<PAGE>
 
                                  FORM 10-KSB
                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.    20549
(Mark One)

     X    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
  ------- ACT OF 1934 (Fee Required)

    For the fiscal year ended:      DECEMBER 31, 1997
                                    -----------------

          TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
  ------- EXCHANGE ACT OF 1934 (No Fee Required)

     For the transition period from           to
                                    ----------  ----------

     Commission file number:         33-34200
                                     --------

                            OMEGA DEVELOPMENT, INC.
                   ----------------------------------------            
                (Name of small business issuer in its charter)

          Nevada                                        13-3476854
          ------                                        ----------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                          Identification No.)

9422 S. College Pl., Suite 222
Tulsa, OK                                               74137
------------------------------                          -----
(Address of principal executive offices)                (Zip Code)

Issuer(s)telephone number: (918)299-3212
                           -------------

--------------------------------------------------------------------------------
(Former name, former address or former fiscal year, if changed since last
report)

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

Securities registered under Section 12(g) of the Exchange Act: Common Stock, Par
Value, $.001

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (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
   -----    -----

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB.  [ X ]

State Issuer's revenues for its most recent fiscal year.  $ 0 .
                                                          ---- 

State the aggregate market value of the voting stock held by non-affiliates.
                                                                             
The Common Stock does not trade on any recognized stock exchange.
-----------------------------------------------------------------

     State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.  15,000,000 shares of common
                                                  ---------------------------
stock, $.001 par value, as of March 10, 1998.
---------------------------------------------


                  DOCUMENTS INCORPORATED BY REFERENCE:   NONE

        TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT.  YES      NO    X
                                                           -----     -----
<PAGE>
 
                                  FORM 10-KSB
                            OMEGA DEVELOPMENT, INC.
                                 ANNUAL REPORT
                               DECEMBER 31, 1997

                               Table of Contents

                                     PART I

                                                                  Page
                                                                  ----
 
Item 1.    Description of Business  . . . . . . . . . . . . . . . . 1
 
Item 2.    Description of Property  . . . . . . . . . . . . . . . . 2
 
Item 3.    Legal Proceedings  . . . . . . . . . . . . . . . . . . . 3

Item 4.    Submission of Matters to a Vote of
           Security Holders   . . . . . . . . . . . . . . . . . . . 3

                                    PART II

Item 5.    Market for Common Equity and Related
           Stockholder Matters . . . . . . . . . . . . . . . . . .  4

Item 6.    Management's Discussion and Analysis or
           Plan of Operation  . . . . . . . . . . . . . . . . . . . 5

Item 7.    Financial Statements . . . . . . . . . . . . . . . . . . 7

Item 8.    Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure . . . . . . . . . 7

                                    PART III
 
Item 9.    Directors, Executive Officers, Promoters and
           Control Persons, Compliance With Section 16(a)
           of the Exchange Act  . . . . . . . . . . . . . . . . . . 8
 
Item 10.   Executive Compensation   . . . . . . . . . . . . . . . . 9

Item 11.   Security Ownership of Certain Beneficial
           Owners and Management . . . . . . . . . . . . . . . . . 10
 
Item 12.   Certain Relationships and Related Transactions . . . .  11
 
Item 13.   Exhibits and Reports on Form 8-K . . . . . . . . . . .  12

                                      (i)
<PAGE>
 
                            OMEGA DEVELOPMENT, INC.
                                 ANNUAL REPORT
                       PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                                     PART I

ITEM 1.     DESCRIPTION OF BUSINESS
-----------------------------------

General
-------

Omega Development, Inc. ("Omega" or "the Company") was incorporated in the State
of Nevada on July 15, 1988 under the name of "Lewison Enterprises, Inc." Since
then the Company has experienced a series of business consolidations and
reorganizations, the most recent of which are discussed below.  At present, the
Company has no ongoing business operations.

Omega's business plan during the first three quarters of 1996 consisted of
operating its sole operating property and development of the Home Partners of
America, Inc. business.  In June 1995, Omega Development, Inc., acquired all of
the common stock of Home Partners of America, Inc. ("HPA"), a New Jersey
corporation.  Home Partners of America is a home improvement financing and
services corporation.  HPA is a development stage company and was to provide
home improvement loans that were to be 90% insured by the Federal government
under the HUD-FHA Title I Property Improvement Program, and conventional home
improvement loans for bank portfolios.  Prior to this acquisition, the Company's
sole operating asset since its 1994 Reorganization, was the ABB Building, a
142,000 square foot general purpose office building, located in Windsor,
Connecticut, a suburb of Hartford.  The ABB Building is 100% occupied by one
tenant.  The Company negotiated a new lease with the tenant in March 1996 and
attempted to  refinance the debt on the building (See "Item 2. - Description of
Property").  However, the Company was not successful and the bank that held the
mortgage on the property instituted foreclosure proceedings, which were
consummated on September 27, 1996.  Since the ABB Building was the Company's
only operating asset, management was additionally forced to cease its
development plans in connection with HPA.  Since that time the Company has had
no ongoing operations and minimal activity.

Acquisition of Home Partners of America, Inc.
---------------------------------------------

In a transaction consummated June 21, 1995, Omega acquired all of the common
stock of Home Partners of America, Inc., a New Jersey corporation. HPA is in the
home improvement financing and services business.  HPA was to provide home
improvement loans that were 90% insured by the Federal government under the HUD-
FHA Title I Property Improvement Program, and conventional home improvement
loans for bank portfolios.  Generally, these loans would qualify as community
reinvestment loans.  HPA was also to

                                       1
<PAGE>
 
provide homeowners with technical services including, home inspections, cost
estimates, contractor qualification, subcontracting, project supervision and
completion certifications. However, as discussed above, management was forced to
cease its development plans in connection with HPA. In December 1996, the HPA
subsidiary was sold to the principal shareholder of the Company for a nominal
amount.


Plan of Operation
-----------------

The Company's business plan at December 31, 1997 is to seek to acquire or merge
with potential businesses that may, in the opinion of management, warrant the
Company's involvement.  The Company recognizes that as a result of its limited
financial, managerial or other resources, the number of suitable potential
businesses that may be available to it will be extremely limited.  The Company's
principal business objective will be to seek long-term growth potential in the
business in which it participates rather than immediate, short-term earnings.
As of December 2, 1997, the Company entered into a Stock Exchange Agreement and
Plan of Reorganization to acquire Heater Specialists, Inc. and Primenergy, Inc.
See footnote 10, Pending Merger, to the Financial Statements following on page
F-11.


Employees
---------

As of December 31, 1997, the Company employed 1 person.



ITEM 2.     DESCRIPTION OF PROPERTY
-----------------------------------

As of December 31, 1997, the Company neither owned nor leased any property.
During the first three quarters of 1996, the Company's sole operating asset was
a 100% interest in the Omega-Hartford Limited Partnership, which owned the ABB
Building, a 142,000 square foot office building.  In a transaction consummated
in March 1996, the Company executed an extension of the lease on the building
with the tenant through September 2002.  However, Omega could not successfully
refinance the debt and the bank who held the mortgage on the property instituted
foreclosure proceedings, which were consummated on September 27, 1996.

The Company's executive offices are located in Tulsa, Oklahoma, and until
October 1996, occupied office space under an operating lease covering
approximately 1,900 square feet, which was scheduled to expire in July 1998.
The annual rent for these offices was approximately $23,800.  In October 1996,
the Company found other tenants for its office space and the landlord cancelled
its lease.

                                       2
<PAGE>
 
ITEM 3.     LEGAL PROCEEDINGS
-----------------------------

A former employee of the Company's previously owned subsidiary, HPA, sued the
Company in March 1996 for unpaid wages and other claims related to loan advances
to another former employee of the Company.  In November 1997, the Company agreed
with the former employee to settle the lawsuit following an arbitration hearing
for the payment of $12,000 in exchange for a full release of all claims by the
former employee.  The lawsuit was settled in January 1998 by payment of $12,000
to the former employee in exchange for a full release of all claims by the
former employee.



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

There were no matters submitted to the Company's stockholders during the fourth
quarter of the fiscal year ended December 31, 1997.

                                       3
<PAGE>
 
                                    PART II


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

To date there has been no significant public market for the Company's Common
Stock.  In light of the Company's lack of business operations or properties as
of December 31, 1997, it is unlikely its Common Stock had any value other than a
nominal value.  Of the 15,000,000 shares of the Company's common stock presently
outstanding, approximately 14,252,130 shares or 95.0% are "restricted
securities," as the SEC's rules and regulations define such term.  The holders
of these restricted shares may not sell them in the public market unless they
are first registered for sale under the Act, or are sold in compliance with Rule
144 under the Act. The holders of approximately 8,784,564 shares are
"affiliates," as defined by the Act (See "Item 11. - Security Ownership of
Certain Beneficial Owners and Management," following).

In connection with the acquisition of HPA in 1995, the selling stockholders
received demand and "piggyback" registration rights for the Common Stock
exchanged and for the Common Stock into which the Series C Preferred Stock was
converted.  Additionally, under the terms of a private offering under which
209,000 shares of Common Stock have been sold, the investors were granted
registration rights within six months after the closing date of the offering.
The principal shareholder of the Company made a capital contribution of $18,920
in 1997 to pay certain liabilities of the Company.

As described above, approximately 14,252,130 shares of the Company's Common
Stock which are currently outstanding are "restricted" securities, as Rule 144
promulgated under the Act defines that term.  In the future, the holders of
these shares may sell them in compliance with Rule 144. Generally under Rule
144, a person holding restricted securities for a period of at least one year
may, if there is adequate public information available concerning the Company,
every three months sell in ordinary brokerage transactions or transactions with
a market maker an amount equal to the greater of (i) 1% of the Company's then
outstanding stock, or (ii) the average weekly volume of sales during the four
calendar weeks preceding the sale.  After two years have elapsed, a person who
is not an affiliate of the Company may sell an unlimited amount of the
   ---                                                                
restricted securities.  Under Rule 144, however, affiliates of the Company are
subject to these volume limitations as long as they are affiliated with the
Company and for a period of at least three months after their affiliation ends,
regardless of the length of the holding period.  Sales under Rule 144 may, in
the future, tend to depress the market price of the Company's securities should
a public market develop.

                                       4
<PAGE>
 
At February 12, 1998, there were approximately 571 record holders of the
Company's Common Stock.  The Company has not paid any cash dividends on shares
of its Common Stock since its inception and currently intends to retain earnings
in the future for the Company's operations and expansion of its business.

ITEM 6.     MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------------------

                               PLAN OF OPERATION
                               -----------------

The Company's business plan at December 31, 1997 is to seek to acquire or merge
with potential businesses that may, in the opinion of management, warrant the
Company's involvement.  The Company recognizes that as a result of its limited
financial, managerial or other resources, the number of suitable potential
businesses that may be available to it will be extremely limited.  The Company's
principal business objective will be to seek long-term growth potential in the
business in which it participates rather than immediate, short-term earnings.
In seeking to attain its business objectives, the Company will not restrict its
search to any particular industry.  As of December 2, 1997, the Company entered
into a Stock Exchange Agreement and Plan of Reorganization to acquire Heater
Specialists, Inc. and Primenergy, Inc.  See footnote 10, Pending Merger, to the
Financial Statements following on page F-11.

The Company's business plan during the first three quarters of 1996 consisted of
operating its sole operating property and development of the Home Partners of
America, Inc. ("HPA") business.  With the loss of the ABB Building through
foreclosure (See Item 1, Description of Business, above), management was forced
to abandon its plans to pursue development of the HPA business.  In December
1996, the HPA subsidiary was sold to the principal shareholder of the Company
for a nominal amount.  Since that time the Company has had no ongoing operations
and minimal activity.

At present, the Company has only one employee, no office and the on going
general and administrative expenses are near zero.  During 1996, the Company had
a significant working capital deficit and suffered a severe cash flow problem.
The Company has relied on equity contributions from a stockholder, small equity
placements under a private placement memorandum and loans from Directors and a
private investor to fund its current overhead.  Such equity placements totaled
$58,000 in calendar 1996.  The equity placements were in the form of Units
consisting of (i) one share of common Stock; (ii) one common stock purchase
warrant, which was exercisable into one share of Common Stock per warrant until
October 31, 1996, at a price of $2.00; and (iii) one common stock purchase
warrant, which was exercisable into one share of Common Stock per warrant until
October 31, 1997, at a price of $3.00.  Working capital loans from Directors and
a private investor totaled $79,000 in 1996.  In connection

                                       5
<PAGE>
 
with the working capital loans in 1996, the Company issued a total of 30,000
shares of Common Stock.  The principal shareholder of the Company made a capital
contribution of $18,920 in 1997 to pay certain liabilities of the Company.

In December 1996, management reached an agreement with many of its creditors and
the holders of the Preferred Stock whereby they would convert their respective
liabilities and Preferred Stock to shares of the Company's Common Stock.  In
total, $1,061,666 of accounts payables and accrued liabilities were converted to
3,132,583 shares of Common Stock. The Preferred Stock was converted into 666,667
shares of Common Stock in accordance with a previous agreement.


              RESULTS OF OPERATIONS - FISCAL 1997 VS. FISCAL 1996
              ---------------------------------------------------

The net loss for the year ended December 31, 1997 was $32,148 compared to a net
loss of $1,939,706 for the year ended December 31, 1996.  Generally, the
decreased net loss for the current year is attributable to the loss recognized
in the third quarter of 1996 from writing off the Excess of Cost Over Book Value
of Investment in Subsidiary ($2,352,098), offset by the extraordinary gain
($1,226,243) recognized from the extinguishment of debt in connection with the
foreclosure on the Company's sole operating asset, the ABB Building in Hartford,
Connecticut, in the third quarter of 1996.

Rental income decreased to zero in the year ended December 31, 1997 compared to
approximately $786,000 in the year ended December 31, 1996. The reduction in
rental income was primarily due to the cessation of rental income from the
Company's ABB Building due to the bank foreclosure on the building in September
1996.

The gain on sale of subsidiary of $153,775 in 1996 resulted from the sale of the
HPA subsidiary to the principal shareholder of the Company.  The gain related to
the assumption of liabilities in excess of assets of HPA by the principal
shareholder.

General and administrative expenses decreased approximately $257,600 (91%) in
the current year as compared to the prior year.  The reduction is primarily due
to a general winding down of the business since October 1996.

Depreciation and amortization expenses decreased approximately $710,200 (99%) in
1997 as compared to 1996.  This decrease is primarily attributable to the bank
foreclosure on the ABB Building in September 1996, whereby no depreciation was
taken on the building in the current year.

                                       6
<PAGE>
 
Interest expense declined to zero in the year ended December 31, 1997 as
compared to approximately $754,600 in the year ended December 31, 1996. This
decline is a result of the bank foreclosure on the ABB Building in September
1996.

No income tax expense or benefit has been recorded for 1997, as a valuation
allowance has been provided for the tax effects of the entire net operating loss
carry forwards and other net deductible temporary differences.


Some of the information in this report constitutes "forward looking" statements
within Omega's interpretation of the Private Securities Litigation Reform Act of
1995.  Although Omega believes its expectations are based on reasonable
assumptions within the bounds of its knowledge of its businesses, there is no
assurance these transactions and financial goals will be achieved.  Factors that
could cause actual results to differ from those in forward looking statements,
or used as a basis for forward looking statements, include the success in the
Company's plan to acquire or merge with potential businesses that may warrant
the Company's business.



ITEM 7.     FINANCIAL STATEMENTS
--------------------------------

The information required by this Item begins at page F-1 following page 15
hereof.



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

None.

                                       7
<PAGE>
 
                                    PART III



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


DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows.  The Company
expects that these persons will serve in these offices until the next annual
meeting or until their respective successors are elected and qualified:


       Name                    Age                          Position
--------------------         -------              ----------------------------
A. Paul Shapansky              47             Chairman of the Board, President
                                               and Chief Executive Officer and
                                               Principal Financial Officer

Herbert Maxwell                76             Director



A. Paul Shapansky.  Mr. Shapansky joined the Company in January 1994 as Chief
------------------                                                           
Operating Officer and was appointed Chairman, President and Chief Executive
Officer in December 1994 in connection with the 1994 Reorganization.  He has
served as a financial consultant to the Company through his investment banking
firm, A.G. Group Inc., since March 1993 and was responsible for the combination
with Lewison Enterprises, Inc. and Omega Development Corp. in July 1993,
arranging new funding for the Company's operations and the 1994  Reorganization
in December 1994.  Mr. Shapansky has been President and owner of A.G. Group
Inc., an investment banking firm, since 1988.  From September 1996 to September
1997, Mr. Shapansky was a Financial Advisor for Prudential Securities, Inc.
Previously, Mr. Shapansky was President of Struthers Industries, Inc. (SIR-
AMEX), a company in the aerospace industry, from May 1991 to January 1992 where
he arranged for Struthers to purchase Peacock Aerospace from Nortek, Inc. for
$5.4 million and listed Struthers on the American Stock Exchange in December
1991.  He was formerly Vice-President Finance, Secretary and a Director of
C.I.S. Technologies, Inc. (CISI-NASDAQ National Market System) from January 1985
to January 1988 where he completed equity financing for C.I.S. of more than $35
million for its startup in the health care industry.  Mr. Shapansky has a
Bachelor of Commerce (Honours) degree in Actuarial Mathematics and Finance, from
the University of Manitoba in Winnipeg, Canada.

                                       8
<PAGE>
 
Herbert Maxwell. Mr. Maxwell has been a director of the Company since December
---------------                                                               
1994.  He has been self-employed as a crisis management consultant and investor
for over 20 years.  Mr. Maxwell resides in the Manhattan district of New York
City and also serves as President and a director for Zachary Ventures, Inc. and
is a director on numerous other private companies.

The Company's directors are elected for one year terms and hold office until
their successors are elected.  The number of directors serving on the Board is
three.  The Company's officers are elected annually by the Board of Directors.



COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's common stock, to report their initial ownership of the
common stock and any subsequent changes in that ownership to the SEC and to
furnish the Company with a copy of each such report. SEC regulations impose
specific due dates for such reports, and the Company is required to disclose any
failure to file by these dates.

To the Company's knowledge, during and with respect to fiscal 1997, all Section
16(a) filing requirements applicable to its officers, directors and more than
ten percent stockholders were complied with.



ITEM 10.     EXECUTIVE COMPENSATION
-----------------------------------

No executive officer of Omega met the definition of "highly compensated" within
the meaning of the Securities and Exchange Commission's executive compensation
disclosure rules.

Stock Options
-------------

The Company has never had an employee stock option or other plan under which
cash, stock, restricted stock, phantom stock, stock options, stock appreciation
rights, warrants, convertible securities, performance units and performance
shares, or similar instruments may be awarded.

                                       9
<PAGE>
 
Compensation Of Directors
-------------------------

Directors receive no additional compensation for service on the Board of
Directors or any committee thereof.  All Directors are reimbursed by the Company
for out-of-pocket expenses incurred by them in connection with their service on
the Board of Directors and any committee thereof.



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

Principal Shareholders - Common Stock
-------------------------------------

The following table shows the number of shares of Common Stock of the Company
beneficially owned, as of February 26, 1998, by (i) the persons known to the
Company to be the beneficial owners of more than five percent (5%) of the
outstanding shares, (ii) each of the directors of the Company, (iii) the
Company's Chief Executive Officer, and (iv) by all executive officers and
directors of the Company as a group, as follows:
<TABLE>
<CAPTION>
 
Name and Address of                  Number of Shares           Percentage  of
Beneficial Owner                    Beneficially Owned        Outstanding Shares
----------------                    ------------------        ------------------
<S>                                 <C>                       <C>
A. Paul Shapansky                       7,352,429 (1)                49.0%
9422 S. College Pl.
Suite 222
Tulsa, OK  74137
 
Herbert Maxwell                         1,432,135                     9.6%
1501 Broadway
Suite 1807
New York, NY  10036
 
Dennis W. Rendflesh                     1,675,141 (2)                11.2%
508 Whiston Pl.
Edmonton, Alberta
Canada T6M2C6
 
RAS Investment Banking Group            1,600,000                    10.7%
2 Broadway
New York, NY  10004-2801
 
All Executive Officers and              8,784,564                    58.6%
 Directors as a group (2 persons)
</TABLE>

     (1) Of these shares, 1,830,000 shares are held by Omega Investors LLC No.
         1, of which Mr. Shapansky is the Manager and

                                       10
<PAGE>
 
         Controlling Member, 1,000,000 shares are held in trust by Mr.
         Shapansky's wife and 200,000 shares are held in trust for Mr.
         Shapansky's minor children.

     (2) Of these shares, 200,000 shares are held in trust by Mr. Rendflesh's
         wife and 30,000 shares are held in trust for Mr. Rendflesh's minor
         children.


Preferred Stock
---------------

In November 1993, the Company issued 400,000 shares of $5.00 par value Series B
Preferred Stock to Aviation Specialists, Inc. in connection with the acquisition
of an aircraft.  The Preferred Stock paid a dividend of $.30 per share per year,
payable monthly and was  convertible at the option of the holder into Common
Stock of Omega, at a ratio of one share of Preferred Stock for one share of
Common Stock. The Preferred Stock was also callable, at the option of Omega, at
a call price of $5.00 per share. Additionally, Omega could, at its option,
redeem the Preferred Stock at any time by transferring the aircraft back to the
seller and issuing 50,000 shares of its Common Stock to the seller.  In the last
quarter of 1995 the Series B Preferred Stock was redeemed and canceled and the
plane was transferred back to the seller for 50,000 shares of Common Stock and
an agreement to pay the seller $120,000 in accrued Preferred Stock dividends.
In December 1996, the accrued Preferred Stock dividends were converted to Common
Stock by agreement.

In connection with the acquisition of HPA in June 1995, the Company exchanged
400,000 shares of newly issued Series C $5.00 par value convertible Preferred
Stock of Omega in partial payment of the purchase price for HPA.  In December
1996, the 400,000 shares of Series C convertible Preferred Stock were converted
into 666,667 shares of Common Stock by agreement.


ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-----------------------------------------------------------

Herbert Maxwell, a director of the Company, was issued 10,000 shares in March
1996 in connection with a working capital loan.  Mr. Maxwell also received
90,466 shares in December 1996 in connection with the conversion of liabilities
to Common Stock.  A. Paul Shapansky was issued 1,056,146 shares in December 1996
in connection with the conversion of liabilities to Common Stock.  Mr. Shapansky
contributed $18,920 to the Company in 1997 to pay certain liabilities of the
Company.  In December 1996, the HPA subsidiary was sold to the principal
shareholder of the Company (Mr. Shapansky) for a nominal amount.

                                       11
<PAGE>
 
ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------------------


(a)  Exhibits

     The following documents are included as exhibits to this Form 10-KSB.
     Those exhibits below incorporated by reference herein are indicated as such
     by the information supplied in the parenthetical thereafter.  If no
     parenthetical appears after an exhibit, such exhibit is filed herewith.

Exhibits
--------

2.1  Agreement and Plan of Reorganization by and between Lewison Enterprises,
     Inc., Omega Development Corp. and the shareholders of Omega Development
     Corp. dated July 13, 1993 (Filed as Exhibit 2.1 to the Form 8-K dated July
     23, 1993, previously filed with the Commission, File No. 33-34200).

2.2  Plan and Agreement of Reorganization by and among Omega Development Inc.,
     Omega Development Corporation, P. Thomas Mann, Peter Allen Dysert, the
     Peter Allen Dysert Trust UTI dated July 13, 1983, Kirby J. Bourgeois,
     Toklan Oil & Gas Corporation, Stephen M. King Properties, Inc., A. Paul
     Shapansky and Omega Investors L.L.C. No. 1  consummated on December 22,
     1994  (Filed as Exhibit 2.1 to the Form 8-K dated December 22, 1994,
     previously filed with the Commission, File No. 33-34200).

2.3  Stock Purchase/Exchange Agreement by and among Home Partners of America,
     Inc., RAS Investment Banking Group, J. Tabs Investment and Michael Coleman
     and Omega Development, Inc. dated June 2, 1995  (Filed as Exhibit 2.1 to
     the Form 8-K dated June 21, 1995, previously filed with the Commission,
     File No. 33-34200).

2.4  Stock Exchange Agreement and Plan of Reorganization by and between Omega
     Development, Inc. And the shareholders of Heater Specialists, Inc. and
     Primenergy, Inc. dated December 2, 1997.

3.1  (a)  Articles of Incorporation of Lewison Enterprises, Inc. filed with the
          Secretary of State of Nevada July 14, 1988 (incorporated by reference
          to Registration Statement on Form S-1, File Number 33-34200, of
          Lewison Enterprises, Inc.);

                                       12
<PAGE>
 
     (b)  Amendment to Articles of Incorporation of the Company, as filed with
          the Secretary of State of Nevada on September 22, 1989 (incorporated
          by reference to Form 10-K of the Company [then known as The Postal
          Group, Inc.] for year ended December 31, 1989);


     (c)  Amendment to Articles of Incorporation of the Company filed with the
          Secretary of State of Nevada on October 27, 1992 (incorporated by
          reference to Form 10-KSB of the Company for the year ended December
          31, 1992);

     (d)  Amendment to Articles of Incorporation of the Company filed with the
          Secretary of State of Nevada on January 19, 1994 (incorporated by
          reference to Form 10-KSB of the Company for the year ended December
          31, 1993).

3.2  Bylaws of the Company (incorporated by reference to Registration Statement
     on Form S-1, File Number 33-34200, previously filed with the Commission).

4.1  Specimen Form of Certificate for Common Stock (incorporated by reference to
     Registration Statement of Form S-1, File Number 33-34200, previously filed
     with the Commission).

4.2  Board of Directors Action dated November 8, 1993, designating preferences
     of Class B Preferred Stock, pursuant to authority in Certificate of
     Amendment of Exhibit 3.1(c) above (incorporated by reference to Form 10-KSB
     of the Company for the year ended December 31, 1993).

4.3  Specimen Form of Certificate for Preferred Stock (incorporated by reference
     to Form 10-KSB of the Company for the year ended December 31, 1993).

10.1 Agreement and plan of Reorganization dated June 15, 1989 among the Company,
     Mail-it-Quik, Inc., and the shareholders of Mail-it-Quik, Inc.
     (incorporated by reference to Form 8-K dated June 30, 1989).

10.2 Rescission and revocation of Agreement and Plan of Reorganization
     (incorporated by reference to Form 8-K dated December 31, 1990).

10.3 Agreement and Plan of Reorganization by and between Lewison Enterprises,
     Inc., Omega Development Corp. and the shareholders of Omega Development
     Corp. dated July 13, 1993 (incorporated by reference to Form 8-K dated July
     23, 1993).

                                       13
<PAGE>
 
10.4 HPA Stock Purchase Agreement by and between Omega Development, Inc. and
     Omega Investors LLC #1, effective December 15, 1996 (incorporated by
     reference to Form 10-KSB of the Company for the year ended December 31,
     1996).

16.1 Letter dated August 17, 1995, issued by Arthur Andersen LLP addressing
     Registrant disclosures in Form 8-K reporting a change in auditors (Filed as
     Exhibit 1 to the Form 8-K dated August 15, 1995, previously filed with the
     Commission, File No. 33-34200).



     (b)  Reports on Form 8-K

          There were no reports on Form 8-K filed with the Securities and
          Exchange Commission during the last quarter of fiscal 1997.

                                       14
<PAGE>
 
                                  SIGNATURES


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

                                    OMEGA DEVELOPMENT, INC.



Date: March 19, 1998          By:   /S/A. Paul Shapansky
                                 --------------------------  
                                   A. Paul Shapansky
                                   Chairman of the Board, President
                                   and Chief Executive Officer and
                                   Principal Financial Officer


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

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

/S/A. Paul Shapansky          Chairman of the Board,             March 19, 1998
---------------------           President and Chief  
A. Paul Shapansky               Executive Officer and      
                                Principal Financial Officer 



/S/Herbert Maxwell            Director                           March 19, 1998
---------------------                                       
Herbert Maxwell

                                       15
<PAGE>
 
                    OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES


                       CONSOLIDATED FINANCIAL STATEMENTS

                        AS OF DECEMBER 31, 1997 AND 1996

                 WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders of
Omega Development, Inc.


We have audited the accompanying consolidated balance sheet of Omega
Development, Inc. and subsidiaries as of December 31, 1997 and the related
statements of operations and accumulated deficit, changes in stockholders'
deficit and cash flows for each of the two years in the period ended December
31, 1997.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure 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 financial position of Omega Development, Inc. and
subsidiaries as of December 31, 1997, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.



                                            /s/ Ernst & Young LLP

Tulsa, Oklahoma
February 25, 1998


                                      F-1
<PAGE>
 
                    OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
 
                                                                    December 31,
                  ASSETS                                                1997
                                                                    ------------
<S>                                                                  <C> 
CURRENT ASSETS:
   Prepaid expenses                                                  $      492

OFFICE EQUIPMENT, at cost net of accumulated depreciation
   of $18,511 in 1997                                                    21,197
                                                                     ----------

TOTAL ASSETS                                                         $   21,689
                                                                     ==========





            LIABILITIES AND STOCKHOLDERS' DEFICIT      


CURRENT LIABILITIES:
   Accounts payable and accrued liabilities                          $   49,110


COMMITMENTS AND CONTINGENCIES (Note 8)                                       --


STOCKHOLDERS' DEFICIT:
   Common Stock, $0.001 par value; 25,000,000 shares authorized;
      15,000,000 shares issued and outstanding                           15,000
   Additional Paid in Capital                                         4,604,134
   Accumulated Deficit                                               (4,646,555)
                                                                     ----------
      Total Stockholders' Deficit                                       (27,421)
                                                                     ----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                          $   21,689
                                                                     ==========
</TABLE>








        The accompanying notes are an integral part of these statements.

                                       F-2
<PAGE>
 
                    OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT

<TABLE>
<CAPTION>

                                                           December 31,
                                                       1997            1996
                                                   ------------    ------------
<S>                                                 <C>            <C>  
REVENUES:
   Rental income                                   $         --    $    785,970
   Gain on sale of subsidiary                                --         153,775
   Other income                                              --           1,000
                                                   ------------    ------------
      Total revenues                                         --         940,745
                                                   ------------    ------------
EXPENSES:
   General and administrative                            26,676         284,278
   Depreciation and amortization                          5,472         715,671
   Interest                                                  --         754,647
   Write off excess of cost over book value
      of investment in subsidiary                            --       2,352,098
                                                   ------------    ------------
      Total operating expenses                           32,148       4,106,694
                                                   ------------    ------------
NET LOSS BEFORE EXTRAORDINARY ITEM                      (32,148)     (3,165,949)

EXTRAORDINARY ITEM
   Gain on extinguishment of debt                            --       1,226,243
                                                   ------------    ------------

NET LOSS                                                (32,148)     (1,939,706)
ACCUMULATED DEFICIT, beginning of period             (4,614,407)     (2,674,701)
                                                   ------------    ------------

ACCUMULATED DEFICIT, end of period                  ($4,646,555)    ($4,614,407)
                                                   ============    ============

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
   Loss before extraordinary item                  $       0.00          ($0.28)
   Extraordinary gain                                      0.00            0.11
                                                   ------------    ------------
   Net loss per common share                       $       0.00          ($0.17)
                                                   ============    ============

WEIGHTED AVERAGE SHARES OUTSTANDING                  15,000,000      11,178,455
                                                   ============    ============

</TABLE>


        The accompanying notes are an integral part of these statements.

                                       F-3
<PAGE>
 
                          OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES    
                                                                     
                        STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT 
<TABLE>
<CAPTION>
                                       Preferred                     Common      Common     Additional                
                                        Shares       Preferred       Shares       Stock       Paid-In     Accumulated
                                      Outstanding      Stock       Outstanding  Par Value     Capital       Deficit
                                      ----------    -----------    ----------   ----------   ----------    ----------
<S>                                   <C>           <C>            <C>          <C>          <C>          <C>
BALANCE, DECEMBER 31, 1995               400,000    $   786,000    11,112,750      $11,113   $2,683,312   ($2,674,701)
  Issuance of common stock in
    connection with private equity
    offering and notes payable                --             --        88,000           88       57,942           --
  Conversion of liabilities and
    preferred stock into common
    stock                               (400,000)      (786,000)    3,799,250        3,799    1,843,960           --
  Net loss for the period                     --             --            --           --           --    (1,939,706)
                                      ----------    -----------    ----------   ----------   ----------    ----------
BALANCE, DECEMBER 31, 1996                     0              0    15,000,000       15,000    4,585,214    (4,614,407)

  Capital contribution by principal
    shareholder                               --             --            --           --       18,920            --
  Net loss for the period                     --             --            --           --           --       (32,148)
                                      ----------    -----------    ----------   ----------   ----------    ----------

BALANCE, DECEMBER 31, 1997                     0             $0    15,000,000      $15,000   $4,604,134   ($4,646,555)
                                      ==========    ===========    ==========   ==========   ==========    ==========

</TABLE>

                                      F-4
<PAGE>
 
                    OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES

                             STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                            1997           1996
                                                        -----------    -----------
<S>                                                     <C>            <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Loss                                             ($   32,148)   ($1,939,706)
   Adjustments to reconcile net loss to net
      cash provided by operating activities:
         Write off excess of cost over book value of
            investment in subsidiary                             --      2,352,098
         Depreciation and amortization                        5,472        715,671
         Gain on sale of subsidiary                              --       (153,775)
         Extraordinary gain on extinguishment of debt            --     (1,226,243)
   Changes in assets and liabilities:
         Accounts receivable                                     --        174,760
         Prepaid expenses                                     5,130             --
         Deposits and other assets                               --            697
         Accounts payable and accrued liabilities             2,506        (77,895)
         Increase in due to officers/stockholders                --         10,591
                                                        -----------    -----------
            Total adjustments                                13,108      1,795,904
                                                        -----------    -----------
            Net cash used in operating activities           (19,040)      (143,802)
                                                        -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Sale of office and other equipment                            --          6,834
                                                        -----------    -----------
            Net cash provided by investing activities             0          6,834
                                                        -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of notes payable                       --         79,000
   Proceeds from sale of common shares                           --         58,000
   Proceeds received from capital contribution               18,920             --
                                                        -----------    -----------
            Net cash provided by financing activities        18,920        137,000
                                                        -----------    -----------
NET INCREASE (DECREASE) IN CASH                                (120)            32
CASH, beginning of period                                       120             88
                                                        -----------    -----------

CASH, end of period                                     $         0    $       120
                                                        ===========    ===========

Cash paid during the period for interest                $        --    $   740,995
                                                        ===========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       F-5
<PAGE>
 
                   OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES

                         NOTES TO FINANCIAL STATEMENTS

                               DECEMBER 31, 1997


1.  ORGANIZATION AND DESCRIPTION OF BUSINESS
--------------------------------------------

ORGANIZATION
------------

Omega Development, Inc. ("Omega" or "the Company") was incorporated in the State
of Nevada on July 15, 1988 under the name of "Lewison Enterprises, Inc."  Since
then the Company has experienced a series of business consolidations and
reorganizations, the most recent of which are discussed below.

In June 1995 Omega  acquired all of the common stock of Home Partners of
America, Inc. ("HPA"), a New Jersey corporation.  HPA is a home improvement
financing and services corporation.  HPA is a development stage company and was
to provide home improvement loans that were to be 90% insured by the Federal
government under the HUD-FHA Title I Property Improvement Program, and
conventional home improvement loans for bank portfolios.  The Company's sole
operating asset during 1996 was the ABB Building, a 142,000 square foot general
purpose office building, located in Windsor, Connecticut, a suburb of Hartford.
The ABB Building is 100% occupied by one tenant and the Company negotiated a new
lease with the tenant in March 1996 and attempted to refinance the debt on the
building as described in Note 5.  However, Omega could not successfully
refinance the debt and the bank that held the mortgage on the property
instituted foreclosure proceedings, which were consummated on September 27,
1996.  Since the ABB Building was the Company's only operating asset, management
was additionally forced to cease its development plans in connection with HPA
(See also Note 3).

Since the foreclosure of the ABB Building , the Company ceased all operations
and currently has one employee.  Omega's current business plan is to seek to
acquire or merge with potential businesses that may, in the opinion of
management, warrant the Company's involvement.  The Company recognizes that as a
result of its limited financial, managerial or other resources, the number of
suitable potential businesses that may be available to it will be extremely
limited.  The Company's principal business objective will be to seek long-term
growth potential in the business in which it participates rather than immediate,
short-term earnings.  As of December 2, 1997, the Company entered into a Stock
Exchange Agreement and Plan of Reorganization to merge with Heater Specialists,
Inc. and Primenergy, Inc.  See footnote 10, Pending Merger.

The principal stockholder of the Company has agreed to fund the operations of
the Company in sufficient amounts for the Company to meet its recorded
obligations at December 31, 1997, and its continued operations as a going
concern.


                                      F-6
<PAGE>
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------

CONSOLIDATION
-------------

The Company's consolidated financial statements at December 31, 1997 include the
accounts of Omega and its wholly owned subsidiary, Omega Capital Corp.  All
intercompany transactions have been eliminated.

REVENUE RECOGNITION
-------------------

Tenant rental income under operating leases is recognized on a straight-line
basis over the lease term. Deferred rent receivable is recorded for those leases
that specify scheduled rent increases over the lease term or that provide for
initial rent periods without charge.  However, deferred rent is not recorded if
there is doubt about its collectibility.

DEPRECIATION AND AMORTIZATION
-----------------------------

Depreciation is recorded using the straight-line method over the estimated
useful lives of the properties.  Tenant improvements are included as a component
of investments in real estate and are amortized over the life of the lease or
the useful life of the improvement, whichever is shorter. Those lease terms
range from seven to 20 and 25 years for anchor tenants and average approximately
five years for other tenants.  The remaining balance of tenant improvements is
charged to amortization expense if a tenant moves out.

INCOME TAXES
------------

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).  Deferred
                              ---------------------------                      
taxes are determined based on the estimated future tax effects of differences
between the financial statements and tax basis of assets and liabilities and of
net operating loss carry forwards ("NOL").  SFAS 109 requires that the tax
benefit of such NOLs be recorded as an asset to the extent that management
concludes the realization of the NOLs is "more likely than not."

EARNINGS PER SHARE
------------------

In 1997, the Financial Accounting Standards Board issued statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share.  Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities.  Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share.  All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.



                                      F-7
<PAGE>
 
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
-----------------------------------------------------------

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


3.  BUSINESS DISPOSAL
---------------------

In a transaction consummated June 21, 1995 and accounted for as a purchase,
Omega acquired all of the common stock of Home Partners of America, Inc., a New
Jersey corporation.  HPA is a home improvement loan financing and services
corporation.  HPA was to provide home improvement loans that were 90% insured by
the Federal government under the HUD-FHA Title I Property Improvement Program,
and conventional home improvement loans for bank portfolios.  HPA was also to
provide homeowners with technical services including, home inspections, cost
estimates, contractor qualification, subcontracting, project supervision and
completion certifications.  However, as discussed above, management was forced
to cease its development plans in connection with HPA.

The Excess of Cost Over Book Value of Investment in Subsidiary related to the
HPA acquisition of $2,352,098 was expensed in September 1996 when management
decided not to pursue development plans of HPA.  In December 1996, the HPA
subsidiary was sold to the principal shareholder of the Company for a nominal
amount, resulting in a gain of approximately $153,000 related to the assumption
of liabilities in excess of assets of HPA by the principal shareholder.


4.  REAL ESTATE PROPERTIES
--------------------------

The Company's sole operating asset during the first three quarters of 1996 was
the ABB Building in Windsor, Connecticut.  In a transaction consummated in March
1996 the Company negotiated an extension of the lease on the building with the
tenant, and through September 1996 worked on agreements to refinance the
mortgage debt on the building with a new lender including an agreement with the
current lender to extinguish the previous mortgage on the building with a
substantial discount (see Note 5).  Prior to the new lease agreement discussed
above, the ABB Building was owned by a partnership whereby Omega owned a 95%
interest and the tenant owned a 5% interest. In connection with the new lease
agreement, the tenant assigned its 5% interest in the property to Omega and
agreed there were no outstanding claims, offsets, disputes or liabilities owed
by either party to the other.  However, as discussed in Note 5 below, the
Company was not successful in refinancing the debt on the building and the bank
that held the mortgage on the property instituted and completed foreclosure
proceedings.

                                      F-8
<PAGE>
 
5.  NOTES PAYABLE
-----------------

In June 1996, the Company reached an agreement with the bank that held the
mortgage on the ABB Building.  The loan was payable in monthly installments
equal to 100% of the property's net cash flow, matured in October 1997and had an
interest rate of 9.36%.  The loan was in default due to various violations of
the terms of the loan including non payment of interest.  In August 1996 the
bank instituted foreclosure proceedings which were completed on September 27,
1996, at which time the bank assumed title to the building.

Immediately before the foreclosure, the outstanding principal on the mortgage on
the building was approximately $13,584,000.  The net book value of the building
immediately preceeding the foreclosure was approximately $12,358,000, therefore
the transaction resulted in an extraordinary gain of $1,226,000.


6.  STOCKHOLDERS' EQUITY
------------------------

In connection with the acquisition of HPA in June 1995, the Company exchanged
400,000 shares of newly issued Series C $5.00 par value convertible Preferred
Stock of Omega in partial payment of the purchase price for HPA.  The 400,000
shares of Series C convertible Preferred Stock was convertible into 666,667
shares of Common Stock of Omega, subject to certain anti-dilution adjustments.

During 1996 the Company relied on small equity placements under a private
placement memorandum and loans from a Director and a private investor to fund
its current overhead.  Such equity placements in calendar 1996 totaled $58,000.
The equity placements are in the form of Units (58,000 Units) consisting of (i)
one share of Common Stock; (ii) one common stock purchase warrant, exercisable
into one share of Common Stock per warrant until October 31, 1996, at a price of
$2.00; and (iii) one common stock purchase warrant, exercisable into one share
of Common Stock per warrant until October 31, 1997, at a price of $3.00.  These
warrants were not included in the computation of diluted earnings per share
because the warrant's exercise price was greater than the average market price
of the common shares and, therefore, the effect would be antidilutive.  The
warrants expired in 1996 and 1997 unexercised.

Working capital loans from a Director and a private investor totaled $79,000 in
1996 and the Company issued a total of 30,000 shares of Common Stock in
connection with the working capital loans.  The principal shareholder of the
Company contributed $18,920 in December 1997 to pay for certain liabilities of
the Company.

In December 1996, management reached an agreement with many of its creditors and
the holders of the Preferred Stock whereby they would convert their respective
liabilities and Preferrred Stock to shares of the Company's Common Stock.  In
total, $1,061,666 of accounts payables and accrued liabilities and amounts due
to officers/directors were converted to 3,132,583 shares of Common


                                      F-9
<PAGE>
 
Stock. The Preferred Stock was converted into 666,667 shares of Common Stock in
accordance with a previous agreement.


7.  INCOME TAXES
----------------

The Company had certain federal income tax net operating loss carry forwards
(NOLs) at December 31, 1997.  SFAS 109 requires that the tax benefit of such
NOLs be recorded as an asset to the extent that management concludes the
realization of the NOLs is "more likely than not."  Realization of the future
tax benefits is dependent on the Company's ability to generate taxable income
within the carry forward periods.  Management has concluded that, using the
criteria of SFAS 109, a valuation allowance should be provided for the entire
balance of the net deferred tax asset.


8.  COMMITMENTS AND CONTINGENCIES
---------------------------------

The Company had a lease commitment for their executive offices which was to
expire in July 1998. In October 1996, the Company found other tenants for its
office space and the landlord cancelled its lease.  Lease expense during 1996
was $16,131.  At December 31, 1997, no other lease commitments exist.


9.  STATEMENT OF CASH FLOWS
---------------------------

For purposes of reporting cash flows, cash includes cash and money market
accounts that are due on demand.  No cash payments for income taxes were made in
1997 or 1996.

The Company had the following noncash investing and financing activities in 1997
and 1996:
<TABLE>
<CAPTION>
 
                                                    1997      1996
                                                    ----      ----    
<S>                                                 <C>    <C>
     Write off excess of cost over book value of
       investment in subsidiary                     $  --  $ 2,352,098
                                                    
     Settlements on notes payable                      --   13,584,320
 
     Foreclosure of ABB Building                       --   12,358,156
 
     Convert liabilities to Common Stock               --    1,061,666
 
     Convert Preferred Stock to Common Stock           --      786,000
 
</TABLE>


                                     F-10
<PAGE>
 
10.  PENDING MERGER
-------------------

On December 2, 1997, the Company signed a Stock Exchange Agreement and Plan of
Reorganization (the "Agreement") with Heater Specialists, Inc. ("HSI") and
Primenergy, Inc. ("Prime").  The Agreement provides for a merger of HSI and
Prime with Omega.  The shareholders of HSI and Prime will exchange all of their
outstanding common shares for 8,000,000 newly issued shares of Omega.  After the
exchange, current shareholders of Omega will hold 1,000,000 shares of common
stock.  New investors will contribute approximately $3,000,000 of common equity
(net of issuance costs) through a private equity offering in exchange for
1,000,000 shares of common stock and stock warrants.  The exchange will qualify
under either Section 351 or Section 368(a)(1)(B), or both, of the Internal
Revenue Code of 1986, as amended, as a "tax-free" exchange or reorganization,
subject to the terms and conditions as more fully provided in the Agreement.
The closing is scheduled to take place in April 1998, unless closing is delayed
by mutual agreement.  The new equity of approximately $3,000,000 will be used to
pay down bank credit lines and to fund the business plans of HSI and Prime.  The
funding is a stipulated condition precedent to closing, however management of
Omega cannot assure that such equity will be provided.

Primenergy, Inc. possesses a license which permits the integrated application of
several technologies to convert biomass into energy.  Prime's proprietary
process design incorporates a low temperature, air-starved gasification of
biomatter to produce an energy source for electricity generation, steam
production, process heat, or any combination of these useful forms of energy.
Prime has been working with government officials within the Republic of the
Philippines, and more specifically Metro Manila, for over a year on an
opportunity to build a $60 million plant that will convert municipal solid waste
to energy.  Prime has been working with the Philippine Presidential Task Force
on Waste Disposal which management believes will lead to multiple projects in
the Philippines for energy cogeneration over the next few years.  Although
management of Prime is confident that a contract will be executed with the
Republic of the Philippines, at the date of this writing a firm contract has not
yet been received and no assurance can be given that this objective will be
achieved.

Heater Specialists, Inc. is a fully integrated single source manufacturer of
refractory lined vessels and equipment for the oil refining, chemical process,
power generation and incineration industries. HSI offers a unique combination of
steel fabrication expertise and refractory technology and is the primary
contractor for gasifier units sold by Prime and performs the steel fabrication
and refractory work on the gasifiers.

                                     F-11