SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                    For the fiscal year ended March 29, 1997
                         Commission file number 1-13656

                           OMNI MULTIMEDIA GROUP, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          Delaware                                           04-2729490
          --------                                           ----------
(State or other jurisdiction                              (I.R.S. employer
 of incorporation or organization)                        identification No.)

 50 Howe Avenue, Millbury, Massachusetts                     01527-3298
 ---------------------------------------                     ----------
 (Address of principal executive offices)                    (Zip Code)

                                 (508) 865-4451
                                 --------------
              (Registrant's telephone number, including area code)

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

                               Title of each class
                               -------------------
                                  Common Stock

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                   Yes  X                             No
                       ---                               ---

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

         As of July 10, 1997,  10,119,211 shares of Common Stock, $.01 par value
per share of the registrant were issued and  outstanding.  The aggregate  market
value of the shares of the  registrant's  Common  Stock  held by  non-affiliates
based upon the closing price for such stock on July 12, 1997 was approximately $
$6,509,000.

         The registrant's revenues for the fiscal year ended March 29, 1997 were
$12,873,854.

DOCUMENTS INCORPORATED BY REFERENCE

         Definitive  Proxy Statement for the Annual Meeting of Stockholders  for
         the fiscal  year ended  March 29,  1997,  and to be filed  pursuant  to
         Regulation  14A, is  incorporated by reference in Part III of this Form
         10-KSB.

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

                                       1




                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

         THIS REPORT CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE  SECURITIES  LITIGATION  REFORM ACT OF 1995, WHICH STATEMENTS CAN BE
IDENTIFIED  BY THE USE OF  FORWARD-LOOKING  TERMINOLOGY  SUCH AS "MAY",  "WILL",
"WOULD", "CAN", "COULD, "INTEND", "PLAN", "ANTICIPATE", "ESTIMATE" OR "CONTINUE"
OR THE NEGATIVE THEREOF OR OTHER VARIATIONS  THEREON OR COMPARABLE  TERMINOLOGY.
THE FOLLOWING FORWARD-LOOKING STATEMENTS INCLUDE CERTAIN RISKS AND UNCERTAINTIES
THAT  COULD  CAUSE  ACTUAL  RESULTS  TO  DIFFER  MATERIALLY  FROM  THOSE IN SUCH
FORWARD-LOOKING STATEMENTS.  POTENTIAL INVESTORS ARE URGED TO CAREFULLY CONSIDER
THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY'S SECURITIES.

         GENERAL

         OMNI MultiMedia Group,  Inc. ("OMNI" or the "Company")  provides a wide
range  of  CD-ROM  replication  and  fulfillment  services  for  major  software
producing firms serving the general  computer user and users within the specific
fields of music,  entertainment,  financial and insurance  services.  The CD-ROM
replication  and  fulfillment  services of OMNI include  inbound  telemarketing,
packaging,  printing,  direct  shipment  and a wide array of CD-ROM  replication
services  for  clients.  In addition,  OMNI has  developed  an extensive  online
multimedia  catalog  featuring  popular  software and CD-ROM titles,  as well as
related hardware peripherals, and has introduced this catalog on the Internet.

         Current clients include Cheyenne Software, Inc., Expert Software, Inc.,
TVT, Microcom, Inc. ("Microcom"), John Hancock Insurance, Dragon Software, Inc.,
and  others.   OMNI  provides  a  wide  range  of  services,   including  CD-ROM
replication, virus testing, printing of user manuals, and packaging and shipping
of these materials. OMNI has established an inbound telemarketing function which
takes orders directly from software users purchasing  products through print ads
and other advertising media. In some instances,  computer peripheral hardware is
drop  shipped to the  Company,  where it is tested and then shipped with CD-ROMs
containing  software  to the  Company's  clients  or  directly  to the  clients'
customers.

         In April 1995, OMNI completed an initial public offering (the "IPO") of
1,138,500  units,  each unit  consisting  of one  share of Common  Stock and one
Warrant,  raising net  proceeds of  approximately  $4,076,000  (including  funds
received in connection with the Underwriters'  exercise of their  over-allotment
option).  In March 1996,  the Warrants  were  exercised,  raising an  additional
$7,450,000.  In May 1996,  the  Company  raised net  proceeds  of  approximately
$9,200,000,  through the sale of Series A Convertible  Preferred  Stock,  all of
which was  converted  into Common  Stock  during the fiscal year ended March 29,
1997  ("Fiscal  1997").  To date,  OMNI has used a portion of the proceeds  from
these  financings to develop and expand its CD-ROM  manufacturing  operation and
expand  shipping  and  telemarketing   capabilities.   With  respect  to  CD-ROM
replication,  management  has used the  majority  of the net  proceeds  of these


                                       2





financings to install  state-of-the-art CD-ROM manufacturing  operations.  These
operations have been installed in a separate,  specially prepared section of the
Company's  existing  facility,  and now enable the Company to produce  CD-audio,
CD-ROM,  CD-interactive  and CD-video media.  The five CD-ROM  production  lines
became operational late in the second quarter of Fiscal 1997.

         OMNI has developed an online  multimedia  catalog that it believes will
provide  consumers and  businesses  with a  cost-effective  method of purchasing
software  titles and hardware  peripherals.  By selling over the Internet,  OMNI
expects it can avoid or reduce many of the costs associated with catalogs,  such
as catalog printing, mailing and telephonic order processing.

COMPANY DEVELOPMENTS DURING FISCAL 1997

         During Fiscal 1997, the Company has focused on several areas, including
constructing  its  CD-ROM  manufacturing  facilities,  expanding  its  sales and
distribution activities, as well as introducing its 4CD's multimedia catalog:

         CD-ROM Manufacturing Facility. During Fiscal 1997, much of management's
focus has centered on the  construction  and  completion  of a  state-of-the-art
CD-ROM  manufacturing  facility and marketing of the Company's  capabilities  to
provide  these  services to CD-ROM users.  As part of this program,  the Company
expended  approximately  an  additional  $500,000  in  leasehold   improvements,
including  basic  infrastructure  improvements  such as  significantly  expanded
electrical services and water handling and purification  equipment,  systems, as
well  as  environmental  controls.  Management  also  has  purchased  or  leased
approximately  $17,000,000  in CD-ROM  and other  manufacturing,  mastering  and
related computer equipment. Management believes that its state-of-the-art CD-ROM
mastering  and  replication  equipment,   together  with  its  fully  integrated
capabilities  in printing  and inbound  telemarketing  capabilities  allow it to
provide all services needed by customers seeking CD-ROM replication services.

         Sales and Marketing Activities. During Fiscal 1997, the Company rebuilt
its sales and marketing  team to serve the CD-ROM  marketplace,  increasing  the
number of sales team  members  from 3 to 16 (10 in the East, 5 in the West, 1 in
the Midwest) and adding customer service  personnel.  The salespeople were added
over the last half of the  fiscal  year.  The  complexities  of  selling a total
fulfillment  program require at least three to four months to secure an account.
The sales  effort  begun in the fiscal year 1997 is beginning to show results in
the first  quarter of fiscal year 1998 where sales have  increased  42% over the
last quarter of fiscal year 1997.

         Acquisitions. In October, the Company purchased the assets of Allenbach
Industries,  a California  company with  manufacturing  facilities  in San Jose,
California and  Bloomington,  Minnesota.  In March,  the Company  purchased CSTM
Corporation,  a  California  company.  Using the  facilities  and  manufacturing
capabilities  of Allenbach  and the sales and  marketing  capability of CSTM, as
well as a customer  base of  approximately  $8,000,000,  the Company  planned to
develop a strong West and Midwest market position.  These entities were forecast
to achieve $18,000,000 in profitable sales for FY 1998. During the first quarter
of  Fiscal  1998,  the  


                                       3





companies  failed  to  achieve   breakeven  sales  levels  forecasted  by  their
management.  This, combined with shortage of operating funds caused by inability
to raise additional capital in a timely manner,  forced the Company to close the
West Coast facility at the end of June and sell the Midwest  facility  effective
July 5. This activity contributed  approximately  $3,000,000 to FY 1997 revenues
and $3.5 M to operating losses.

         4CD's  Internet  Catalog.  Due  to  the  tremendous  popularity  of the
Internet,  the Company  decided to provide the 4CD's  catalog  over the Internet
rather than through  traditional  mailing of paper catalogs.  Management expects
that  providing such services via an online  catalog will  significantly  reduce
catalog  production  costs,  provide  better access to a worldwide  market,  and
provide maximum flexibility in product presentation. By comparison, the costs of
marketing via  traditional  print catalogs have continued to rise with the costs
of paper and mailing. The Company believes that the costs of fulfilling customer
orders  will be  significantly  reduced by handling  orders via online  requests
rather than through  traditional  telemarketing  order processing,  although the
Company expects to add additional  telemarketing  personnel to handle  telephone
inquiries  as  well  as  provide  telemarketing  services  for  its  replication
fulfillment  services described above. The Company spent approximately  $500,000
in  completing  development  of the 4CD's  catalog,  and marketing the Company's
catalog to CD-ROM  developers.  The Company  provides the catalog online for the
purpose of solicitation of orders from the general public. 4CDs is an attractive
catalog which features  specialty shops,  spotlights  certain products available
for purchase,  including both software and computer  peripherals (such as modems
and sound  systems)  which  enhance  use of  Internet  opportunities,  and fully
computerized  ordering.  4CDs  has  received  several  industry  awards  for the
presentation and format of its Internet  catalog.  4CDs became fully operational
during the last half of Fiscal 1997.

OMNI RESOURCES CORPORATION (CD-ROM REPLICATION)

         The Company was founded as a manufacturer  of magnetic 5 1/4 inch disks
for sale under the Company's label to individuals and retail outlets. During the
1980's,  as the use of personal  computers began to expand,  the Company evolved
into a software duplication company. As a result of this evolution,  the Company
now provides a comprehensive  array of services for software  publishers.  These
services include:


 o   Duplication/Replication        o    Warehousing/Inventory                  
 o   Assembly                       o    Customized Encryption and Serialization
 o   Fulfillment Services           o    Packaging/Design/Sourcing              
 o   In-House Printing              o    Inbound Telemarketing                  
                                                                                
                                             
           
           
                                        4







          The Company's  customers  during the past 12 months  include  Cheyenne
  Software,  Expert Software,  TVT, Microcom,  Inc.  ("Microcom"),  John Hancock
  Insurance,  Dragon Software and others.  The Company provides its clients with
  in-house  duplication and replication services in which the Company reproduces
  its customers' software programs onto CD-ROMs and, in certain instances, blank
  diskettes  and cassette  tapes.  The Company has the ability to copy  software
  programs  onto  CD-ROMs,  3  1/2"  and  5  1/4"  diskettes,  tapes,  and  data
  cartridges. During the duplication/replication process, the Company checks the
  publisher's software for over 4,000 known computer viruses,  duplicates,  copy
  protects  (utilizing  sophisticated   encryption  techniques,   if  required),
  serializes,  labels  and  packages  the  diskette/CD.  The  Company  can  also
  manufacture  in-house  support  material  for  software  packages,   including
  sleeves, manuals,  registration cards and promotional brochures and materials.
  The  Company's  extensive  quality  assurance  laboratories  are  designed  to
  minimize defect problems in floppy duplication and CD replication.


          The Company also provides  comprehensive design,  multicolor printing,
  and assembly functions for clients as well as external packaging.  The Company
  has recently expanded its design capabilities through the purchase of advanced
  computer  hardware and software.  The Company  believes that this  technology,
  together  with its design team,  allows it to provide a  comprehensive  design
  facility  for its  customers.  Often,  clients  make last  minute  changes  in
  software or user reference  materials,  which require the Company's  services.
  Other clients who publish rates and other sales  information  through diskette
  (e.g.,  insurance  agents and other sales  personnel)  use OMNI's  services to
  constantly  update and distribute  software to field sales  personnel.  OMNI's
  production  facilities  allow for quick  reconfiguration  to process  large or
  small production runs.

          OMNI's  production  services are available 24 hours per day seven days
  per week to meet customer  shipping  requirements.  OMNI drop ships worldwide.
  The Company  provides  for  warehousing  services,  which  allow for  shipping
  directly from the Company's  warehouse.  OMNI maintains an extensive  security
  and tracking  system to ensure  inventory  control.  OMNI is also serving as a
  fulfillment house for software  publishers  marketing software directly to end
  users,  which  enables OMNI to take,  process and ship orders  directly to end
  users.

          During the past year, the Company has expanded its services to include
  inbound telemarketing to receive and ship consumer orders. This service allows
  the  Company's   clients  to  outsource   the  cost  of  a  separate   inbound
  telemarketing group, resulting in cost efficiencies,  particularly for smaller
  volume software  developers and for other software developers seeking to limit
  overhead costs. In addition,  as part of the services  previously provided and
  currently  offered by the  Company,  clients  will  forward  certain  computer
  hardware,  to the  Company  for  quality  control  testing.  After the Company
  performs such quality  control  tests,  the computer  hardware is bundled with
  software that  has been  produced by the Company.  The Company  believes  that
  the  expansion of its inbound  telemarketing  services and  manufacturing  and
  shipping facilities,  together with its broad range of duplication/replication
  services,  will  allow  it to  provide  enhanced  outsourcing  capability  for
  software publishers.


                                       5



 
  MARKETS

          Markets for the Company's software  duplication and CD-ROM replication
  services  include  developers  of retail  software,  such as music,  games and
  utilities,  brokerage houses, insurance companies and other financial services
  organizations.

          Software  developers  utilizing  the Company's  services  include both
  large and small  organizations.  Brokerage firms and other financial  services
  organizations  use  the  Company's  services  to  provide  pricing  and  other
  software-based  information and training programs to their field offices on an
  as-needed basis.

          The market for the Company's services includes  organizations  seeking
  to augment their own CD-ROM  replication  capabilities,  businesses seeking to
  outsource their entire duplication and replication services, and organizations
  which have no mass duplication or replication  capabilities.  OMNI's full line
  of services  allow the Company's  customers to  concentrate  their efforts and
  funds on  development  rather  than  having  to  spend  additional  funds  and
  management  resources on  manufacturing  and  shipping.  This is  particularly
  critical for CD-ROM  replication.  By providing  state-of-the-art  replication
  capabilities,  and by attaining economies of scale, the Company believes it is
  able to provide these services at a substantial  cost  reduction,  with higher
  quality than if the customer  attempted to provide  duplication or replication
  and shipping  services  directly.  Management  also believes that the trend in
  outsourcing will allow the Company to continue to attract major developers and
  financial service organizations as clients.

  COMPETITION

          The  Company is somewhat  unique in its field in that it  manufactures
  in-house most major  components of the typical software  package.  Jewel cases
  and boxes are the only exceptions.  In addition, the Company,  through its 4CD
  subsidiary, is able to provide an additional retail channel for its customers,
  as well as inbound  telemarketing,  commercial  downloading  of software,  and
  retail incription capability.

          To the Company's  knowledge,  there is no competitor with OMNI's scope
  of services. In the CD-ROM area, KAO Information  Services,  Inc. with a plant
  in  Plymouth,  Massachusetts,  is the  closest  competitor.  KAO has two other
  plants  in  California  and  Washington.   KAO  manufactures   CD's  and  does
  fulfillment,   but  has  no  in-house  printing  or  any  software   retailing
  capability.  CBR Printing  Company in Massachusetts is a mid-size printer with
  limited  fulfillment and CD capability.  Other CD and fulfillment  competitors
  are Cinram,  a company  that  focuses  heavily on the music and  entertainment
  field,  with a large CD manufacturing  capability  housed in plants located in
  Georgia, Canada, Ohio and California. Cinram has no in-house document printing
  or retail  capability.  Nimbus has one large plant in the United States and is
  focused on CD replication only, with no fulfillment or printing.



                                       6




          Quebecor  is a large  international  printer  with one CD plant in the
  Northwest. Quebecor has no retail capability.

          Due to the high capital cost of CD replication and document  printing,
  the small "Mom and Pop"  competitors  that  proliferated  in the  floppy  disk
  business are non-existent in the CD-ROM field. This makes it possible for Omni
  to compete over a wider  geographical  area against  competitors  with similar
  costs.

          The  Company's  strategy  is to  compete  on the basis of its  quality
  (including accuracy),  comprehensive services and price. The Company's success
  will depend on its ability to obtain business from software publishers.  To do
  so, the Company must maintain its quality and level of service and continue to
  enhance its software  replication  process to keep pace with any technological
  changes.  Many companies are capable of providing duplication and replication,
  and the  Company's  clients  could  also  decide to  provide  duplication  and
  replication  at  their  facilities.  Some  of the  Company's  competitors  are
  well-established  and have  greater  financial  and other  resources  than the
  Company.

          The  Company  believes  that a  number  of  factors  will  affect  its
  competitive  position  in the  future,  including  its  ability  to respond to
  competitive developments and technological changes; its ability to manufacture
  software  packages  on  a  cost-effective  basis;  and  general  domestic  and
  international economic conditions.

          The CD-ROM  marketplace is highly  competitive.  The Company  competes
  with  regional  CD-ROM   manufacturers  and  duplicators.   Certain  of  these
  competitors,  such as KAO Information Systems, Inc. and Cinram, have financial
  and other  resources  significantly  greater  than  those of the  Company.  No
  assurance  can be given  that the  Company  can  compete  effectively  against
  existing  competitors  or new  competitors  that  may  enter  the  market.  In
  addition,  price is an important competitive factor in the CD-ROM markets, and
  there can be no  assurance  that the Company  will not be subject to increased
  price competition, which could have a material adverse effect on the Company's
  operations and financial condition.

  TECHNOLOGICAL CHANGES

          At this time,  all software  manufacturing  is primarily  done through
  duplication of the software program onto diskettes and replications onto CD's.
  The  technology  exists  for the  computer  software  industry  to change  its
  distribution   techniques   and   deliver   software   programs   and  manuals
  electronically, via modem, satellite, or fiber optic transmissions, or through
  other  media,  such as DVD,  CD-ROM.  The  Company can  currently  provide its
  customers  with  replication  services  using  CD-ROM  technology,  as well as
  distribution   electronically  over  the  Internet.   Significant   additional
  investment will be required to manufacture DVD formatted CD-ROMs.  The Company
  believes  that DVD will  develop  slowly and not be a factor in the  Company's
  marketplace for several years.

          Electronic   distribution  of  software   products  has  not  achieved
  widespread  adoption,  in part because of potential  problems,  including  the
  perceived increased likelihood of piracy (i.e.,



                                       7




  copying of software programs),  inventory controls,  and accounting  controls,
  such as  verifiable  means  of  determining  the  number  of  copies  made and
  collection  of amounts due from  customers.  Software  publishers  may also be
  concerned  that such methods  will limit their  ability to track and market to
  end-users.  As  these  problems  are  addressed,  the  demand  for  electronic
  distribution will likely increase, which could cause a reduction in the growth
  in demand, or a decline, in current production and distribution methodologies.

  MANUFACTURING AND SUPPLIES

          The  Company  provides  its  services at its  Millbury,  Massachusetts
  facility.   The  Company's   facilities   include  clean  rooms  for  diskette
  duplication  and  CD-ROM  replication,   as  well  as  temperature  controlled
  facilities to insure that changes in heat or humidity do not damage  products.
  The  Company's  packaging  areas are  designed to be quickly  reconfigured  to
  address different production  schedules.  These operations are being installed
  in a separate,  specially prepared section of the Company's existing facility,
  and will enable the Company to produce CD-audio,  CD-ROM,  CD-interactive  and
  CD-video media and the new DVD format. Five CD-ROM production lines, including
  nine  injection  molders,  two six-color  offset  printers,  and two six-color
  screen  printers  are  the  backbone  of the  Company's  CD-ROM  manufacturing
  capability.  The Company uses laser beam  technology to produce its CD masters
  for CD-ROM production.  The Company also has in-house a comprehensive document
  printing  capability,  including a  state-of-the  art,  high speed  Heidelberg
  press, computerized free-press and up-to-date support equipment, all housed in
  a recently rebuilt environmentally-controlled area of the plant.

          To  date,  the  Company  has  expended  approximately  $3,500,000  for
  leasehold  improvements,  principally related to the development of the CD-ROM
  manufacturing  capability  and  its  new  printing  department.  Modifications
  including  water-handling and purification,  systems,  environmental controls,
  clean  room  facilities,   additional  electrical  generators  and  structural
  modifications.  Management  believes  that  only  minor  additional  leasehold
  improvements will be required during the current fiscal year, primarily in the
  warehouse  and shipping  areas.  During Fiscal 1997,  the Company  expanded to
  250,000  square  feet of  factory  space at its  Millbury  facility.  Facility
  capital costs through Fiscal 1997 exceed $20,000,000.

          The Company  purchases  resin and other materials in bulk from various
  suppliers  located in the United States.  The principal  supplies used include
  resin,  diskettes,  labels,  sleeves,  jewel  cases  and  boxes.  The  Company
  endeavors to acquire resin, labels, sleeves, jewel cases and boxes on a volume
  discount  basis.  The  Company  has  multiple  suppliers  of  these  materials
  available to it and management believes that these materials could be obtained
  elsewhere if needed without a significant delay or increased cost.

  SALES AND MARKETING

  At  the   end  of   Fiscal   1997,   the   Company   marketed   its   software
  duplication/replication and fulfillment services through its sales force of 16
  persons.  The sales force is paid a base  salary,  plus  commissions  based on
  performance.   The  sales  force  is  supported  by  inside  customer



                                       8




  service  representatives  ("CSR") who  interface  between the customer and the
  factory, as well as support of the sales force in pre-sale activity.

          In Fiscal 1997,  the Company's  largest  customer was Microcom,  which
  accounted for 16% of sales. In Fiscal 1996 AOL and Prodigy accounted for sales
  of  approximately  $3,000,000 and $8,000,000,  respectively,  totalling 63% of
  sales.

  PURCHASING

          The  Company  purchases  from over 300  vendors  and has more than one
  supplier available for all critical products and does not expect to experience
  more than short term interruption of supply from loss of any vendor.

  EMPLOYEES

          As of  March  29,  1997,  the  Company  employed  321  employees  on a
  full-time basis and 50 persons on a part-time basis. In contrast, on March 30,
  1996, the Company  employed 125 persons on a full-time basis and 23 persons on
  a part-time  basis. Of these  full-time  employees at March 29, 1997, 248 were
  employed in production,  34 in  administration  and 38 in sales. None of these
  employees is represented by a union.  The Company  believes that its relations
  with its employees are satisfactory.

  THE 4CD 'S MULTIMEDIA CATALOG

  GENERAL

          The Company has  developed  an  extensive  online  multimedia  catalog
  featuring  popular software and CD-ROM titles, as well as related hardware and
  accessories. OMNI has introduced this catalog on the Internet.

         4CD's offers a comprehensive line of approximately  5,000 CD-ROM titles
  and other  multimedia  products.  4CD's  continually  adjusts product mix on a
  weekly  basis.  Software  titles  include  all types of CD  software,  such as
  software for entertainment,  business and educational uses. Hardware and other
  equipment include sound sound cards, video cards, speakers,  tables, scanners,
  cpu and meory upgrades.  Management  believes,  based upon independent  market
  surveys and articles, that retail outlets carry only a few of the most popular
  CD-ROM  titles  and  multimedia   products.   Management  also  believes  that
  electronic  catalogs  offer a more  comprehensive  selection of products  than
  existing retail outlets.

         Electronic  catalogs are a reference  source which can provide detailed
  information explaining new and current product capabilities,  key features and
  system requirements,  thereby stimulating  consumer purchases.  4CD's contains
  detailed  descriptions of every product featured, as well as information about
  applications and computing environment and reviews of specific products.



                                       9





         Online catalogs and toll-free  telephone number support allow customers
  to purchase  CD-ROM hardware and titles from the convenience of their homes or
  offices.  These products are also easy to ship on an overnight basis if needed
  instantaneously  by the  customer.  The  Company  also plans to  increase  its
  inbound telemarketing staff to provide technical assistance to customers.  The
  Company believes that this level of technical support will allow it to compete
  more effectively with retailers.

  MULTIMEDIA AND INTERNET MARKETS

          IDG Marketing  Services  estimates  that the installed  base of CD-ROM
  players in the United States  increased from 9.8 million units in 1993 to 54.1
  million  units by  1996.  Home  PCs now  include  CD-ROM  drives  as  standard
  equipment.  IDG's report also found that small  businesses,  consumers and the
  education  market  account for over 70% of current PC and  multimedia  product
  purchases. According to a Multimedia World Marketing survey, 75% of multimedia
  users  expect to purchase  CD-ROMs  from  catalogs.  Significant  increases in
  computing  power at lower costs with the advent of pentium  chip  technologies
  and the rapid cost declines in CD-ROM  hardware  suggest that the market might
  grow at even higher rates. Link Resources reports that the average  multimedia
  buyer has a higher  income level,  spends more on hardware and  software,  and
  looks beyond traditional retail channels for multimedia  purchases.  USA Today
  recently  reported that consumers and companies expect to buy over $22 billion
  in goods and services over the Internet in the next several years.

          4CD's is designed to leverage off these  growing  markets by providing
  consumers and businesses with a cost-effective  method of marketing titles. By
  selling  over  the  Internet,  Omni  can  avoid  many of the  costs  typically
  associated  with  catalogs  (e.g.,   catalog   printing,   mailing  and  order
  processing).  At the same time, OMNI already has developed the infrastructure,
  through its in-house talent in designing,  printing and fulfillment to provide
  the services  necessary to meet customer demands.  In its start-up year, 4CD's
  contributed  limited  revenue.  Revenues  are  expected  to  be  substantially
  improved in FY 1998.

  STRATEGY

          4CD's  strategy is to offer premier  products to customers  based on a
  cost-plus  methodology  designed  to attract  buyers and  establish  long-term
  relationships.  Revenues will be derived from  advertising,  co-op dollars and
  publishing  of  proprietary  titles.  4CD's is expected to include  over 6,000
  titles.  Titles are  available  from  distributors  already  used by Omni with
  delivery of titles on a  "just-in-time"  basis,  thereby  reducing the risk of
  obsolete inventory.

          The  Company  provides  the  following  information  through the 4CD's
  online catalog:

          * Weekly product specials
          * Industry news, reviews and information
          * Free product  demos and shareware  files from leading  manufacturers
            available  for  downloading  
          * Pre/post  technical  support  services provided  by OMNI's technical
            staff 

                                       10



          * Closeout specials 
          * Exclusive software offered only by 4CD's
          * Pre-order section for announced software releases

          Direct  online  marketing  provides a  convenient  and  cost-effective
  method for individuals,  businesses, and schools to purchase CD-ROM titles, as
  well as drives and peripheral equipment, for the following reasons:

          *    BROAD PRODUCT SELECTION.  Online catalogs allow customers to view
               a broad  range  of  titles  as well as  hardware  and  peripheral
               products.

          *    DETAILED  PRODUCT  DESCRIPTIONS.   Online  catalogs  serve  as  a
               convenient   reference  source  providing  detailed   information
               explaining new and current product capabilities, key features and
               system requirements.

          *    COMPETITIVE   PRICING.   Low  overhead   associated  with  online
               marketing   allows   competitive   pricing   strategies   in   an
               increasingly price sensitive market.

          *    CUSTOMER  CONVENIENCE.  Online catalogs and 800 telephone  number
               support allow  customers to purchase  CD-ROM  hardware and titles
               from the  convenience  of their  homes or  offices.  CD-ROMs  and
               software  titles are also easy to ship on an  overnight  basis if
               needed immediately by the customer.

          OMNI has also  developed  a plan to provide  "one stop  shopping"  for
  developers through a comprehensive  advertising  package for CD-ROM publishers
  and  peripheral  manufacturers.  Revenues would be derived both by advertising
  charges for catalog  space and by  fulfillment  services  (including  in-bound
  telemarketing,  order fulfillment and  warehousing).  Also, by offering CD-ROM
  replication services, OMNI will be able to provide smaller developers with the
  capability to correct bugs in programs or end user manuals quickly and provide
  for immediate shipment to the consumer.

  COMPETITION


          In the 4CDs area,  there are numerous  catalogs on the  Internet.  The
  Company  considers  its major  competitors  to be Once,  Cyber  Outpost,  ISN,
  Software  Net,  Cyber  Source,  and  NECX.  The  Company  expects  to  compete
  effectively  in the  electronic  catalog  field  using its  manufacturing  and
  fulfillment  capabilities  to allow the offering of niche market software at a
  profit.   Manufacturing   and  fulfillment   capabilities   also  add  to  the
  profitability of the "Try before you buy" incripted  software program underway
  at 4CDs.

          The  software  and CD-ROM  marketplaces  are highly  competitive.  The
  Company  expects to compete  with  consumer  electronic  and  computer  retail
  stores, including superstores,  and other direct marketers of software, CD-ROM
  and computer  related  products.  Certain  hardware  and software  vendors are
  selling  their  products   directly   through  their  own  catalogs.   Certain
  competitors  of the  Company  which now sell or which may in the  future  sell
  CD-ROM 


                                       11



  products through  catalogs,  have financial and other resources  significantly
  greater than those of the Company.  No assurance can be given that the Company
  can compete effectively  against existing  competitors or new competitors that
  may enter these markets. In addition, price is an important competitive factor
  in these  markets,  and there can be no assurance that the Company will not be
  subject to increased price  competition,  which could have a material  adverse
  effect on the Company's operations and financial condition.

  PURCHASING

          4CD's purchases  multimedia  products from approximately 15 suppliers.
  Approximately  20% of these  products are  purchased  directly  from  software
  manufacturers  and  the  balance  from  distributors.   There  are  no  supply
  agreements between the Company and any of its distributors. The loss of any of
  these distributors  could have a short-term  disruption in the availability of
  products  purchased by it, although the Company believes that it would be able
  to obtain  alternative  sources  of  distribution  for such  products  without
  materially  affecting  product  cost.  Distributors  provide the Company  with
  substantial  incentives  in the  form of  discounts,  advertising  allowances,
  rebates  and  return  policies.  A  reduction  in or  discontinuance  of  such
  incentives  could have a material  adverse effect on the Company's  operations
  and  financial  condition.  In  addition,  no  assurance  can be given  that a
  distributor  and others will not produce and  distribute  their own multimedia
  catalogs.

          The Company  anticipates  that its volume  purchases will enable it to
  obtain more favorable  product pricing than its clients could obtain.  Many of
  the Company's suppliers are expected to make funds available to the Company in
  the form of  advertising  allowances  and  incentives  to promote and increase
  sales of their  products.  Generally,  the Company has been able to return any
  unsold  or  obsolete  inventory  to its  vendors.  In  addition,  the  Company
  typically  receives price protection  should a vendor  subsequently  lower its
  price.   Management  believes  that,  based  on  current  industry  practices,
  favorable  return and price protection  policies will continue.  Any change in
  these  policies  could  have  a  material  adverse  impact  on  the  Company's
  operations and financial condition.

  ITEM 2.      DESCRIPTION OF PROPERTY

          The   Company   maintains   its   principal   executive   offices  and
  manufacturing  operations in an approximately  250,000 square foot facility in
  Millbury,  Massachusetts  leased from AAA  Turnpike,  a  corporation  in which
  Ronald Ladner, a director of the Company,  is a director and stockholder.  The
  Company  currently pays base rent in the amount of  approximately  $49,605 per
  month plus its pro-rata portion of real estate taxes and other operational and
  maintenance  expenses,  pursuant to a lease that expires on June 30, 2001. The
  lease further  provides for an option to purchase the premises,  which consist
  of 265,000  square  feet,  for  $6,000,000  at any time during the term of the
  lease.  The option price is $10,000 per month  payable at the same time as the
  lease payments are due. The Company has made such additional  monthly payments
  on the  option  totaling  $360,000  since  April  1994,  and if it  decides to
  exercise the option,  the additional  amounts paid will be credited toward the
  $6,000,000. The Company believes that these arrangements are on terms at least
  as favorable as could be obtained from non-affiliated third parties.


                                       12





         At year end the  Company  leased  approximately  50,000  square feet of
factory space in Bloomington,  Minnesota. The monthly rental amounted to $13,183
plus  taxes  and  maintenance.  This  lease  will be taken  over by the  company
purchasing the midwest business. There is expected to be no contingent liability
to OMNI. The Company also leased at year end  approximately  110,000 square feet
of space in San Jose,  California  at a monthly  rate of $43,760  plus taxes and
maintenance  costs.  The Company will leave this facility in July.  The landlord
has  notified the Company  that with  payment of July rent,  the  landlord  will
release  OMNI from  further  liability  concerning  rent on this  facility.  The
Company anticipates paying this rent at the end of July.

          The  Company  believes  that  its  remaining  Millbury,  Massachusetts
  facility is adequate for its current  needs.  The Company has no present plans
  to acquire additional manufacturing facilities.

  ITEM 3. LEGAL PROCEEDINGS.

         The Company is not currently  involved in any  litigation of a material
nature.   The  Company  is  in  arrears  in  several  lease  payments  and  owes
approximately  $800,000 in payables  more than 60 days past due.  The Company is
also in dispute with a third party vendor  regarding a cancelled  purchase order
totalling $900,000.

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

          The Company  submitted no matters to a vote of security holders during
  the fourth  quarter  of the fiscal  year ended  March 29,  1997,  through  the
  solicitation of proxies or otherwise.


                                       13





                                     PART II

  ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

          The Company's  Common Stock is traded on the American  Stock  Exchange
  ("AMEX")  under the symbol  "OMG." On July 12, 1997,  the closing price of the
  Company's Common Stock as reported on the AMEX was $ .69.

          As of June 30, 1997, there were approximately 100 holders of record of
  the  Company's  Common  Stock.  Management  believes  that  there are over 700
  beneficial owners of the Company's Common Stock.

          For the periods indicated,  the following table set forth the range of
  high and low bid prices for the Company's Common Stock as reported by AMEX.

          FISCAL YEAR ENDING MARCH 28, 1998              HIGH             LOW
          ---------------------------------              ----             ---

          First Quarter                                 $1.25            $.625
          Second Quarter (through July 12, 1997)        $0.875           $.50

          FISCAL YEAR ENDING MARCH 29, 1997              HIGH             LOW
          ---------------------------------              ----             ---

          First Quarter                                 $10.375          $6.25
          Second Quarter                                $7.25            $3.00
          Third Quarter                                 $3.25            $1.50
          Fourth Quarter                                $1.75            $1.25


          FISCAL YEAR ENDING MARCH 30, 1996              HIGH             LOW
          ---------------------------------              ----             ---

          First Quarter (from April 20, 1995)           $8.13            $4.50
          Second Quarter                                $8.25            $5.75
          Third Quarter                                 $8.50            $7.00
          Fourth Quarter                                $12.50           $7.25

          The Company has not paid cash  dividends on its Common Stock since its
  inception  and does not  anticipate  paying any cash  dividends  on its Common
  Stock in the foreseeable  future.  The Company  currently  intends to reinvest
  earnings, if any, in the development and expansion of its business. Any future
  determination  with respect to the payment of dividends will be subject to the
  discretion  of the  Company's  Board of  Directors  and will  depend  upon the
  earnings, capital requirements, and financial position of the Company, general
  economic conditions,  and other pertinent factors. In addition,  the Company's
  agreement  with its primary lender  prohibits the payment of dividends,  other
  than a Common Stock dividend of the Company's own capital stock,  without such
  lender's prior written consent.


                                       14



ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

GENERAL

         The following  discussion  and analysis  should be read in  conjunction
with the consolidated  Financial  Statements of the Company (including the Notes
thereto) appearing elsewhere in this Annual Report.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED MARCH 29, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 30, 1996.

          During the year  ended  March 29,  1997  ("Fiscal  1997"),  management
decided to transition the Company from providing  software  replication on 3 1/2
inch diskettes to CD-ROM based on shifting  customer needs arising from advances
in  technology  within  the  computer   industry.   The  Company  completed  the
construction of a state-of-the-art CD-ROM manufacturing facility which commenced
full operations  late in the second quarter of Fiscal 1997.  During Fiscal 1997,
the Company's net sales and operating results decreased significantly due to the
faster than expected decline in demand for software  duplication  services for 3
1/2 inch diskettes.  This decline was combined with high fixed costs inherent in
a CD-ROM facility as well as high costs  associated with the acceleration of the
completion of the CD-ROM facility.  In addition,  lower than  anticipated  sales
performance  from the West  Coast and Mid West  facilities  acquired  during the
second half of Fiscal 1997 added to the operating  losses during Fiscal 1997. As
a result of the failure to achieve expected break-even  operating results during
the first  quarter of the year ending March 28, 1998  ("Fiscal  1998")  combined
with the cash  shortages  at the Company,  management  decided to close down the
West Coast facility and wind down the operations of the Mid West facility in the
first quarter of Fiscal 1998. The decision to exit these facilities has resulted
in an asset  impairment  charge of $1,686,487,  which was recorded in the fourth
quarter of Fiscal  1997.  Primarily  as a result of these  factors,  the Company
generated a loss totaling $15,759,175 for the year ended March 29, 1997.

          The consolidated financial statements have been prepared assuming that
the Company will  continue as a going  concern.  The Company has an  accumulated
deficit, a net working capital deficiency,  has suffered a loss from operations,
and is in default of payment on substantially all of its loans and capital lease
obligations.  Accordingly,  the Company's independent accountants have expressed
in their report on the Company's  consolidated  financial statements substantial
doubt about the  Company's  ability to continue as a going  concern.  The future
viability  of the  Company  is  dependent  on its  ability  to obtain  necessary
additional  financing and to generate cash from operations  primarily from sales
of its new  CD-ROM  replication  services.  No  assurance  can be given that the
Company can successfully  manufacture and market its CD-ROM replication services
or if the Company is successful,  that the Company will generate  revenues or be
profitable from its CD-ROM replication services, thereby recovering expenditures
made on related equipment and leasehold  improvements.  In addition, the Company
is in  default  under  the  payment  terms of  several  secured  loan and  lease
agreements.  If  management is not able to negotiate  the  restructuring  of the
payment terms of these agreements or cure the defaults, the secured parties have
the right to proceed with lien procedures.  Management  believes the Company has
the  ability to  generate  cash flows from  operations  and to reduce  operating
costs, and is in the process of attempting to obtain  additional  financing,  to
ensure the future viability of the Company.

          For Fiscal 1997, net sales were $12,873,854,  as compared to net sales
of  $18,929,165  for the fiscal  year ended March 30, 1996  ("Fiscal  1996"),  a
decrease  in net sales of  approximately  32%.  In Fiscal  1996,  net sales were
derived  almost  entirely from the  duplication  services for floppy  diskettes.
Although the Company had  anticipated  that  customers  would start to switch to
CD-ROMs in Fiscal 1997, the switch  occurred more rapidly than  anticipated.  As
mentioned in last year's annual report,  the Company  commenced Fiscal 1997 with
plans to build a significant CD-ROM  manufacturing  facility.  This facility was
completed in the second  quarter of Fiscal 1997 and became fully  operational at
the very end of the second  quarter of Fiscal  1997.  During the summer of 1996,
due to the Company's inability to manufacture CD-ROMs, the Company lost business
from its two largest  customers,  America  OnLine and  Prodigy,  which  together
accounted  for 63% of the  Company's  revenues in Fiscal  1996.  The Company had
anticipated  that 3 1/2 inch diskette sales would drop in Fiscal 1997.  However,
as previously  reported in each of the Company's quarterly reports during Fiscal
1997, the decline was more rapid than either the Company or the industry  itself
anticipated.

          Due to high fixed costs inherent in a CD-ROM  facility as well as high
costs associated with the acceleration of the completion of the CD-ROM facility,
combined with low sales volumes and lower than projected  sales prices,  cost of
goods sold as a percentage  of revenues  increased  significantly,  with cost of
goods sold in Fiscal 1997 of $16,168,684, or approximately 126% of net sales, as
compared to costs of good sold in Fiscal 1996 of $14,236,153,  or  approximately
75%. As a result,  the  Company  incurred a gross loss of  $3,294,830  in Fiscal
1997, as compared to a gross profit of $4,693,012 in Fiscal 1996. Material costs
amounted  to  approximately  38% and 50% of  sales  in  Fiscal  1996  and  1997,
respectively,  or  $4,958,000  in Fiscal  1997 and  $9,642,000  in Fiscal  1996.
Operating  overhead was approximately  $11,211,000 in Fiscal 1997 and $4,594,000
in Fiscal 1996. The $6,617,000 increase



                                       15







in Fiscal 1997 was primarily due to  depreciation of  approximately  $1,960,000,
rent  and  utilities  of  approximately  $981,000  and  labor  of  approximately
$2,455,000.  The increase in depreciation  relates to the CD-ROM  facility.  The
increase in rent reflects a 65% increase in plant space from 150,000 square feet
to 410,000 square feet. The increase in labor is the result of higher wage rates
for technology  qualified  workers as well as the more labor intensive aspect of
CD fulfillment operations.  Management believes that anticipated increased sales
volume of CD-ROM replication  services at the  Massachusetts  facility in Fiscal
1998 will  allow the  Company to  manufacture  at levels  sufficient  to realize
acceptable gross margins.

         Selling expenses in Fiscal 1997 were $4,421,087, or 34% of net sales in
Fiscal 1997, as compared to selling expenses of $2,014,117,  or 11% of net sales
in Fiscal  1996.  This  increase was due to a number of factors,  primarily  the
increase in the  staffing  level of  salespeople  from 3 in Fiscal 1996 to 16 in
late  Fiscal  1997,  as  well as  increases  in  customer  service  and  related
infrastructure,  and increased promotional costs.  Management believes that many
of these  salespeople,  most of whom were  hired  towards  the end of the fiscal
year, are just now beginning to contribute to revenues.

          General  and  administrative  expenses  increased  to  $4,955,110,  or
approximately 38% of net sales in Fiscal 1997, from $1,925,448, or approximately
10% of net sales in Fiscal 1996. The Company incurred  approximately $861,000 in
additional  general and  administrative  expenses  associated with the Company's
West Coast and Mid West  facilities  which were  discontinued  at the end of the
first quarter of Fiscal 1998. The Company also expensed $230,000, representing a
contested  deposit on equipment which was never delivered as well as $271,000 in
other  investment  advisory  services and related  expenses  associated with the
purchase of the Series A  Preferred  Stock by the Company and a group of private
investors.  The Company also incurred  additional  travel and  professional  fee
expenses  associated  with  the  acquisition  of the  West  Coast  and Mid  West
facilities and increases in personnel costs  associated with the increase in the
staff and start-up costs at 4CDs of approximately  $250,000.  The upgrade of the
Company's operating software increased costs by approximately $300,000.

          In Fiscal 1997, the Company  recorded an impairment loss on long-lived
assets of $2,261,611.  As discussed above,  $1,686,487 relates to certain assets
of the West and Midwest  facilities  (comprised  of  $940,000  in  goodwill  and
$746,000 in diskette duplication equipment).  In addition, the Company wrote-off
$575,000 of 3.5 inch floppy disk replication  equipment in its Millbury facility
as management does not expect to recover the carrying amount of such assets with
estimated future cash flows. Revenues from floppy disk replication have declined
sharply, from $18,000,000 in Fiscal 1996, to approximately  $2,000,000 in Fiscal
1997 (most of which  revenues were realized in the first  quarter) and less than
$400,000 resulting in a loss in the first quarter of Fiscal 1998. The impairment
loss was recorded as an operating expense during Fiscal 1997.


                                       16





         As a  result  of  these  factors,  the  Company  incurred  a loss  from
operations  of  $14,932,638  in  Fiscal  1997,  as  contrasted  to  income  from
operations of $753,447 in Fiscal 1996.

         In Fiscal 1997, the Company incurred interest expense of $1,352,266, an
increase from $205,254 in Fiscal 1996. This increase was due to increases in the
Company's  line of credit,  long-term  debt and  equipment  lease  facilities in
Fiscal 1997.  This increase was offset by interest  income of $401,230 in Fiscal
1997,  as  compared  to  interest  income of $54,419 in Fiscal  1996.  Net other
expense in Fiscal 1997 was $66,224,  as compared to other  expense of $55,949 in
Fiscal 1996.

          As  a  result  of  these  factors,   net  loss  for  Fiscal  1997  was
$15,759,175,  as compared to net income in Fiscal 1996 of  $324,200.  Due to the
exercise of the public warrants at the end of Fiscal 1996, and the sale of $10.5
million of 1,050 Series A Convertible  Preferred Stock in May 1997, of which 995
shares were subsequently converted to 6,015,039 of shares of Common Stock during
Fiscal 1997,  weighted  average shares  outstanding in Fiscal 1997 was 6,364,228
and 8,928,322  for primary and fully  diluted net loss per share,  respectively,
contrasted to 2,926,400  shares  outstanding  for both primary and fully diluted
net income per share for Fiscal  1996.  At March 29,  1997,  and March 30, 1996,
10,119,211  and 3,889,950  common  shares were  outstanding  respectively.  As a
result,  net loss per share in Fiscal  1997 was $2.77 and $1.97 for  primary and
fully  diluted  net loss per share,  respectively,  as compared to net income of
$.11 per share for both primary and fully diluted net income per share in Fiscal
1996.  As disclosed in Note 18 of the  consolidated  financial  statements,  the
Company  has  restated  the net loss per share data in its  unaudited  quarterly
financial  statements  included  in its  previously  filed  Form  10-QSB for the
quarterly periods ended June 29, 1996, September 28, 1996 and December 28, 1996.


LIQUIDITY AND CAPITAL RESOURCES

          At March 29, 1997, the Company had total current assets of $6,293,158,
and total  current  liabilities  of  $21,904,628  including  approximately  11.6
million of its long term debt and equiptment leases which have been reclassified
as current  liabilites.  Cash used in  operating  activities  in Fiscal 1997 was
$10,445,659.  Cash used in investing  activities was  $5,273,052,  almost all of
which was for property and equipment expenditures,  as compared to $4,961,493 in
Fiscal 1996, all of which was for expenditures  for property and equipment.  Net
cash provided by financing activities in Fiscal 1997 was $11,051,553,  virtually
all of which was from the sale of Series A  Convertible  Preferred  Stock in May
1996 and the receipt of certain  subscription  receivables  from the exercise of
the public warrant redeemed at the very end of Fiscal 1996.

         The Company has a $5,000,000 credit facility with a lending institution
consisting  of a term loan,  an equipment  expenditure  facility and a revolving
line of credit,  all of which are secured by substantially  all of the assets of
the Company.  At March 29, 1997, the amounts due under the credit  facility were
$1,484,000,  with no further sums  available to borrow against under the formula
for borrowing.  At March 29, 1997, the Company also had other  long-term debt of
$4,754,500,  outstanding,  used to fund equipment  purchases and secured by such
equipment. At March 29, 1997, the Company



                                       17




          had capital lease  obligations  totaling  $10,237,685,  as compared to
capital lease  obligations  of $2,235,619 at the beginning of Fiscal 1997.  This
increase was due to increased  leasing  activity in  connection  with the CD-ROM
facility.  Due to the Company's  constrained  cash  position,  the Company is in
default of payment on virtually all of its loans and capital  lease  obligations
and has  received  notices of default  from two  lessors.  The  Company has been
successful  in obtaining  agreements  with  virtually  all of these  lenders and
equipment lessors to defer payments for a short term and is negotiating with the
few remaining  lenders who have not entered into written  extension  agreements.
Approximately  $11,661,000  of debt  and  capital  lease  obligation  have  been
reclassified from noncurrent to current liabilities as a result of the defaults.
If the  Company  is unable to  renegotiate  the  terms of their  borrowings  and
capital lease obligations or to obtain additional  financing,  the Company might
be forced to seek protection under federal bankruptcy laws.

          In May 1996, the Company  received net proceeds of $9,352,982 from the
sale of the Series A  Convertible  Preferred  Stock.  The proceeds of this stock
sale  were used to fund  operating  costs and for  certain  improvements  to the
Company's  manufacturing  operations  and for the purchase of equipment.  Due in
part to lower than anticipated operating results in Fiscal 1997, each of the 995
shares of the Series A Preferred  Stock,  which was convertible at a price equal
to the original  purchase price of $10,000.00  per share plus accrued  dividends
divided by 85% of the fair market  value of the  Company's  Common  Stock at the
time of conversion, were converted into 6,015,039 shares of Common Stock.

          In  June  1997,  the  Company  ceased  operations  at its  West  Coast
facilities.  The  Company  also  negotiated  to sell the Mid West  business to a
competitor.   The  sale  was  completed  on  July  5,  1997.  Based  on  current
negotiations with landlords at both the West Coast and Mid West facilities,  the
Company  expects to be relieved of all  long-term  guarantees.  However,  if the
Company is  unsuccessful  in its  negotiations  with the  landlords,  management
estimates  that  the  remaining  lease   obligations   would  be   approximately
$1,978,000,  in the aggregate, as of June 28, 1997, in accordance with the lease
agreements.


FORWARD LOOKING STATMENTS

          The consolidated financial statements have been prepared assuming that
the Company will  continue as a going  concern.  The Company has an  accumulated
deficit, a net working capital deficiency,  has suffered a loss from operations,
and is in  arrears  in  payment  of a number  of its  loans  and  capital  lease
obligations.  Accordingly,  the Company's independent accountants have expressed
in their report on the Company's  consolidated  financial statements substantial
doubt about the Company's  ability to continue as a going  concern.  The Company
has been  actively  addressing  this  concern and has taken a number of steps to
reduce  operating  losses and raise  capital.  The  Company  believes  it is now
approaching  profitability  and is  pursuing  the  following  actions to achieve
stability:

                                       18



*    Achieve break-even levels of revenues.  Management intends to grow revenues
     by continuing to focus on building its customer base for CD-ROM replication
     services through its sales force of 16 people.  In addition,  revenues from
     the Company's 4CD's electronic  distribution  services are now beginning to
     be  realized.  In April 1997,  the  Company  began its "Try Before You Buy"
     (TBYB) program in which  encrypted  CD-ROMs are distributed in computer and
     other trade magazines. Management expects revenues from the TBYB program to
     increase 4CD's sales significantly in Fiscal 1998.

*    Expand cost reduction program.  Management has implemented a stringent cost
     reduction   program,   which   includes   reductions  in  workforce   (e.g.
     non-essential  employees in the print shop, packout and assembly areas) and
     salary  decreases for all key  employees and further  reductions in general
     and administrative expenses.  Management has also ceased operations in both
     the West and Mid West  facilities,  which is  expected  to further  help to
     reduce losses.

*    Renegotiate  capital  equipment  loans and leases.  Management is currently
     renegotiating with its various lenders to work out acceptable  arrangements
     for the continuance of its loan and lease agreements.

*    Plan to raise  additional  capital.  The Company is seeking to obtain a new
     credit  facility  which will allow it to  restructure  much of its debt and
     several equipment  leases.  The Company is also seeking to raise additional
     equity capital. The Company is currently  negotiating with both lenders and
     sources of equity financing.

*    Work out  extended  payment  plans with  trade  creditors.  As the  Company
     achieves  break-even  operating  levels,  it  expects  to be able to resume
     normal terms with its vendors and arrange an extended plan to pay down over
     60 day payables.





                                       19






         Although the Company  continues to receive  support from its customers,
as evidenced by growing  sales,  and believes  that these goals can be achieved,
there is no  guarantee  that  this will  happen.  Should  sales  fall off or the
operating line of credit be suspended,  or the capital equipment be repossessed,
the Company might be forced to seek protection under federal bankruptcy laws.

INFLATION

         To date,  inflation  has not had a  material  impact  on the  Company's
results of operations or financial condition.

POTENTIAL QUARTERLY FLUCTUATIONS AND SEASONALITY OF BUSINESS

         The Company has experienced variability in its net sales and net income
on a quarterly basis as a result of many factors, including the condition of the
CD-ROM  and  multimedia  products  industry  in  general,  shifts in demand  for
software and hardware  products  and industry  announcements  of new products or
upgrades.  The  Company's  planned  operating  expenditures  are  based on sales
forecasts. If revenues do not meet expectations in any given quarter,  operating
results may be materially adversely affected.

         Management  believes that demand for duplication  services for consumer
products is seasonal,  with increases in the fall  reflecting  increased  demand
relative to the new school year and holiday gift purchases. To date, the Company
has derived  only very  limited  sales from direct  consumer  sales.  Management
believes  that  seasonality  may  intensify  as  activity  increases  at  4CD's.
Increased  seasonality  would likely be reflected in a slowdown in buying in the
summer months from  consumers,  schools and  universities.  This  seasonality in
business  could also result in  significant  quarterly  variations  in financial
results.  The  products  featured  in 4CD's are  expected to be sold to users of
CD-ROM titles and multimedia  products.  Any decline in the sales of or decrease
in demand for CD-ROM titles and software  products could have a material adverse
effect on the Company's operations and financial condition.



                                       20


  ITEM 7.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

  The  following  consolidated  financial  statements  are filed as part of this
report:

<TABLE>
<CAPTION>

                                                                                                  PAGE
                                                                                                  ----

<S>                                                                                               <C>
      Report of Independent Accountants   ......................................................   F-3
      Consolidated Balance Sheets as of March 29, 1997 and March 30, 1996 ......................   F-4
      Consolidated Statements of Income
         for the years ended March  29, 1997 and March 30, 1996.................................   F-5
      Consolidated Statements of Stockholders' Equity
         for the years ended March 29, 1997 and March 30, 1996..................................   F-6
      Consolidated Statements of Cash Flows
         for the years ended March  29, 1997 and March 30, 1996.................................   F-7
      Notes to Consolidated Financial Statements   .............................................   F-8

</TABLE>

  ITEM 8.

       CHANGE IN REGISTRANT'S INDEPENDENT CERTIFYING ACCOUNTANTS

          There were no "reportable  events" as described in Item  304(a)(1)(iv)
  of  Regulation  S-B with  respect to the  Company  within the two most  recent
  fiscal years.


                                    PART III

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

          The Company intends to file a Definitive  Proxy  Statement  within 120
  days of the completion of the Company's  fiscal year ended March 29, 1997. The
  information  required by this item is incorporated by reference from the Proxy
  Statement.

  ITEM 10.EXECUTIVE COMPENSATION.

          The  information  required by this Item is  incorporated  by reference
from the Proxy Statement.

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

          The  information  required by this Item is  incorporated  by reference
from the Proxy Statement.



                                       21




  ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        The information  required by this Item is incorporated by reference from
the Proxy Statement.

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

          (A)  EXHIBITS.

                   (1) The following exhibits are filed herewith:

  Exhibit
    No.                                                 Title
    ---                                                 -----


    11             Computation of Per Share Earnings.

    21             List of Subsidiaries.

                   (2) The following  exhibit was filed as part of the Company's
  Current Report on Form 8-K, filed with the Commission on June 30, 1995, and is
  incorporated herein by reference:

  Exhibit
    No.                                                 Title
    ---                                                 -----

                   (3)  The  following  exhibits  were  filed  as  part  of  the
  Company's  Quarterly  Report  on Form  10-QSB  for the  Fiscal  Quarter  ended
  September  30, 1995,  filed with the  Commission  on November 14, 1995 and are
  incorporated herein by reference:

  10a              Form of promissory note issued to Phoenixcor, Inc.

  10b              Form of Security Agreement be and between the Company and 
                   Phoenixcor, Inc.

  10c              Form of Loan and Security Agreement by and between the 
                   Company and Phoenixcor, Inc.

                   (4)  The  following  exhibits  were  filed  as  part  of  the
  Company's  Registration  Statement  on Form SB-2 (No.  33-87038-NY),  declared
  effective by the Commission on April 20, 1995 and are  incorporated  herein by
  reference:



                                       22



<TABLE>
<CAPTION>

  Exhibit
    No.                                                 Title
    ---                                                 -----

<S>               <C>                                             
  1a              Form of Agreement Among Underwriters.

  1b              Form of Underwriting Agreement.

  1c               Form of Selected Dealers Agreement.

  3a               Certificate of Incorporation, as amended.

  3b               Bylaws, as amended.

  4a               Sections of Bylaws and Certificate of Incorporation  defining the rights of  
                   security-holders (contained in Exhibits 3a and 3b).

  4b               Specimen Common Stock Certificate.

  4c               Revised Form of Representative's Warrant Agreement.

  4d               Form of Advisor Stock Option Grant Letter.
  4e               Revised Form of Lock-Up Letter.

  4f               Specimen Warrant  Certificate  (Form attached as Exhibit A to Warrant
                   Agreement -- Exhibit 4g filed herewith)

  4g               Revised Form of Warrant Agreement between the Company and the Warrant
                   Agent.

  10a              Revised Form of  Employment  Agreement to be entered into by Paul F.  Johnson, 
                   Robert E. Lee and Richard A. Pilotte.

  10b              Forms of Promissory Notes issued pursuant to the Company's Bridge and Other Financing.

  10c              Form of International  Distribution Agreement between 4CD's Corporation and
                   its International Distributors.

  10d              Lease  Agreement  between the  Company and AAA Mass  Turnpike
                   Warehouse Corporation, dated April 1, 1994.

  10e              Settlement and Stock Redemption Agreement between River Capital Corporation and 
                   the Company.

  10f              Promissory Note issued by the Company to River Capital Corporation.



                                       23




Exhibit
  No.                                                 Title
  ---                                                 -----

  10g              Escrow Agreement among River Capital Corporation, the Company and The Business Bank.

  10h              Pledge and Security Agreement between the Company and River Capital Corporation.

  10i              Loan and Security  Agreement  between the Company and Shawmut  Bank,  N.A., 
                   dated October 5, 1994.

  10j              Guarantees of Messrs.  Johnson,  Lee,  Pilotte and Anand to Shawmut Bank, N.A.,
                   dated October 5, 1994.

  10k              Revised Form of 1994 Stock Option Plan.

  10l              Form of 1994 Director Formula Stock Option Plan.

  10m              Consulting Agreement between the Company and the Schneider Securities, Inc.

  10n              Form of  Shareholders'  Exchange  Agreements  among the Company and all 
                   Shareholders of Omni Resources Corporation and 4CD's Corporation.

  10o              Promissory Notes issued to the Company by Messrs. Johnson, Lee, Pilotte and Anand.

  10p              Form of Agreement by and between the Company and Citizens Savings Bank.

  10q              Promissory Notes issued to Messrs. Johnson, Pilotte and Anand by Omni Resources Corporation.

  10r              Secured promissory note issued to Coast Business Credit in connection with Equipment Loan.

  10s              Secured promissory note issued to Coast Business Credit in connection with Capex Loan.

  10t              Loan and Security Agreement by and between the Company and Coast Business Credit.

  16               Letter from Ernest C. Ricci, Jr., C.P.A. regarding change in certifying accountant.

  21               Revised List of Subsidiaries.



                                       24



 Exhibit
   No.                                                 Title
   ---                                                 -----

  99a              Consent of Richard Wise, Nominee Director.

  99b              Consent of Bernard Bruso, Nominee Director.


                   (5) The following exhibits were filed as exhibits to Form 8-K
  as filed with the Commission on October 18, 1996:

 Exhibit
   No.                                                 Title
   ---                                                 -----

  10(u)            Form of Asset  Purchase  Agreement,  dated as of  August  1,  1996,  by and  among
                   Allenbach Industries,  Inc.,  A.I.  Acquisition Corporation, Kathleen Allenbach and
                   Phillip H. Kessler.

  10(v)            Form of  Employment  Agreement,  dated  as of  October  1,  1996,  between 
                   the  Company  and  Phillip H. Kessler.

  10(w)            Form of Registration Rights Agreement, dated as of October 1,
                   1996, between the Company and Kathleen Allenbach.

                   (5) The  following  exhibit  was filed as an  exhibit to Form
  10-Q as filed with the Commission on November 18, 1996:

  Exhibit
    No.                                                 Title
    ---                                                 -----

  10 (x)           Employment Agreements between Paul F. Johnson, Robert E. Lee,
                   Richard A. Pilotte, and the Company.

          (6)      The  following  exhibit  was filed as an  exhibit to Form 8-K
                   with the Commission on March 21, 1997:


  Exhibit
    No.                                                 Title
    ---                                                 -----

  10 (y)           Form of  Agreement  and Plan of Merger,  dated as of February
                   28, 1997,  by and among OMNI  MultiMedia  Group,  Inc.,  CSTM
                   Acquisition   Corporation   and   Custom   Software   Turnkey
                   Manufacturing, Inc.
</TABLE>


                                       25




                                   SIGNATURES

          In accordance with Section 13 or 15(d) of the Securities  Exchange Act
  of 1934,  as amended,  the  registrant  caused this report to be signed on its
  behalf by the undersigned, thereunto duly authorized.

                                       OMNI MULTIMEDIA GROUP, INC.


  Date:  July 28, 1997                 By:/s/ Paul F.  Johnson
                                          ----------------------------------
                                          Paul F. Johnson
                                          Chief Executive Officer and President

          In accordance  with 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 date indicated.

<TABLE>
<CAPTION>

          Name                                        Capacity                           Date
          ----                                        --------                           ----

<S>                                     <C>                                       <C> 
      /s/ Paul F. Johnson                President, Chief Executive Officer,        July 28, 1997
  ----------------------------
       Paul F. Johnson                   Chairman of the Board of
                                         Directors and Secretary
                                         (Principal Executive Officer)

        /s/ Robert E. Lee                Executive Vice President, Chief            July 28, 1997
  -----------------------------
        Robert E. Lee                    Financial Officer, Director
                                         and Treasurer
                                         (Principal Financial and
                                         Principal Accounting Officer)

     /s/ Richard A. Pilotte              Vice President of Operations and           July 28, 1997
  ----------------------------
       Richard A. Pilotte                Director


     /s/ Ronald F. Ladner                Director                                   July 28, 1997
  ---------------------------
        Ronald F. Ladner
</TABLE>



                                       26









                  OMNI MULTIMEDIA GROUP, INC. AND SUBSIDIARIES

                        Consolidated Financial Statements

                        March 29, 1997 and March 30, 1996

                 (with Independent Accountants' Report Thereon)





                                      F-1





                          INDEX TO FINANCIAL STATEMENTS


                                                                         Page
                                                                         ----


Report of Independent Accountants                                         F-3

Consolidated Balance Sheets as of  March 29, 1997 and March 30, 1996      F-4

Consolidated Statements of Income
   for the years ended March 29, 1997 and March 30, 1996                  F-5

Consolidated Statements of Stockholders' Equity
   for the years ended March 29, 1997 and March 30, 1996                  F-6

Consolidated Statements of Cash Flows
   for the years ended March 29, 1997 and March 30, 1996                  F-7

Notes to Consolidated Financial Statements                                F-8



                                      F-2





                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders of 
OMNI MultiMedia Group, Inc.

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present  fairly,  in all  material  respects,  the  financial  position  of OMNI
MultiMedia  Group,  Inc.  and its  subsidiaries  at March 29, 1997 and March 30,
1996,  and the  results of their  operations  and their cash flows for the years
then ended in conformity with generally accepted  accounting  principles.  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 of these  statements  in  accordance  with
generally accepted auditing standards which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements,  the Company has an accumulated deficit and a
net working capital deficiency,  has suffered a loss from operations,  and is in
default  of  payment  on  substantially  all  of its  loans  and  capital  lease
obligations  that raise  substantial  doubt  about its  ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 1. The consolidated  financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


PRICE WATERHOUSE LLP
Boston,  Massachusetts
July 18, 1997



                                      F-3



OMNI MultiMedia Group, Inc.
Consolidated Balance Sheets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                MARCH 29, 1997   MARCH 30, 1996
ASSETS
<S>                                                                        <C>                <C>
Current assets:
   Cash and Cash Equivalents                                                  $     1,039,664    $     5,706,822
   Accounts receivable, net of allowance for doubtful accounts of
      $550,000 at March 29, 1997 and $25,000 at March 30, 1996                      3,232,047          1,306,212
   Stock subscriptions receivable                                                           -          1,790,374
   Inventories                                                                      1,310,970            966,665
   Prepaid expenses and other current assets                                          710,477            812,103
   Deferred tax assets, net                                                                 -            101,844
                                                                              ---------------    ---------------

      Total current assets                                                          6,293,158         10,684,020

Property and equipment, net                                                        20,102,698          8,427,275
Notes receivable from stockholders                                                    482,807            532,761
Other assets                                                                        1,376,395            954,230
                                                                              ---------------    ---------------

                                                                              $    28,255,058    $    20,598,286
                                                                              ===============    ===============


LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:
   Line of credit                                                             $     1,797,321    $     1,068,967
   Current portion of long-term debt and capital lease obligations                 14,797,900          1,025,600
   Accounts payable                                                                 3,697,552          1,775,225
   Accrued expenses                                                                 1,611,855            332,561
   Income taxes payable                                                                     -            190,063
                                                                              ---------------    ---------------

        Total current liabilities                                                  21,904,628          4,392,416
                                                                              ---------------    ---------------

Other long-term debt                                                                  497,901          2,207,479
                                                                              ---------------    ---------------

Capital lease obligations                                                             267,685          1,760,919
                                                                              ---------------    ---------------

Deferred income taxes                                                                       -            141,761
                                                                              ---------------    ---------------


STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value; 1,000,000 shares authorized;
      1,050 shares of Series A issued and 6 shares outstanding
      at March 29, 1997                                                                    -                  -
   Common stock, $.01 par value; 14,000,000 shares authorized;
      10,119,211 shares issued and outstanding at March 29,
      1997 and 3,889,950 shares  issued and outstanding at
      March 30, 1996                                                                  101,191             38,899
   Additional paid in capital                                                      20,821,691         11,635,675
   Retained earnings (accumulated deficit)                                        (15,338,038)           421,137
                                                                              ----------------   ---------------

                                                                                    5,584,844         12,095,711
                                                                              ---------------    ---------------


Commitments (Notes 8 and 14)                                                               -                  -
                                                                              ---------------    ---------------
                                                                              $   28,255,058     $    20,598,286
                                                                              ===============    ===============

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
                                   statements.

                                      F-4







OMNI MultiMedia Group, Inc.
Consolidated Statements of Operations
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                         YEAR ENDED
                                                                                MARCH 29,           MARCH 30,
                                                                                  1997                1996
                                                                               -----------          ---------


<S>                                                                        <C>                 <C>              
Net sales                                                                  $     12,873,854    $      18,929,165
Cost of goods sold                                                               16,168,684           14,236,153
                                                                           ----------------    -----------------

Gross profit (loss)                                                              (3,294,830)           4,693,012
                                                                           -----------------   -----------------

Expenses:
   Selling                                                                        4,421,087            2,014,117
   General and administrative                                                     4,955,110            1,925,448
   Impairment loss on long-lived assets                                           2,261,611                    -
                                                                           ----------------    -----------------

                                                                                 11,637,808            3,939,565
                                                                           ----------------    -----------------


   Income (loss) from operations                                                (14,932,638)             753,447

Interest expense                                                                 (1,352,266)            (205,254)
Interest income                                                                     401,230               54,419
Other expense, net                                                                  (66,224)             (55,949)
                                                                           -----------------   ------------------


                                                                                 (1,017,260)            (206,784) 
                                                                           -----------------   ------------------

   Income (loss) before income taxes                                            (15,949,898)             546,663
   Income tax provision (benefit)                                                  (190,723)             222,463
                                                                           -----------------   -----------------

   Net income (loss)                                                       $    (15,759,175)   $         324,200
                                                                           =================   =================

Calculation of net income (loss) per common share
and equivalents
   Net income (loss)                                                       $    (15,759,175)   $         324,200
   Preferred stock preferences (Notes 2 and 10)                                  (1,853,000)                   -
                                                                           -----------------   -----------------
   Net income (loss) available to common shareholders                      $    (17,612,175)   $         324,200

Net income (loss) per common share and equivalents
   Primary                                                                $           (2.77)   $            0.11
   Fully diluted                                                          $           (1.97)   $            0.11
                                                                           -----------------   -----------------


Weighted average common shares and
   equivalents outstanding
   Primary                                                                        6,364,228            2,926,400
   Fully diluted                                                                  8,928,322            2,926,400
                                                                           -----------------   -----------------
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
                                   statements.

                                      F-5





OMNI MultiMedia Group, Inc.
Consolidated Statements of Stockholders' Equity
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                           PREFERRED STOCK     COMMON STOCK              ADDITIONAL        RETAINED     
                                                                                          PAID IN          EARNINGS
                                                                                          CAPITAL  (ACCUMULATED DEFICIT)
------------------------------------ ----------- ----------- -------------- ----------- --------------- -------------- -

                                       SHARES                 SHARES                                                    
<S>                                  <C>            <C>        <C>           <C>           <C>           <C>
Balance at April 1, 1995                                         1,613,000      $16,302     $345,890        $96,937     

Issuance of common stock
  stock in Initial Public
  Offering,   net  of
  expenses of$1,724,856 and                                                     
  elimination  of treasury stock                                 1,138,500       11,213    4,064,783                    
  
Issuance of shares of common                                                    
  stock upon exercise of                                         
  warrants,  net                                                                                            
  of expenses of $ 310,557                                       1,138,450       11,384    7,225,002                                

Net Income for the year ended                                                                                324,200    
  March 30, 1996                                                         
                                                                         
                                       ---------    --------     ----------    --------   -----------     ------------  
Balance at March 30, 1996                    --          --      3,889,950       38,899   11,635,675         421,137    
                                                                                                                        
Issuance of Series A  Preferred
Stock, net of expenses of $1,147,028      1,050         $11                                9,352,972                                

Redemption of Series A  Preferred                                                 
Stock                                      (55)          --                                 (686,971)                               
                                         
Issuance of common stock warrants                                                            200,000                    
                                                                                                                        
Issuance of shares of  common stock         --           --          40,100       401         77,246                    
                                                                                                                 
Conversion of Series A  Preferred         (995)         (11)      6,015,039    60,150        (60,140)                   
  Stock to common stock                                                            

Issuance of shares of  common stock                                 100,000     1,000        130,250                    
  upon acquisition of Custom                                                                                            
  Software Turnkey Manufacturing, Inc.                                                                                  
                                                                                                                        
Issuance of shares of  common stock                                  74,122       741        172,659                                
  upon acquisition of Allenbach                                                    
  Industries, Inc.                                              

Net loss for the year ended                                                                              (15,759,175)   
 March 29, 1997                      ---------    --------       ----------  --------    -----------     ------------             
                                                                                                                        
Balance at March 29, 1997                 --       $   --        10,119,211  $101,191    $20,821,691     (15,338,038)
                                     =========    ========       ==========  ========    ===========     ============



                                                  TREASURY STOCK         TOTAL     
                                                                                        
                                                                                                  
                                             ----------- ----------- -----------   
                                             SHARES                                                                    
Balance at April 1, 1995                        17,241    $(5,500)     $453,629  
                                                                                   
Issuance of common stock                                                           
  stock in Initial Public                                                          
  Offering,   net  of                                                              
  expenses of$1,724,856 and                                                        
  elimination  of treasury stock               (17,241)     5,500     4,081,496    
                                                                                   
Issuance of shares of common                                                       
  stock upon exercise of                                                           
  warrants,  net                                                                   
  of expenses of $ 310,557                                            7,236,386    
                                                                                   
Net Income for the year ended                                           324,200           
  March 30, 1996                                                                   
                                                                                   
                                               ---------- ---------- ------------  
Balance at March 30, 1996                            --         --   12,095,711    
                                                                                   
Issuance of Series A  Preferred                                                    
Stock, net of expenses of $1,147,028                                  9,352,982    
                                                                                   
Redemption of Series A  Preferred                                                  
Stock                                                                  (686,971)   
                                                                                   
Issuance of common stock warrants                                       200,000    
                                                                                   
Issuance of shares of  common stock                                      77,647    
                                                                                   
Conversion of Series A  Preferred                                                  
  Stock to common stock                                                     --                                                   
                                                                                   
Issuance of shares of  common stock                                     131,250    
  upon acquisition of Custom                                                       
  Software Turnkey Manufacturing, Inc                                              
                                                                                   
Issuance of shares of  common stock                                     173,400    
  upon acquisition of Allenbach                                                    
  Industries, Inc.                                                                 
                                                                                   
Net loss for the year ended                      
 March 29, 1997                                                     (15,759,175)   
                                              ---------- ---------- ------------   
Balance at March 29, 1997                           --   $     --    $5,584,844  
                                              ========== ========== ============                                                 
                                                                                   
</TABLE>
                                             
The  accompanying  notes are an integral  part of these  consolidated  financial
                                   statements.

                                      F-6







OMNI MultiMedia Group, Inc.
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                            YEAR ENDED
                                                                                   MARCH 29,           MARCH 30,
                                                                                     1997                1996
                                                                                  -----------          --------
<S>                                                                          <C>               <C>
Cash flows from operating activities:
   Net income (loss)                                                          $   (15,759,175)   $       324,200
   Adjustments to reconcile net income (loss) to net cash
        provided (used) by operating activities:
      Depreciation and amortization                                                 2,702,120            533,596
      Compensation from issuance of common stock and
         common stock warrants                                                        270,920                  -
      Impairment loss on long-lived assets                                          2,261,611                  -
      Write off of deferred financing costs                                                 -             91,777
      Provision for losses on accounts receivable                                     624,306             46,511
      Provision for inventory obsolescence                                            275,000                  -
      Gain (loss) on disposal of fixed assets                                          (3,090)            26,265
      Increase in accounts receivable                                                (809,677)          (152,162)
      Increase in inventories                                                        (224,140)          (499,279)
      (Increase) decrease in prepaid expenses and other
         current assets                                                               218,248           (401,611)
      Increase (decrease) in deferred income taxes                                    (39,917)            35,560
      Increase in other assets                                                       (500,492)          (736,732)
      Increase in accounts payable                                                    631,560            732,267
      Increase in accrued expenses                                                     97,130            144,555
      Increase (decrease) in income taxes payable                                    (190,063)           105,602
                                                                              ----------------   ---------------

        Net cash provided (used) by operating activities                          (10,445,659)           250,549
                                                                              ----------------   ---------------

Cash flows from investing activities:
   Expenditures for property and equipment                                         (5,296,153)        (4,961,493)
   Proceeds from sale of fixed assets                                                  20,600                  -
   Purchase of Allenbach Industries, Inc., net of cash acquired                       125,971                  -
   Purchase of Customer Software Turnkey Manufacturing, Inc.,
       net of cash acquired                                                          (123,470)                 -
                                                                              ----------------   ---------------

   Net cash used by investing activities                                           (5,273,052)        (4,961,493)
                                                                              ----------------   ---------------

Cash flows from financing activities:
   Repayments on long-term borrowings and capital lease
      obligations                                                                  (2,130,460)          (861,157)
   Repayments on notes payable - redeemable
      Common Stock                                                                          -           (346,000)
   Repayment on notes payable - redeemable
      Preferred Stock                                                                       -           (307,000)
   Repayment on Interim Financing                                                           -           (325,000)
   Proceeds from long-term borrowings                                               3,380,420          2,791,868
   Repayments on revolving line of credit, net                                       (701,608)          (107,577)
   Repayments on loans from stockholders                                                    -            (39,737)
   (Increase) decrease in subscription receivable                                   1,790,374         (1,790,374)
   Proceeds from issuance of Series A Preferred Stock                               9,352,982                  -
   Proceeds from issuance of Common Stock                                               5,112         11,317,882
   (Increase) decrease in due from related parties                                     49,954            (43,342)
   Increase in debt issue costs                                                        (8,250)          (138,471)
   Purchase of treasury stock                                                        (686,971)                 -
                                                                              ----------------   ---------------

      Net cash provided (used) by  financing activities                            11,051,553         10,151,092
                                                                              ----------------   ---------------


Increase (decrease) in cash and cash equivalents                                   (4,667,158)         5,440,148
Cash and cash equivalents,  beginning of period                                     5,706,822            266,674
                                                                              ---------------    ---------------

Cash and cash equivalents, end of period                                      $     1,039,664    $     5,706,822
                                                                              ===============    ===============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
                                   statements.

                                      F-7





OMNI MULTIMEDIA GROUP, INC.
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------

1.       NATURE OF BUSINESS AND ORGANIZATION

         OMNI  MultiMedia  Group,  Inc. (the  "Company") was  incorporated  as a
         Delaware  corporation  on November 29,  1994.  Upon  completion  of the
         Company's  initial public  offering on April 20, 1995 (Note 11), all of
         the  stockholders of Omni Resources  Corporation and 4CD's  Corporation
         exchanged  each of their  shares of Common  Stock,  no par  value,  for
         6.7979521 shares and 640 shares, respectively,  of the Company's Common
         Stock.  The  stockholders  of Omni Resources and 4CD's  Corporation are
         virtually identical,  accordingly, the combination of the companies has
         been  accounted  for as a transfer  or  exchange  at  historical  cost,
         similar  to a pooling  of  interests.  All  common  share and per share
         amounts included in the accompanying  consolidated financial statements
         have been adjusted to give retroactive effect to these transactions.

         Omni Resources Corporation was incorporated in 1981 in the Commonwealth
         of  Massachusetts.  Allenbach  Industries,  Inc.  and  Custom  Software
         Turnkey  Manufacturing,  Inc. were  acquired and became Omni  Resources
         Corporation - West in fiscal 1997 (Note 15). Omni Resources Corporation
         together   with  its  wholly  owned   subsidiary,   Campbell   Products
         Corporation,  and Omni  Resources  Corporation  - West,  provide a full
         range  of  services  to  the   software   industry   including   CD-ROM
         replication, disk duplication,  packaging design, printing and shipping
         fulfillment services.

         4CD's  Corporation  was  incorporated  in 1993 in the  Commonwealth  of
         Massachusetts.  4CD's Corporation  distributes  multimedia software and
         hardware products through direct catalog sales.

         The  accompanying  financial  statements  have been prepared on a basis
         which  contemplates  the realization of assets and the  satisfaction of
         liabilities  and  commitments  in the normal  course of  business.  The
         Company  has  an  accumulated   deficit  and  a  net  working   capital
         deficiency,  has suffered a loss from operations, and is in defaults of
         payment  on   substantially   all  of  its  loans  and  capital   lease
         obligations.  Accordingly,  the Company's independent  accountants have
         expressed  in their  report  on the  Company's  consolidated  financial
         statements substantial doubt about the Company's ability to continue as
         a going concern.  The consolidated  financial statements do not include
         any adjustments that might result from the outcome of this uncertainty.
         During the year ended March 29, 1997 ("fiscal 1997"), the Company's net
         sales and operating results  decreased  significantly due to the faster
         than expected decline in demand for software duplication services for 3
         1/2  diskettes.  This  decline was  combined  with the high fixed costs
         inherent in a CD-ROM facility as well as high costs associated with the
         acceleration  of the  completion of the CD-ROM  facility  which did not
         become fully operational until the end of the second fiscal quarter. In
         addition,  lower than anticipated sales performance from the West Coast
         and Mid West facilities  acquired during the second half of fiscal 1997
         added to the  operating  losses  during fiscal 1997. As a result of the
         failure to achieve  expected  break-even  operating  results during the
         first  quarter  of the year  ending  March  28,  1998  ("fiscal  1998")
         combined with the cash shortages at the Company,  management decided to
         close down the West Coast  facility and wind down the operations of the
         Midwest  facility in the first quarter of fiscal 1998.  The decision to
         exit these  facilities  has resulted in an asset  impairment  charge of
         $1,686,487,  which was  recorded in the fourth  quarter of fiscal 1997.
         Primarily as a result of these  factors,  the Company  generated a loss
         totaling  $15,759,175  for the year ended March 29, 1997.  In addition,
         the Company has a net working capital  deficiency of $15,611,470 and an
         accumulated deficit of $15,338,038 at March 29, 1997.

         The future  viability  of the  Company is  dependent  on its ability to
         obtain  necessary  additional  financing  and  to  generate  cash  from
         operations primarily from sales of its new CD-ROM replication services.
         It is uncertain  whether the Company can  successfully  manufacture and
         market its CD-ROM replication services or if the Company is successful,
         that the  Company  will  generate  revenues or be  profitable  from its
         CD-ROM replication  services,  thereby recovering  expenditures made on
         related equipment and leasehold improvements.  In addition, the Company
         is in default under the payment terms of various secured loan and lease
         agreements. If management is not able to negotiate the restructuring of
         the payment terms of these agreements or cure the default,  the secured
         parties  have the right to  proceed  with lien  procedures.  Management
         believes  the  Company  has the  ability  to  generate  cash flows from
         operations  and to reduce  operating  costs,  and is in the  process of
         attempting  to  obtain  additional   financing  to  ensure  the  future
         viability  of  the  Company.   Management  is  currently  pursuing  the
         following action items to achieve stability:

         *      Achieve  break-even  levels of revenues.  Management  intends to
                grow  revenues by  continuing  to focus on building its customer
                base for CD-ROM replication  services through its sales force of
                16  people.  In  addition,  revenues  from the  Company's  4CD's
                electronic   distribution  services  are  now  beginning  to  be
                realized.  In April 1997,  the Company began its "Try Before You
                Buy" (TBYB) program in which  encrypted  CD-ROMs are distributed
                in computer and other trade magazines.

         *      Expand cost  reduction  program.  Management  has  implemented a
                stringent cost reduction program,  which includes  reductions in
                workforce  (e.g.  non-essential  employees  in the  print  shop,
                packout and  assembly  areas) and salary  decreases  for all key
                employees and further  reductions in general and  administrative
                expenses. Management has also ceased operations in both the West
                and Mid West  facilities,  which is expected to further  help to
                reduce losses.

         *      Renegotiate  capital  equipment loans and leases.  Management is
                currently  renegotiating  with their various lenders to work out
                acceptable  arrangements  for the  continuance  of its  loan and
                lease agreements.

         *      Plan to raise  additional  capital.  The  Company  is seeking to
                obtain a new credit  facility which will allow it to restructure
                much of its debt and several  equipment  leases.  The Company is
                also seeking to raise additional equity capital.  The Company is
                currently  negotiating  with both  lenders and sources of equity
                financing.

         *      Work out extended  payment  plans with trade  creditors.  As the
                Company achieves  break-even  operating  levels,  it hopes to be
                able to resume  normal  terms with its  vendors  and  arrange an
                extended plan to pay down over 60 day payables.



                                      F-8





OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


2.       SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION
         The accompanying  financial statements for fiscal 1997 and 1996 include
         the  Company  and  its  wholly  owned   subsidiaries,   Omni  Resources
         Corporation,  Campbell Products Corporation, 4CD's Corporation and OMNI
         Resources  Corporation-West.  All significant intercompany transactions
         and balances have been eliminated.

         FISCAL YEAR
         The Company's fiscal year ends the Saturday closest to March 31.

         CASH AND CASH EQUIVALENTS
         The company  considers all highly liquid  investments  purchased with a
         maturity of three months or less to be cash equivalents.  Cash and cash
         equivalents include funds on deposit in a money market account.

         ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
         Financial  instruments  which expose the Company to  concentrations  of
         credit  risk  consist of  accounts  receivable.  The  Company  performs
         ongoing  credit  evaluations  of  customers'  financial  condition  and
         establishes credit limits on customers' accounts. The Company generally
         does  not  require  collateral.  The  Company  maintains  reserves  for
         potential credit losses,  and such losses,  in the aggregate,  have not
         exceeded management's expectations.

         FINANCIAL INSTRUMENTS
         The  carrying  amount of the  Company's  financial  instruments,  which
         include cash, cash equivalents,  accounts receivable, accounts payable,
         revolving  credit facility,  notes payable,  long-term debt and capital
         lease  obligations  approximate  their fair value at the balance  sheet
         date.

         INVENTORIES
         Inventories  are stated at the lower of cost or market  with cost being
         determined by the first-in, first-out method.

         LONG-LIVED ASSETS
         Property and equipment is stated at cost.  Depreciation of fixed assets
         is provided using the  straight-line  method over the estimated  useful
         life  of  the  related  asset  ranging  from 5 to 10  years.  Leasehold
         improvements  are amortized  over the shorter of the  estimated  useful
         life of the  related  asset or the term of the  lease.  Equipment  held
         under  capital lease is stated at the lower of the fair market value of
         the equipment or the present value of the minimum lease payments at the
         inception of the lease and is amortized on the straight line basis over
         the shorter of the life of the related  asset or the term of the lease.
         Expenditures for  maintenance,  repairs and renewals of minor items are
         generally charged to expense as incurred.

         Goodwill  is the excess of the cost of net assets  acquired in business
         combinations  over  their  fair  value.  The  amortization   period  is
         established  on the  date of each  acquisition,  which  was 5 years  in
         fiscal 1997,  amortized on a straight-line basis. 

         The Company adopted Statement of Financial  Accounting Standards (SFAS)
         No. 121,  "Accounting  for the Impairment of Long-Lived  Assets and for
         Long-Lived  Assets to Be Disposed  Of" in fiscal 1997.  For  long-lived
         assets as to which actual  operating  cash results or  forecasted  cash
         flows indicate that the  recoverability  of the carrying amount of such
         assets may be impaired,  the Company compares estimated expected future
         cash flows  (undiscounted and without interest charges) identified with
         each group of long-lived assets, as appropriate, to the carrying amount
         of such group of assets. If  the expected  cash flows are less than the
         carrying  amount of the assets,  an impairment  charge is taken at that
         time equal to the difference  between the carrying  amount and the fair
         value of such  assets.  


         PREPAID EXPENSES AND OTHER CURRENT ASSETS
         Advertising  costs  which  have been  incurred  for other  than  direct
         response  advertising  are  deferred  and  expensed  at  the  time  the
         advertising first takes place. At March 30, 1996,  $103,224 of deferred
         advertising  costs were included in prepaid  expenses and other current
         assets in the  accompanying  consolidated  balance  sheet and  expensed
         during the year ended March 29, 1997. At March 29, 1997,  there were no
         deferred  advertising costs. In addition,  at March 30, 1996,  $450,000
         was  included  in  prepaid  assets  and  other  current  assets,  which
         represents a deposit on a fixed asset acquisition.


                                      F-9






OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

         PREOPERATING COSTS
         Preoperating costs relating to preparing a new production  facility for
         its intended use are  deferred and  amortized on a straight  line basis
         over five years.  At March 29, 1997 and March 30,  1996,  $396,984  and
         $417,839,   respectively,   of  deferred  preoperating  costs,  net  of
         amortization,   are  included  in  other  assets  in  the  accompanying
         consolidated balance sheet.
                 
         REVENUE RECOGNITION
         Product revenue is recognized  upon shipment of goods.  Service revenue
         is recognized when services have been provided.

         INCOME TAXES
         The Company  accounts for income taxes in accordance  with Statement of
         Financial  Accounting  Standards (SFAS) No. 109, "Accounting for Income
         Taxes".  SFAS No. 109 is an asset and liability  approach that requires
         the recognition of deferred tax assets and liabilities for the expected
         future tax  consequences  of events  that have been  recognized  in the
         company's  financial  statements  or tax returns.  Deferred tax expense
         (benefit),  represents  the  change  in the net  deferred  tax asset or
         liability balance. In estimating future tax consequences,  SFAS No. 109
         generally considers all expected future events other than enactments of
         changes in the tax law or rates.

         NET INCOME (LOSS) PER SHARE
         Primary  net income  (loss) per share is  determined  by  dividing  net
         income (loss),  after  deducting  certain  amounts  associated with the
         Company's  preferred  stock,  by the weighted  average number of common
         shares and dilutive  common share  equivalents  outstanding  during the
         year.  Fully  diluted  earnings  per  share is  calculated  the same as
         primary  net income  (loss) per share  except that all  conversions  of
         preferred  stock  are  considered  to be  converted  as of the  date of
         issuance  whether or not the  effect is  anti-dilutive.  Any  discounts
         implicit in the conversion terms upon issuance of preferred stock (Note
         10) are deducted  from (added to) net income  (loss) to  determine  the
         amount of net income (loss) available for common stockholders.

         Common share equivalents  consist of common stock which may be issuable
         upon  exercise  of  outstanding  stock  options  and  warrants  and the
         conversion  of preferred  stock (Notes 10 and 12). In fiscal 1997,  the
         assumed  exercise of stock  options and warrants is  anti-dilutive  and
         accordingly  has not been  reflected  in primary and fully  diluted net
         income (loss) per share.  The assumed  conversion of preferred stock is
         anti-dilutive,  and accordingly,  has not been reflected in primary net
         income (loss) per share. 

         ACCOUNTING FOR STOCK-BASED COMPENSATION
         The Company accounts for stock-based  awards to its employees using the
         intrinsic  value method as prescribed by  Accounting  Principles  board
         ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
         related interpretations and has adopted the provisions of SFAS No. 123,
         "Accounting for Stock-Based Compensation," through disclosure only.



                                      F-10





OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

         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  reported  amounts  of  assets  and
         liabilities and disclosure of contingent  assets and liabilities at the
         date of the financial  statements and the reported  amounts of revenues
         and expenses during the reporting  period.  Actual results could differ
         from those estimates.

         RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
         In February 1997,  the Financial  Accounting  Standards  Board ("FASB")
         issued statement of Financial  Accounting  Standards  ("SFAS") No. 128,
         "Earnings  Per  Share." In June 1997,  the FASB  issued  SFAS No.  130,
         "Reporting  Comprehensive  Income" and SFAS No. 131, "Disclosures about
         Segments of an Enterprise  and Related  Information."  The Company will
         implement SFAS No. 128 as required in its next fiscal year and, at this
         time, the future  adoption is not expected to have a material effect on
         earnings per share. The Company will implement SFAS No. 130 and No. 131
         as  required  in fiscal  1999 which  require  the Company to report and
         display  certain  information  related  to  comprehensive   income  and
         operating segments.

3.       INVENTORIES

         Inventories consist of the following:
<TABLE>
<CAPTION>

                                                                                MARCH 29,             MARCH 30,
                                                                                  1997                  1996
                                                                                  ----                  ----

<S>                                                                        <C>                   <C>            
         Raw materials                                                     $        1,053,241    $       932,341
         Work-in-process                                                              155,899             20,164
         Finished goods                                                               101,830             14,160
                                                                           ------------------    ---------------

                                                                           $        1,310,970    $       966,665
                                                                           ------------------    ---------------


         In the fourth quarter of Fiscal 1997, the Company  reduced the value of
         certain inventory held by the  West Coast  and Mid  West  operations by
         $275,000 to its salvage value, which management estimates to be the net
         realizable value.


4.       PROPERTY AND EQUIPMENT

         Property and equipment consist of the following:

                                                                                MARCH 29,             MARCH 30,
                                                                                  1997                  1996
                                                                                  ----                  ----

         Machinery, vehicles, furniture and office equipment               $       21,191,993    $     7,650,924
         Leasehold improvements                                                     3,569,069          2,967,017
                                                                           ------------------    ---------------

                                                                                   24,761,062         10,617,941

         Less:  accumulated depreciation                                            4,658,364          2,190,666
                                                                           ------------------    ---------------

                                                                           $       20,102,698    $     8,427,275
                                                                           ------------------    ---------------

         Included in property and equipment are the following  amounts  acquired
under capital leases:

                                                                                MARCH 29,              MARCH 30,
                                                                                  1997                   1996
                                                                                  ----                   ----

         Machinery, furniture and office equipment                         $       11,404,717    $     3,231,285
         Less: Accumulated amortization                                             1,739,524            630,415
                                                                           ------------------    ---------------

                                                                           $        9,665,193    $     2,600,870
                                                                           ------------------    ---------------
</TABLE>


                                      F-11





OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

         Depreciation  and  amortization  expense  for the years ended March 29,
         1997 and March 30, 1996 totaled $2,702,120 and $533,596,  respectively,
         including  $1,109,109  and $219,571,  respectively,  related to capital
         leases.  Capital lease obligations of $8,173,432 were incurred when the
         Company entered into leases for new equipment during 1997.

5.       ACCRUED EXPENSES

         Accrued expenses consist of the following:
<TABLE>
<CAPTION>

                                                                                MARCH 29,            MARCH 30,
                                                                                  1997                 1996
                                                                                  ----                 ----

<S>                                                                        <C>                   <C>            
        Accrued employee compensation and benefits                         $          535,502    $       275,423
        Accrued interest                                                              153,289             46,648
        Accrued purchase consideration (Note 15)                                      468,750                  -
        Other accrued expenses                                                        454,314             10,490
                                                                           ------------------    ---------------

                                                                           $        1,611,855    $       332,561
                                                                           ------------------    ---------------
</TABLE>

6.       CREDIT FACILITY AND LINE OF CREDIT

         In November 1995, the Company entered into a $5,000,000 credit facility
         ("Credit Facility") with a lending institution.  The agreement consists
         of a term loan, an equipment  expenditure facility and a revolving line
         of credit.  The term loan  agreement  allows for maximum  borrowings of
         $610,000. Borrowings under the term loan agreement bear interest at the
         prime rate plus 2.25% (10.75% and 10.5% at March 29, 1997 and March 30,
         1996,  respectively).  The capital expenditures facility provides up to
         $1,000,000 to finance 80% of the purchase price of new equipment and is
         payable in monthly installments of $25,000,  plus interest at the prime
         rate plus 2.25% (10.75% at March 29, 1997).

         The  revolving  line of  credit  is for the  remaining  balance  of the
         $5,000,000  facility  which is not used for the term  loan and  capital
         expenditure  facility.  The revolving line of credit agreement requires
         monthly  payments  of  interest  on the  outstanding  balance  with the
         outstanding  balance due at maturity,  November  16,  1998.  Borrowings
         under the revolving line of credit agreement bear interest at the prime
         rate plus  2.0%  (10.5% at March  29,  1997).  The terms of the  Credit
         Facility  agreement  restrict  certain   transactions,   including  the
         declaration  of cash  dividends  by the Company.  Borrowings  under the
         Credit  Facility  are  secured by  substantially  all of the  Company's
         assets.

         In  addition,  Omni  Resources  Corporation  -  West  has a  $2,500,000
         revolving  line of  credit.  Borrowings  under this  revolving  line of
         credit  agreement  bear  interest at the prime rate plus 4.0% (12.5% at
         March 29, 1997).


         At April 1, 1995,  the Company  borrowed  $1,176,544  under a revolving
         line of credit agreement ("Line of Credit") with a lending institution.
         The Line of Credit  allowed  for a maximum  borrowings  of  $1,500,000,
         subject to adjustment, and required monthly payments of interest on the
         outstanding balance with the outstanding balance due at maturity,  June
         1, 1996. During the year ended March 30, 1996 borrowings under the Line
         of Credit were repaid with the net proceeds of the Credit Facility.

                                      F-12






OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

7.       LONG-TERM DEBT

         Long-term debt under the original terms of each agreement consists of:
<TABLE>
<CAPTION>

                                                                                    MARCH 29,               MARCH 30,
                                                                                      1997                    1996
                                                                                      ----                    ----

<S>                                                                               <C>                <C>    
      Term note payable to a finance company in monthly installments of $40,755,
      including interest at 12.35% to June 2001, secured by
      certain equipment                                                           $  1,634,768         $    1,637,730

      Payable to Vendor                                                                      -                175,000

      Note payable to bank in monthly  installments  of $10,921 plus interest at
      prime plus 2.25% (10.75% at March 29, 1997) to October
      2002                                                                             371,300                491,426

      Notes payable to banks in monthly installments aggregating $3,106,
      including interest, to December 1999, net rates ranging from 8% to
      11%, secured by automobiles                                                       74,829                 57,802

      Note payable to finance company in monthly installments aggregating $7,400
      and escalating to $11,992, including interest at 13.0%, to
      September 2002                                                                   360,363                396,421

      Note payable to a finance company in monthly installments
      aggregating $34,237, including interest, to July 2001, net rates
      ranging from 10.2% to 10.8%, secured by equipment                              1,568,782                      -

      Note  payable to a finance  company in  monthly  installment  of $ 42,773,
      including interest at 12.5%, to October 1999, secured by
      equipment                                                                      1,052,430                      -

      Note payable to vendor in monthly installments of $1,474 including
      interest at 14% to February 2002, secured by equipment                            63,329                      -

      Note  payable to bank in monthly  installments  of $25,000  plus  interest
      payable monthly at prime plus 2.25% (10.75% at March 29,
      1997)                                                                            200,000                      -
                                                                            ------------------      -----------------
                                                                                     5,325,801              2,758,379
      Less current portion                                                           4,827,900                550,900
                                                                              $        497,901       $      2,207,479
                                                                              ----------------       ----------------
</TABLE>

         During  the year ended  March 30,  1996,  the  Company  entered  into a
         financing agreement with a finance company which permits the company to
         borrow up to $1,812,730  for the purpose of financing  the  acquisition
         and reimbursing the purchase of certain  equipment.  At March 30, 1996,
         $175,000 of the related  equipment had been purchased,  and the Company
         financed  this amount  under the  financing  agreement  during the year
         ended March 29, 1997.



                                      F-13








OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

         In  connection  with the  issuance  of certain  debt the  Company has a
         balance of capitalized  net costs of $308,563 and $207,620 at March 29,
         1997 and March 30, 1996,  respectively.  Amortization is provided using
         the  interest  method  over the term of the  related  borrowings.  Upon
         repayment of one term note payable and Line of Credit,  during the year
         ended March 30, 1996, the related capitalized costs were written off.

         Maturities of long-term debt, excluding capital lease obligations (Note
         8), for years subsequent to March 29, 1997 are as follows:

           1998                                                 $ 4,827,900
           1999                                                     236,300
           2000                                                     243,600
           2001                                                      17,000
           2002                                                       1,001
                                                                -----------
                                                                $ 5,325,801
                                                                ===========

         The  Company  is in default  under the  payment  terms of several  loan
         agreements, consequently $3,579,000 of debt payments (excluding capital
         lease obligations,  Note 8) have been reclassified as currently payable
         at March 29, 1997.  Management is currently  negotiating to restructure
         the payment terms of these loan agreements.

         Interest  paid for  current and  long-term  debt in the  aggregate  was
         $1,342,025 and $351,133 during the years ended March 29, 1997 and March
         30, 1996, respectively. During the years ended March 29, 1997 and March
         30,  1996,  the  Company  incurred  interest  cost  in  the  amount  of
         $1,448,666  and $357,418,  respectively,  of which $96,400 and $148,702
         had been  capitalized  primarily  to fixed assets at March 29, 1997 and
         March 30, 1996, respectively.

8.       LEASES

         The Company leases its operating  facility in Millbury,  Massachusetts,
         Bloomington,  Minnesota and San Jose,  California and various machinery
         and  equipment.  The  facility  leases,  which  expires  in  2001,  are
         classified as operating  leases.  The equipment  leases,  which are for
         three to five year periods expiring at various dates through 2006 , are
         classified as operating or capital leases, as appropriate. The facility
         lease  and  the  equipment  leases  require  the  Company  to  pay  all
         maintenance, insurance and property tax costs.

         The facility lease in Millbury,  Massachusetts provides the Company the
         option to purchase  the facility for  $6,000,000  ("Purchase  Option"),
         which  approximated  fair value at the  inception of the lease,  at any
         time during the term of the lease. The Purchase Option price is $10,000
         per month which is applied to the  purchase  price.  At March 29, 1997,
         $360,000 had been paid under the Purchase Option which is classified as
         other assets in the accompanying consolidated balance sheet (Note 12).

         Future minimum  payments under the original terms of the capital leases
         and  noncancelable  operating  leases  with  terms of one year or more,
         consist of the following at March 30, 1997:


                                      F-14










OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                  CAPITAL            OPERATING
         YEAR ENDING                                                              LEASES              LEASES

<S>                                                                         <C>            <C>                                      
           1998 $                                                             2,895,430     $    1,664,200
           1999                                                               2,706,966          1,661,100
           2000                                                               2,705,504          1,461,000
           2001                                                               2,406,845            326,300
           2002                                                               1,565,547                  -
           Thereafter                                                           955,167                  -
                                                                        ---------------    ---------------

           Total minimum lease payments                                      13,235,459    $     5,112,600
                                                                                           ===============

           Less:  Amount representing interest                                2,997,774
                                                                        ---------------
           Present value of net minimum lease payments
           (including $9,970,000 classified as current)                    $ 10,237,685
                                                                        ===============
</TABLE>


   The  Company is in default  under the  payment  terms of the  majority of its
   lease  agreements,  consequently   $8,082,000  of  lease  payments  have been
   reclassified as currently  payable at March 29,1997.  Management is currently
   negotiating to restructure the payment terms of these lease agreements.

   Rent  expense for the years ended March 29, 1997 and March 30, 1996  totalled
   $1,173,884 and $438,360, respectively.

9. INCOME TAXES

   The provision  (benefit)  for income taxes  consists of the following for the
   years ended:
<TABLE>
<CAPTION>

                                                                                 MARCH 29,             MARCH 30,
                                                                                   1997                  1996
                                                                                   ----                  ----
<S>                                                                        <C>                   <C>
    Current
       Federal                                                               $    (197,768)        $     152,581
       State                                                                        46,962                34,323
                                                                             -------------         -------------

                                                                                  (150,806)              186,904
    Deferred
       Federal                                                                     (41,185)               41,413
       State                                                                         1,268                (5,854)
                                                                             -------------         --------------

                                                                                   (39,917)               35,559
                                                                             --------------        -------------

                                                                             $  (190,723)          $     222,463
                                                                             --------------        -------------
</TABLE>


         The  provision  (benefit)  for  income  taxes  differs  from an  amount
         computed by applying the statutory income tax rate to pretax income, as
         follows, for the year ended:
<TABLE>
<CAPTION>

                                                                                  MARCH 29,            MARCH 30,
                                                                                    1997                 1996
                                                                                    ----                 ----

<S>                                                                             <C>                <C>          
    Tax provision (credit) at federal statutory rate                           (5,358,120)         $     185,865
    State tax expense, net of federal benefit                                  (1,270,741)                23,488
    Change in Valuation Allowance                                                6,352,524                     -
    Other                                                                           85,614                13,110
                                                                             -------------         -------------

                                                                             $    (190,723)        $     222,463
                                                                             --------------        -------------
</TABLE>


                                      F-15






OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

   Significant  components of the Company's  deferred tax assets and liabilities
   at March 29, 1997 and March 30, 1996 are as follows:

<TABLE>
<CAPTION>

                                                                                  MARCH 29,            MARCH 30,
                                                                                    1997                 1996
                                                                                    ----                 ----


<S>                                                                         <C>                  <C>
    Deferred tax assets:
       Net operating loss                                                    $   5,237,889         $      23,944
       Depreciation and amortization                                               219,801                     0
       Investment tax credits                                                      300,817                 7,740
       Compensation related reserves                                                98,920                47,550
       Accounts receivable and inventory reserves                                  521,097                48,610
       Valuation allowance                                                      (6,378,524)              (26,000)
                                                                             --------------        --------------

           Total deferred tax assets, net                                                -               101,844

    Deferred tax liabilities:
       Depreciation and amortization                                                     -              (141,761)
                                                                             -------------         --------------

    Net deferred tax asset (liability)                                       $           -         $     (39,917)
                                                                             -------------         --------------
</TABLE>

         The  Company  has  provided  a full  valuation  allowance  against  the
         deferred tax assets since  realization  of these future tax benefits is
         not  sufficiently  assured.  If the Company  achieves  profitability in
         future  periods,  these  deferred tax assets may be available to offset
         future income tax liabilities and expense.

         At March 29, 1997,  for Federal  income tax  purposes,  the Company has
         approximately  $12,850,000  of net operating  loss  carryforwards  that
         expire  at  various  dates  through  2012,  and for  state  income  tax
         purposes,  the Company has  approximately  $13,550,000 of net operating
         loss carryforwards that expire at various dates through 2002.  However,
         as a result of the  conversion  of the  Series A  Preferred  Stock into
         Common  Stock in fiscal  1997  (Note  10),  a change in  ownership  has
         occurred   as  defined  by  the   Internal   Revenue   Code  which  may
         significantly  restrict  future  annual  utilization  of the  Company's
         federal  NOL  carryforwards.  Subsequent  changes  in  ownership  could
         further affect the limitation in future years.

         The Company  made income tax payments of $221,485 and $80,444 in fiscal
         1997 and 1996, respectively.

10.      STOCKHOLDERS' EQUITY

         COMMON STOCK
         The Company has authorized  14,000,000  shares of $.01 par value common
         stock ("Common  Stock").  Each share entitles the holder to one vote on
         all matters submitted to a vote of the Company's  stockholders.  Common
         stockholders  are  entitled  to receive  dividends,  if any,  as may be
         declared by the Board of Directors.

         On April 20, 1995, the Company's  Registration Statement filed with the
         Securities  and Exchange  Commission to register up to 1,138,500  Units
         (148,500 of which are subject to overallotment provisions) was declared
         effective.  Each unit  consists  of one share of the  Company's  Common
         Stock and one Redeemable Warrant. 



                                      F-16









OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

         The Company has reserved  1,527,500 shares of common stock for issuance
         under its common stock warrants and option plans (Note 11).

         PREFERRED STOCK
         The Company has authorized 1,000,000 shares of $.01 par value preferred
         stock ("Preferred  Stock").  Shares of Preferred Stock may be issued at
         the  discretion  of the Board of  Directors  of the  Company  with such
         designations,  rights and  preferences  as the board may determine from
         time to time. 

         On May 24, 1996, the Company  designated 1,050 shares of its  1,000,000
         shares of  authorized  Preferred  Stock,  $.01 par  value,  as Series A
         Preferred Stock ("Series A Preferred Stock").

         On May 28, 1996,  the Company issued 1,050 shares of Series A Preferred
         Stock, $.01 par value,  resulting in gross proceeds of $10,500,000.  In
         connection with this private placement, the Company granted warrants to
         purchase  108,808  shares of Common Stock to the placement  agent at an
         exercise price of $9.65 per share.  As of March 29, 1997, 995 shares of
         the Series A Preferred  Stock were converted  into 6,015,039  shares of
         common stock.

         The  characteristics  of the Company's Series A Preferred Stock were as
         follows:

         DIVIDENDS
         The Series A Preferred Stock bear no dividends.

         VOTING RIGHTS
         The holders of the Series A Preferred  Stock are entitled to the number
         of votes equal to the number of shares of Common  Stock into which such
         stockholder's  preferred  shares  are  convertible  subject  to certain
         restrictions as stated in the agreement.

         LIQUIDATION
         In the  event of any  liquidation,  dissolution  or  winding  up of the
         Company,  the holders of the Series A Preferred Stock shall be entitled
         to a distribution  immediately after any senior securities but prior to
         any junior  securities (i.e.  Common Stock) at a liquidation  price per
         share equal to the sum of the  original  purchase  price of $10,000 per
         share plus 8% per annum.

         REDEMPTION
         At the  Company's  option,  the  Company  may  redeem any or all of the
         outstanding Preferred Stock, subject to certain provisions,  commencing
         on May 28, 1997 through May 27, 1999,  at a  redemption  price  ranging
         from 115% to 130% of the original  purchase  price of $10,000 per share
         depending on the date of redemption as stipulated in the agreement.

         In addition,  at the Company's option,  the Company may also redeem any
         or  all  of  the  outstanding   Preferred  Stock,  subject  to  certain
         provisions,  upon notice of  conversion  by the holders of the Series A
         Preferred Stock at a redemption  price equal to the  liquidation  price
         divided by the conversion  price multiplied by the closing bid price on
         the date of conversion.

         CONVERSION
         The Series A Preferred Stock will automatically convert to Common Stock
         at the end of the three years if not  converted  earlier by the holder.
         The conversion  rate is the  liquidation  price divided by the lower of
         $9.65  per  share or a 15%  discount  to the  closing  bid price of the
         Company's  Common Stock for the five trading days preceding the date of
         conversion   subject  to  certain   adjustments  as  specified  by  the
         agreement.



                                      F-17





         The Series A Preferred  Stock may be converted into Common Stock at the
         option of each  preferred  stockholder  at the  conversion  rate stated
         above in amounts  not to exceed 33 1/2% on or after July 29,  1996,  66
         2/3% on or after August 28, 1996 and all previously  unconverted Series
         A Preferred Stock on or after September 27, 1996.

         The estimated  discount of $1,853,000  implicit in the conversion terms
         at the date of issuance of the Series A Preferred Stock, based upon the
         average of the quoted bid price of the  Company's  Common Stock for the
         five trading days preceding the date of issuance,  has been included in
         the  computation  of net  income  (loss)  per  share  (Note  2). In the
         computation  of net income (loss) per share,  the discount is accounted
         for as a dividend to  preferred  stockholders  and is  recognized  on a
         pro-rata  basis  over the period  beginning  with the  issuance  of the
         security to the date that conversion can occur.

         Shares of Preferred  Stock may be issued at the discretion of the Board
         of  Directors  of  the  Company  with  such  designations,  rights  and
         preferences as the Board may determine from time to time. The Preferred
         Stock  may  have  voting  rights,   preferences  as  to  dividends  and
         liquidation,   conversion  and  redemption   rights  and  sinking  fund
         provisions  which may be more expansive than those of the Common Stock.
         There were no shares of Preferred Stock issued and outstanding at March
         30, 1996.

         

11.      COMMON STOCK WARRANTS AND OPTION PLANS

         COMMON STOCK WARRANTS
         In  connection  with the initial  public  offering  the Company  issued
         1,285,000  redeemable warrants which allowed the holder to purchase one
         share of common stock,  exercisable 90 days after the effective date of
         the Company's  initial  public  offering at 130% of the initial  public
         offering  price of $5.10  per unit  (Note  10) for a period  of 5 years
         ("Redeemable Warrants"). Commencing January 20, 1996, the Company could
         have redeemed the Redeemable Warrants at $.20 per Redeemable Warrant on
         30 days  written  notice  provided  that the market  price per share of
         Common Stock equals or exceeds  $7.65 for 20  consecutive  trading days
         ending  within 10 days  prior to the notice of  redemption.  All of the
         redeemable warrants were exercised in fiscal 1996.

         In November 1996, the Company  issued  300,000  redeemable  warrants to
         certain  of  its  advisors  and  Series  A  preferred  Shareholders  in
         connection  with the  issuance  of the Series A  Preferred  Stock.  The
         warrants  are  exercisable  at a price  per share  equal to $2.00.  The
         Company may redeem such  warrants at a redemption  price of $.01 if the
         average  closing  price of the common stock equals or exceeds $3.50 for
         ten consecutive trading days. The warrants expire on December 31, 1998.
         The fair value of these warrants is $200,000,  which has been reflected
         as non-employee compensation during the year ended March 29, 1997.

         UNDERWRITER'S  WARRANTS 
         Upon the effectiveness of its initial public offering,  the Company had
         agreed  to sell to the  Underwriter,  for  nominal  consideration,  the
         Underwriter's  Warrant,  which  conferred  the right to  purchase up to
         99,000 units.  Each unit consists of one share of the Company's  Common
         Stock and one Redeemable Warrant to purchase one share of the Company's
         Common Stock ("Unit"). The Underwriter's Warrant is exercisable at 145%
         of the  initial  public  offering  price  $5.10  per  Unit for a period
         through April 20, 2000. The Underwriter's Warrant contains certain



                                      F-18








OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

         provisions for adjustment of the exercise price and the number of Units
         issuable  upon the  exercise  thereof  upon the  occurrence  of certain
         events.

         1994 STOCK OPTION PLAN
         The  Company  approved  its 1994 Stock  Option  Plan (the "1994  Plan")
         effective  December 1, 1994. The 1994 Plan provides for the granting of
         nonqualified  and  incentive  stock  options  to  employees  and others
         (excluding non employee  directors).  The Company has 270,000 shares of
         common stock  reserved for grant under the 1994 Plan.  The option price
         for each stock option shall be  determined  by the  Company's  Board of
         Directors  which, in the case of incentive stock options,  shall not be
         less than fair  market  value of the Common  Stock at the date of grant
         with certain  provisions which increase the option price to 110% of the
         fair market  value of the Common Stock if the grantee owns in excess of
         10% of the Company's Common Stock at the date of grant and, in the case
         of nonqualified stock options,  shall not be less than the par value of
         the Common  Stock.  Options under the 1994 Plan are for a term and vest
         over  periods  to be  determined  at the  discretion  of the  Board  of
         Directors,  however,  the term of the  incentive  stock options may not
         exceed 10 years.

         On November 7, 1996,  the Company's  Board of Directors  authorized the
         granting  and  immediate  vesting of 475,581  non-qualified  options to
         purchase  common stock with an exercise price of $1.625,  the then fair
         market value of the Company's  Common Stock, to certain officers of the
         Company  outside  of the 1994 Plan.  Terms are  similar to those of the
         1994 Plan.

         On November 6, 1996 and February 11, 1997, the  Compensation  Committee
         of the Board of  Directors  of the  Company  determined  that,  because
         certain stock options held by officers and employees of the Company had
         an exercise  price  significantly  higher than the fair market value of
         the Company's  common stock,  such stock options were not providing the
         desired   incentive  to  officers  and  employees.   Accordingly,   the
         Compensation  Committee modified the exercise price options to purchase
         86,435  and  735,030  shares of common  stock on  November  6, 1996 and
         February 11, 1997, respectively. As a result of such modification,  the
         average  exercise  price of such  options was  changed  from $6.125 per
         share to $1.69 per share on  November  6, 1996 and from $2.11 per share
         to $1.00 per share on February 11, 1997, respectively.  The fair market
         value of the  Company's  common  stock at the close of the  market  was
         equal to the modified  exercise  price on November 6, 1996 and February
         11, 1997.

         The following table summarizes  activity in the Company's 1994 Plan and
         non-qualified stock options during fiscal years 1996 and 1997:

                                                               Weighted-average
                                                   Options      exercise price

      Options outstanding April 2, 1995               --               $ ----

        Options granted                             186,435            $ 5.58
                                                    -------

      Options outstanding March 30, 1996            186,435            $ 5.58

        Options granted                           1,371,785            $ 1.29
        Options cancelled                          (823,190)           $ 2.53
        Options exercised                            (4,640)           $ 1.45
                                                    -------

      Options outstanding March 29,  1997           730,390            $ 1.00
                                                    -------

         At March 29,  1997,  690,395  options  to  purchase  Common  Stock were
         exercisable.  The weighted average contract life of outstanding options
         was 9.33 years at March 29, 1997.



                                      F-19





OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

         The fair value of each option grant was  estimated on the date of grant
         using the Black Scholes option valuation model based upon the following
         assumptions: dividend yield - 0%; risk free interest rate of 6.1% -6.3%
         and 6.2% -6.9% for fiscal  1997 and 1996 option  grants,  respectively,
         expected  option  term  -  5  years,   and  weighted  average  expected
         volatility  of 65%. The weighted  average fair value was $.78 and $3.38
         for options granted in fiscal 1997 and 1996, respectively.

         The  Black-Scholes  option  valuation  model was  developed  for use in
         estimating  the fair  value of  traded  options  that  have no  vesting
         restrictions and are fully transferable.  In addition, option valuation
         models require the input of highly  subjective  assumptions,  including
         the expected stock price volatility. Because the Company's options have
         characteristics  significantly  different from those of traded options,
         and because changes in the subjective input  assumptions can materially
         affect the fair value  estimate,  in the  opinion  of  management,  the
         existing models do not necessarily provide a reliable single measure of
         the fair value of its options.

         For purposes of pro forma disclosures,  the estimated fair value of the
         options is amortized to expense over the options'  vesting period.  The
         Company's pro forma information follows for the year ended:

                                                   MARCH 29,        MARCH 30,
                                                     1997             1996
                                                 -----------       ----------

         Pro forma net loss                     ($16,562,175)       ($50,800)
         Pro forma net loss available to
           common shareholders                  ($18,415,175)       ($50,800)
         Pro forma net loss per common share:
            Primary                                   ($2.89)         ($0.02)
            Fully diluted                             ($2.05)         ($0.02)

         There was no compensation  expense recorded in the Company's  statement
         of operations related to stock based employee  compensation  awards for
         the year ended March  29,1997 and March 30,  1996.  Because  additional
         option  grants are  expected to be made each year and options vest over
         several  years,  the pro forma impact on the years ended March 29, 1997
         and March 30, 1996 are not necessarily  representative of the pro forma
         impact on reported net income or loss for future years.

         At March 29,  1997,  options to purchase  8,826  shares of common stock
         were available for future grant under the 1994 Plan.

         The  Company has issued  48,000  options to  purchase  common  stock to
         certain of its advisors in connection with the initial public offering.
         The options are  exercisable  at a price per share equal to 105% of the
         initial  public  offering price per unit and expire five years from the
         effectiveness of the initial public offering.

         1994 DIRECTOR FORMULA STOCK OPTION PLAN
         The Company  approved the adoption of the 1994  Director  Formula Stock
         Option Plan (the "Formula  Plan")  effective April 1, 1995. The Formula
         Plan  provides for granting of options to  non-employee  members of the
         Company's Board of Directors. The Company has reserved 20,000 shares of
         common  stock for grant  under the Formula  Plan.  There are no options
         issued or outstanding under the Formula Plan. The option price for each
         stock  option  shall be not less than fair market  value on the date of
         grant.


                                      F-20







OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

12.      RELATED PARTY TRANSACTIONS

         NOTES RECEIVABLE FROM STOCKHOLDERS
         In January 1990, the principal stockholders of the Company formed North
         Stratford  Oil  Corporation  ("North  Stratford")  and its wholly owned
         subsidiary  Campbell Envelope Co., Inc.  ("Campbell  Envelope").  These
         affiliates of the Company  borrowed  approximately  $3.2 million from a
         bank to finance  the  acquisition  of an  envelope  business,  land and
         general  working  capital  requirements.  These  loans were  personally
         guaranteed by the principal stockholders of the Company. In March 1992,
         Campbell  Envelope and North  Stratford  ceased doing business and sold
         off their assets. The proceeds from the sale of the assets were used to
         reduce the balance of the loans to $1.3 million.  Campbell Envelope and
         North  Stratford  restructured  their debt  agreement  with the bank in
         March 1992,  which  included,  among other  items,  the addition of the
         Company as a guarantor  of the loan and payment  terms of 40  quarterly
         payments of $25,000 in principal and monthly payments,  interest at the
         lower of prime plus 1% or 8.5% (the "Scheduled Payments").

         The principal  stockholders have made the Scheduled Payments under this
         loan through funds advanced to them by the Company.  Additionally,  the
         Company advanced the majority  stockholders  $325,000 from the proceeds
         of the  term  loan  (Note  7),  which  was used to  fully  satisfy  the
         contingent  liability  outstanding.  The majority  stockholders  issued
         promissory  notes  to the  Company  for net  amounts  advanced  to them
         relating  to  the  satisfaction  of  the  Scheduled  Payments  and  the
         contingent  liability  totalling  $489,419.  These notes are payable on
         December  31, 1999 and bear  interest  at 6.32% per annum.  The related
         interest  income  recognized  in each of fiscal years 1997 and 1996 was
         $30,400. If the principal  stockholders sell any shares of Common Stock
         of the  Company  prior  to the  satisfaction  of these  notes,  the net
         proceeds must first be used to satisfy any outstanding  amounts due the
         Company.  Those  shareholders  owned an aggregate of 957,078  shares of
         Common Stock at March 29, 1997.

         FACILITY LEASE FROM DIRECTOR
         The Company's  facility lease is with a corporation in which a director
         of the Company is a stockholder  and director.  The lease is for a term
         of 87 months and expires in 2001.  Future  commitments  under the lease
         subsequent to March 29, 1997 are as follows:

        FISCAL

        1998                                                  $  595,260
        1999                                                     595,260
        2000                                                     595,260
        2001                                                     148,815

         Rent expense on this facility for the fiscal years ended March 29, 1997
         and March 30, 1996 was $560,164 and $366,554, respectively (Note 8).

         LEGAL SERVICES FROM FORMER DIRECTOR
         The Company  received  legal services from a law firm in which a former
         director  of the  Company is a partner.  In  connection  with the legal
         services  rendered to the Company during the past two years, the former
         director's law firm had received legal fees of approximately $ 485,445.

13.      INDUSTRY SEGMENT AND SIGNIFICANT CUSTOMERS

         The  Company  operates  in  a  single  segment:  software  duplication,
         packaging and fulfillment.

         During  the year ended  March 29,  1997,  one  customer  accounted  for
         approximately 16% of the Company's net sales, and during the year ended
         March 30, 1996, three customers  accounted for  approximately  45%, 18%
         and 11%, respectively,  of the Company's net



                                      F-21






OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

         sales.  Additionally,   two  customers'  accounts  receivable  balances
         accounted  for 39% and 11%,  respectively,  of the  Company's  accounts
         receivable balance at March 30, 1996. The Company had two product lines
         within  its  operating   segment,   CD-ROM   replication  and  diskette
         duplication,  which  accounted  for  approximately  85%  and 15% of net
         sales, respectively, for fiscal 1997. In fiscal 1996, substantially all
         of the Company's net sales related to diskette duplication services.

14.      COMMITMENTS

         EMPLOYMENT AGREEMENTS
         As of January 1, 1995, the Company entered into  employment  agreements
         with  Paul F.  Johnson,  Robert  E. Lee and  Richard  A.  Pilotte.  The
         employment  agreements  provide  for annual base  salaries  aggregating
         $485,000;  additionally,  each of Messrs.  Johnson,  Lee and Pilotte is
         entitled to a monthly  automobile lease allowance not to exceed $1,800;
         a one-time home office  allowance of up to $10,000 for office  machines
         and  furnishings;  life and  disability  insurance  and  certain  other
         benefits as may be  determined  by the  Compensation  Committee  of the
         Company's Board of Directors.

         Each of the above  individuals is also entitled to receive three year's
         base salary as  severance  in the event his  employment  is  terminated
         without  cause.  In the event of a change  in  control  in the  Company
         (defined as any  individual or entity not a current  stockholder of the
         Company or  affiliated  with the Company  acquiring  50% or more of the
         Company's  outstanding  shares of Common Stock),  each  individual will
         receive certain benefits  including an annual  compensation of $300,000
         in base salary,  an equal one-third share in a performance  bonus equal
         to twenty  percent of net income of the Company  before  income  taxes,
         amortization and  depreciation,  and an executive fee equal to $100,000
         in exchange for a covenant not to compete.

15.      ACQUISITIONS
         On October 4, 1996,  the Company  acquired  the net assets of Allenbach
         Industries, Inc., a software manufacturing and fulfillment company with
         operations in California and Minnesota. The aggregate purchase price of
         $300,000  consisted of $150,000 in cash and $150,000 of common stock of
         Omni  Multimedia  Group Inc.  In  addition on March 1, 1997 the Company
         acquired the net assets of Custom Software Turnkey Manufacturing,  Inc.
         (CSTM),  a  software   manufacturing   and  fulfillment   company  with
         operations  in  Minnesota,  in  exchange  for  100,000  shares  of Omni
         Multimedia  Group,  Inc.  common stock.  Allenbach  Industries and CSTM
         collectively  comprise Omni  Resources  Corporation - West. The Company
         guaranteed  the former CSTM  shareholders  a minimum  exchange price of
         $6.00  per  share,  if they  have  not sold or  transferred  any of the
         Company's  shares by February 28, 1999.  This guarantee was included as
         part of the purchase price consideration in the CSTM acquisition.

         The  acquisitions  of  Allenbach  Industries,  Inc.  and CSTM have been
         recorded in accordance with the purchase method and,  accordingly,  the
         purchase price plus the Company's direct  acquisition costs of $218,968
         have  been  allocated  to the  assets  and  liabilities  based on their
         estimated  fair  values at the date of  acquisition.  The fair value of
         assets  acquired  was  $4,283,497  including  cash of $160,727  and the
         liabilities  assumed  totaled  $4,128,846.  Goodwill  of  $242,368  and
         $698,403 were recorded on the acquisition  dates of October 4, 1996 and
         March 1, 1997,  respectively,  to be amortized ratably over a five year
         period from date of  acquisition.  The results of  operations  and cash
         flows of  Allenbach  Industries,  Inc.  and CSTM  are  included  in the
         results of  operations  and cash flow of the company  from the dates of
         acquisition.


                                      F-22








OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

         Unaudited  pro forma data showing net sales,  net loss and net loss per
         share as if the  acquisitions  were  completed at the  beginning of the
         periods  presented   is not shown as such information is not considered
         meaningful given  management's  decision to close down or wind down the
         operations  of these  facilities  in the first  quarter of fiscal  1998
         (Note 1 and 17). 


16.      IMPAIRMENT  LOSS ON  LONG-LIVED  ASSETS 

         The Company  recognized an impairment loss of $2,261,611 in fiscal 1997
         for those  long-lived  assets or  groups of assets where the sum of the
         estimated   expected  future  cash  flows   (undiscounted  and  without
         interest) is less than the carrying  amount of such assets or groups of
         assets.  Of this impairment loss,  $940,771 and $745,716 relates to the
         write-off of goodwill and diskette duplication equipment, respectively,
         in connection with management's decision in the first quarter of fiscal
         1998 to close down the West Coast facility and wind down the operations
         of the Mid West facility  (Note 1 and 17).  The  remaining  $575,124 of
         impairment  loss  relates  to the  write-off  of  diskette  duplication
         equipment located in the Omni-East Millbury facility. The amount of the
         impairment  loss is the excess of the  carrying  amount of the impaired
         asset over the fair  value of the asset.  The  Company  estimates  fair
         value for equipment based on estimated  salvage value upon  disposition
         in a secondary market. 


17.  SUBSEQUENT  EVENTS 

         During  June  1997,  management  decided  to close  down the West Coast
         facility and wind down the  operations of the Mid West  facility.  This
         decision was based on the cash  shortages of the Company and failure of
         Omni Resources  Corporation - West  management to achieve  forecasts of
         break  even in the first  quarter  of  fiscal  1998.  Based on  current
         negotiations  with  landlords  for  both the  West  Coast  and Mid West
         facilities,  the Company  expects to be relieved of all long-term lease
         guarantees. If the Company is unsuccessful in its negotiations with the
         landlords,  management  estimates that the remaining  lease  obligation
         would  be  $1,977,757,  in  the  aggregate,  as of  June  28,  1997  in
         accordance  with the lease  agreements.  Any  obligations  arising from
         management's  decision  to exit the West Coast and  Midwest  facilities
         will be recorded in the first quarter of fiscal 1998.  Asset impairment
         charges related to these facilities were recorded during the year ended
         March 29, 1997 (Note 16).  


                                      F-23






OMNI MULTIMEDIA GROUP, INC.
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

18.      RESTATEMENT OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
         On May 28, 1996,  the Company issued 1,050 shares of Series A Preferred
         Stock resulting in gross proceeds of $10,500,000 (Note 10). On the date
         of issuance,  a discount of $1,853,000  was implicit in the  conversion
         terms.  According to generally  accepted  accounting  principles,  this
         discount   should  be   accounted   for  as  a  dividend  to  preferred
         stockholders  and should be  recognized  on a  pro-rata  basis over the
         period  beginning  with the  issuance of the  security to the date that
         conversion can occur. In the unaudited financial statements included in
         the Company's  previously  filed Form 10-QSB for the quarterly  periods
         ended June 29, 1996,  September 28, 1996 and December 28, 1996, primary
         net loss per share was  computed by dividing  net loss by the  weighted
         average  number  of  common  and  dilutive  common  share   equivalents
         outstanding  during the  period.  Fully  diluted net loss per share was
         calculated  the same as  primary  net loss per  share  except  that all
         conversions  of preferred  stock were  considered to be converted as of
         the date of issuance whether or not the effect is anti-dilutive.

         As the  discount  implicit  in the  conversion  terms  of the  Series A
         Preferred Stock was not included in the previously reported primary and
         fully  diluted  net loss per  shares,  the  Company  has  restated  its
         unaudited  quarterly  financial  statements included in Form 10-QSB for
         the  quarterly  periods  ended June 29,  1996,  September  28, 1996 and
         December 28, 1996 to properly record primary and fully diluted net loss
         per share for each period presented. Net loss for each of the quarterly
         and year to date periods in fiscal 1997 remains  unchanged.  The impact
         of the discount adjustments on the Company's net loss per share amounts
         as originally reported is summarized below:
<TABLE>
<CAPTION>

                                                                             FISCAL 1997
                                                                             -----------
                                      FIRST QUARTER            SECOND QUARTER                    THIRD QUARTER
                                      -------------            --------------                    -------------
                                       THREE MONTHS     THREE MONTHS      SIX MONTHS      THREE MONTHS       NINE MONTHS
                                          ENDED            ENDED             ENDED            ENDED            ENDED
                                         JUNE 29,       SEPTEMBER 28,     SEPTEMBER 28,    DECEMBER 28,      DECEMBER 28,
                                           1996            1996               1996            1996               1996
                                           ----            ----               ----            ----               ----

<S>                                 <C>              <C>                <C>               <C>              <C>   
Net loss available to
 common stockholders:
         As reported                    (1,820,004)      (2,824,993)       (4,644,997)      (3,465,321)       (8,110,318)
         As restated                    (2,489,122)      (4,008,817)       (6,497,939)      (3,465,321)       (9,963,260)

Primary net loss per
  share:
         As reported                         (0.47)           (0.70)            (1.17)           (0.44)            (1.55)
         As restated                         (0.64)           (0.99)            (1.63)           (0.44)            (1.90)

Fully diluted net loss per
  share
         As reported                         (0.47)           (0.64)            (1.05)           (0.37)            (0.95)
         As restated                         (0.64)           (0.90)            (1.52)           (0.37)            (1.17)

</TABLE>


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