Company entered into a management agreement with an affiliate
of the majority stockholder of Holdings. The agreement requires the Company to
pay $325,000 per year for management services provided, plus certain fees and
expenses. Expense under the management agreement was $325,000 in 1998 and
$176,000 in 1997. In addition, in 1997 Holdings issued a fully-exercisable
warrant (for the purchase of Holdings' common stock) to the management company
in connection with the management agreement. Holdings recorded a charge for the
fair value of the warrant as of the issuance date, and the related expense and
additional paid-in capital of $587,000 was "pushed-down" and reflected in the
1997 financial statements of the Company. Prior to June 1997, the Company
incurred management fees to an affiliate of the former majority stockholder of
Holdings, resulting in expense of approximately $147,000 in 1997 and $350,000 in
1996.

The Company is jointly and severally liable, under a stockholders agreement of
Holdings, for Holdings' obligation to repurchase its common shares and fully
vested stock options held by management stockholders solely in the event of the
death or disability of such stockholders. The management stockholders include 23
individuals representing a total of approximately 4% of Holdings' fully-diluted
common shares. The aggregate repurchase amount of all stock subject to the
repurchase was approximately $3.6 million at January 2, 1999.

                                      F-15
<PAGE>
 
                              Omega Cabinets, Ltd.

             Notes to Consolidated Financial Statements (continued)



6. Income Taxes

Components of income tax expense, including amounts relating to the
extraordinary loss in 1997, are as follows:

<TABLE>
<CAPTION>
                                               1998              1997               1996
                                       -------------------------------------------------------
 
<S>                                      <C>               <C>                <C>
 Currently payable (benefit)                   $1,830,000        $ (207,000)        $3,370,000
 Deferred expense                               1,885,000         1,295,000          1,330,000
 Charge equivalent to reduction of
  currently payable amount resulting
  from income tax benefit credited to
  equity                                          465,000                -                   -
                                       -------------------------------------------------------
                                               $4,180,000        $1,088,000         $4,700,000
                                       =======================================================
</TABLE>

A reconciliation of income tax expense with the amount computed by applying the
statutory federal income tax rate to pretax income is as follows:

<TABLE>
<CAPTION>
                                               1998               1997              1996
                                       -------------------------------------------------------
<S>                                      <C>                <C>               <C>
 Amount based on federal statutory rate        $3,685,000         $  648,000        $4,031,000
 State income taxes, net of federal               
  benefit                                         506,000            437,000           615,000
 Other                                            (11,000)             3,000            54,000
                                       -------------------------------------------------------
 Income tax expense                            $4,180,000         $1,088,000        $4,700,000
                                       =======================================================
</TABLE>

Components of the net deferred tax assets and liability are as follows:

<TABLE>
<CAPTION>
                                        January 2, 1999                    December 27, 1997
                              --------------------------------    ---------------------------------
                                   Current        Noncurrent           Current         Noncurrent
                              --------------------------------    ---------------------------------
<S>                             <C>             <C>                 <C>             <C>
 
 Deferred tax assets:
  Goodwill                      $            -     $   430,000      $            -      $ 1,425,000
  Accruals and reserves                710,000               -             920,000                -
  Stock options and warrants                 -         230,000                   -          510,000
  Other                                 55,000               -             105,000                -  
                              --------------------------------    ---------------------------------
                                       765,000         660,000           1,025,000        1,935,000
 Deferred tax liability:
  Depreciation                               -      (1,810,000)                  -       (1,460,000)
                              --------------------------------    ---------------------------------
 Net deferred tax asset
  (liability)                         $765,000     $(1,150,000)         $1,025,000      $   475,000 
                              ================================    ================================= 
</TABLE>

                                      F-16
<PAGE>
 
                              Omega Cabinets, Ltd.

             Notes to Consolidated Financial Statements (continued)



7. Employee Benefit Plans

The Company has profit-sharing and 401(k) plans covering substantially all full-
time employees. Under certain plans, the Company makes a matching contribution
equal to 50% of the participant's contribution, up to specified maximum amounts.
In addition, the Company may elect to contribute an additional amount to the
plan at the discretion of the Company's Board of Directors. Expense related to
the plans was $561,000 in 1998, $372,000 in 1997 and $233,000 in 1996.


8. Stock Option Plan

Holdings has an incentive stock option plan pursuant to which key employees may
be granted options to purchase shares of its Class A common stock. Options are
granted at the discretion of the board of directors. Holdings accounts for stock
options in accordance with Accounting Principles Board Opinion No. 25.
Compensation expense relating to Holdings' stock option plan which has been
pushed down and reflected in the financial statements of the Company was
approximately $3,500 in 1998, $4,894,000 in 1997 and $57,000 in 1996.

Under FASB Statement No. 123 (FAS 123), certain pro forma information is
required as if Holdings had accounted for options under the alternative fair
value method of FAS 123. Holdings used a Black-Scholes model to determine the
per share fair value of the options at the grant date. The following assumptions
were used in the valuation:

<TABLE>
<CAPTION>
Risk-free interest rate:
<S>                                                    <C>
 1998                                                              5.62%
 1997                                                              5.71
 1996                                                              5.63
Expected dividend yield                                            None
Expected volatility                                                .001
Expected life of options                                           5 years
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of the options
at the grant date is amortized to expense over the vesting period of the
options. Pro forma option compensation expense is not indicative of what annual
pro forma expense may be in the future. Pro forma net income of the Company,
assuming the alternative FAS 123 method were used, would be approximately
$6,581,000 in 1998, $629,000 in 1997 and $7,151,000 in 1996.

                                      F-17
<PAGE>
 
                              Omega Cabinets, Ltd.

             Notes to Consolidated Financial Statements (continued)



9. Stock Redemption

In 1998, Holdings redeemed certain common stock shares and options of departing
management stockholders for aggregate cash consideration of $1,495,237 and a
subordinated note for $855,324. The Company paid the redemption cost to Holdings
and has charged the amount to additional paid-in capital. A related income tax
benefit of $465,000 resulting from the stock redemption was credited to
stockholder's equity.


10. Subsequent Event

On January 29, 1999, the Company acquired all of the outstanding stock of
Kitchen Craft of Canada, Ltd. ("Kitchen Craft"), a leading Canadian manufacturer
of kitchen and bathroom cabinetry. The purchase price of approximately $61
million, including transaction expenses, was financed through additional senior
bank debt of approximately $44 million and equity of approximately $17 million.

                                      F-18
<PAGE>
 
                              Omega Cabinets, Ltd.

                 Schedule II  Valuation and Qualifying Accounts




<TABLE>
<CAPTION>
                                           Balance at     Charged to
                                          Beginning of     Costs and         Other                             Balance at
              Description                     Year         Expenses        Additions         Deductions       End of Year
---------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>               <C>                <C>
YEAR ENDED JANUARY 2, 1999
 Allowance for doubtful accounts             $1,804,000       $ 23,000       $-                $338,000 (1)      $1,489,000
 
YEAR ENDED DECEMBER 27, 1997
 Allowance for doubtful accounts              1,628,000        362,000        -                 186,000 (1)       1,804,000
 
YEAR ENDED DECEMBER 28, 1996
 Allowance for doubtful accounts              1,534,000        357,000        -                 263,000 (1)       1,628,000
</TABLE>



(1) Uncollectible accounts written off, net of recoveries.

                                      F-19