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


         (Mark One)

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

                                        For the fiscal year ended April 30, 1998
                                                             

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

                               For the transition period from _______ to _______

                                                 Commission file number 33-75276

      Creative Medical Development, Inc.
      ----------------------------------
(Name of Small Business Issuer in its Charter)

           Delaware                                      68-0281098
           --------                                      ----------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
 Incorporation or Organization) 

975 SE Sandy Blvd. Portland, Oregon                        97214
-----------------------------------                        -----
Address of Principal Executive Offices)                  (Zip Code)

(Issuer's Telephone Number (503) 230-8034

Securities registered under Section 12(b) of the Exchange Act:

      Title of each class              Name of each exchange on which registered

-----------------------------          -----------------------------------------

-----------------------------          -----------------------------------------

Securities registered under Section 12(g) of the Exchange Act:

Common Stock $.01 Par Value
--------------------------------------------------------------------------------
                                (Title of class)

Warrants to purchase Common Stock $.01 Par Value
--------------------------------------------------------------------------------
                                (Title of class)


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


     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10KSB.

     State issuer's revenues for its most recent fiscal year. $16,448,876 .


     State the aggregate market value of the voting and non-voting common equity
held by  non-affiliates  computed by  reference to the price at which the common
equity was sold, or the average bid and asked prices of such common  equity,  as
of July 31, 1998. $884,000.


<PAGE>

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                   FORM 10-KSB
             ANNUAL REPORT FOR THE FISCAL YEAR ENDED April 30, 1998

PART I    Item 1.  Description of Business                                     1

          Item 2.  Description of Property                                     8

          Item 3.  Legal Proceedings                                           9

          Item 4.  Submission of Matters to a Vote of Security Holders        10

PART II   Item 5.  Market for Common Equity
                   and Related Stockholder Matters                            11

          Item 6.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                        12

          Item 7.  Financial Statements                                       18
                   Independent Auditor's Report                              F-1
                   Consolidated Balance Sheets                               F-2
                   Consolidated Statements of Operations                     F-3
                   Consolidated Statements of Stockholders' Equity (Deficit) F-4
                   Consolidated Statements of Cash Flows                     F-5
                   Notes to Consolidated Financial Statements         F-6 - F-19

          Item 8.  Changes In And Disagreements With Accountants On
                   Accounting And Financial Disclosure                        19

PART III  Item 9.  Directors, Executive Officers, Promoters and Control 
                   Persons; Compliance with Section 16(a) in the Exchange Act 19

          Item 10. Executive Compensation                                     21

          Item 11. Security Ownership of Certain Beneficial Owners
                   and Management                                             22

          Item 12. Certain Relationships and Related Transactions             24

          Item 13. Exhibits and Reports on Form 8-K                           25

Index of Exhibits                                                             25

Signatures                                                                    28


<PAGE>

                                     PART I
                                     ------

Item 1. Description of Business:
        ------------------------

     Introduction
     ------------

     This Form 10-KSB  contains  certain  forward-looking  statements.  For this
     purpose,  any  statements  contained  in  this  Form  10-KSB  that  are not
     statements  of  historical  fact may be  deemed  to be  forwarding  looking
     statements.  Without  limiting the foregoing,  words such as "may," "will,"
     "expect," "believe,"  "anticipate,"  "estimate" or "continue" of comparable
     terminology  are  intended to identify  forward-looking  statements.  These
     statements,  by their nature,  involve substantial risks and uncertainties,
     and actual results may differ materially depending on a variety of factors.

     Creative Medical Development,  Inc. (the "Company") was incorporated in the
     state of California on July 20, 1992,  and  reincorporated  in the state of
     Delaware on June 1, 1993. The Company designed, developed, manufactured and
     marketed  ambulatory  infusion  therapy  products under the "EZ Flow" trade
     name.

     On September 13, 1995, the Company entered into an Asset Purchase Agreement
     with Gish Biomedical, Inc. ("Gish") for sale of the EZ Flow Pump technology
     and  product  line.  Under its terms,  substantially  all of the  Company's
     manufacturing  related assets (with a net book value of $680,957) were sold
     for $600,000 cash and $2,000,000 of Gish Stock (240,240  shares).  Pursuant
     to the  terms  of the  agreement,  operation  of the EZ Flow  business  was
     transferred  to Gish as of September 13, 1995 and the sale closed April 17,
     1996.

     On April 17, 1997,  the Company  entered  into an agreement  for merger and
     reorganization  with OMNI  International  Rail Products,  Inc.,  ("OMNI") a
     privately held company in the business of  manufacturing  and  distributing
     premium  highway/rail  grade crossing surface products in the United States
     and  internationally.  The agreement provided for the merger of OMNI with a
     wholly  owned  subsidiary  of the  Company  formed for the  purposes of the
     transaction.  Subject to certain  adjustments,  the  Company  was valued at
     $2,000,000 and OMNI was valued at $4,000,000.

     OMNI, an Oregon corporation, was formed in 1994 to acquire the OMNI premium
     crossing  business  from  Reidel  Environmental  Technologies,   Inc.  That
     business was  operated by OMNI until the merger with the  Company,  and its
     operations continue under the Company's wholly owned subsidiary corporation
     OMNI Products,  Inc. At the time of the merger, the OMNI executive officers
     became the executive officers of the Company and the subsidiary and all but
     one  of  the  OMNI  directors  became  directors  of the  Company  and  its
     subsidiary.

                                       2
<PAGE>


     The Company's  transaction  with OMNI closed April 30, 1997.  Subsequently,
     the  Company  changed its fiscal  year to April 30,  1997  consistent  with
     OMNI's  fiscal  year  to  facilitate  accounting  and  reporting  financial
     results.

     Under the terms of the merger agreement,  the shareholders and stock option
     holders  of OMNI  exchanged  all of their  common  stock and  common  stock
     options  for  common  stock and  Series B  preferred  stock and  common and
     preferred  stock  options of the  Company.  OMNI's  common stock and common
     stock options were  converted  into the  Company's  common stock and common
     stock  options at a ratio of 3.091 to 1.0. In addition,  OMNI  shareholders
     and stock  option  holders  received  352,066  shares of Series B preferred
     stock  and  187,934   options  to  purchase   Series  B  preferred   stock,
     respectively.

     Upon  completion of the  transaction,  former OMNI  security  holders owned
     approximately 67% of the total outstanding shares of the Company on a fully
     diluted basis, prior to valuation  adjustment.  The initial ownership ratio
     was contingent on adjustment  one year after the close of the  transaction.
     The final  ownership  ratio was subject to adjustment  resulting  from: (a)
     differences  between the assumed  value of the  Company's net assets at the
     time of the merger and a final  accounting  made as of April 30, 1998;  and
     (b)   differences   in  the  value  of  OMNI's   assets   based  on  OMNI's
     indemnification requirements under the Agreement.  Subsequent to the end of
     the fiscal  year,  the final  ownership  ratio after  valuation  adjustment
     differed  from the initial  ownership  ratio in favor of the Company.  As a
     result,  all the Company's common stock and Series B preferred stock issued
     to escrow for OMNI's Shareholders was canceled pursuant to the provision of
     the  merger  agreement.  In  addition,  substitute  options  were  adjusted
     downward by 10%.

     Company Restructuring
     ---------------------

     During Fiscal 1998,  the Company began a  restructuring  plan to reduce the
     over-capacity  in  its  recycled  rubber  manufacturing  operations  and to
     increase  its  concrete  production  capabilities.  The refocus of business
     stems from  changes in  industry  demand  away from  rubber and more toward
     concrete crossings. The Company has ceased production of recycled rubber at
     its Portland, Oregon, and Lancaster, Pennsylvania plants and is liquidating
     its  recycled  rubber  manufacturing  equipment  and  real  estate  at both
     locations.  Some equipment,  primarily  concrete forms, were transferred to
     the  Company's  remaining  facilities.  At the same  time the  Company  has
     extended  an  agreement  with a pre-cast  concrete  company to produce  the
     Company's proprietary concrete and rubber grade crossings.

                                       3
<PAGE>


     The Company in conjunction with its restructuring recorded certain charges.
     These  include a write  down of assets to be  liquidated,  a  write-off  of
     excess and  obsolete  recycled  rubber  inventory  and  accrual of expected
     shutdown  and  liquidation   costs.  The  asset  write-down  and  inventory
     write-off did not have an impact on the Company's liquidity.  Other charges
     were recorded as liabilities  and are expected to be paid out during fiscal
     year 1999.

     The  Company  has  been  in  material  default  of  certain  financial  and
     non-financial loan covenants under its Security and Loan Agreement with its
     senior lender Finova Financial  Corporation  ("Finova").  Subsequent to the
     Company's  fiscal year end, it entered into a  Forbearance  Agreement  with
     Finova that defers Finova  taking any action  against the Company by reason
     of the existing defaults.  In addition,  under the terms of the Forbearance
     Agreement, the Company is permitted an overadvance of up to $400,000 beyond
     the normal  terms of the line of credit.  The  Forbearance  Agreement  also
     eliminates  the monthly  principal  payment  requirements  on Finova's term
     debt.  As part of the  Forbearance  Agreement,  the  Company  is subject to
     additional covenants that require, among other things, the Company to raise
     an additional $250,000 in equity capital or subordinated debt, requires the
     disposal of certain assets (proceeds must go to pay down various loans with
     Finova) and requires the Company to meet certain projected financial goals.

     As  part  of the  Forbearance  Agreement,  and  as  part  of the  Company's
     restructuring  plan, the Company entered into Modification  Agreements and,
     in  some  cases,  Subordination  and  Standstill  Agreements  with  certain
     unsecured   creditors.   These   agreements  place  each  creditor  into  a
     subordinate position with Finova and extend payoff of any obligation over a
     five-year period.


     Products
     --------

     The Company through its subsidiary OMNI Products, Inc. designs,  engineers,
     manufactures,  markets and installs premium grade crossing surface products
     for the U.S. and  international  markets.  The Company's  products  cover a
     range of premium  crossing  materials that include  crossings  manufactured
     from virgin  rubber,  reinforced  concrete and a combination  of rubber and
     concrete.

                                       4
<PAGE>


     All  major  North   American   Class  1  railroads,   such  as   Burlington
     Northern-Santa Fe and Union Pacific and many regional railroads and transit
     systems approve the Company's products.


     Rail Crossing Market
     --------------------

     Grade crossings are an important part of the transportation  infrastructure
     wherever rail and road traffic intersect. Premium grade crossings made from
     recycled  rubber,  virgin rubber or reinforced  concrete  provide a smooth,
     safe and quiet means for vehicles to quickly pass over railroad tracks. The
     choice of rubber or concrete  depends on the application and is primarily a
     matter of  customer  preference.  The  longer  life of  rubber or  concrete
     premium crossing surfaces  significantly reduces maintenance costs compared
     to the traditional  surfaces of timber or asphalt.  Premium grade crossings
     are replacing the more common timber,  asphalt or poured-in-place  concrete
     surfaces,  as they provide  better  safety,  convenience,  durability,  low
     maintenance and lower life cycle costs.  Premium surfaces are commonly used
     in areas with high road traffic densities and within industrial  facilities
     to speed the  movement  of lift  trucks and to reduce  cargo  spillage  and
     damage.

     Many major U.S.  railroads have recently moved from solid rubber  crossings
     to  concrete  crossings  with  rubber  next to the  rail.  This  trend  has
     accelerated   over  the  past  several   years  as  a  result  of  industry
     consolidation. Combination concrete/rubber crossing materials now represent
     the majority of the premium grade crossing surface market.

     Based on the Federal Railroad  Administration  publication the Highway-Rail
     Crossing Inventory Data, there are approximately 170,000 public and 100,000
     private  rail  crossings  in the U.S.  In addition  there are an  estimated
     100,000 other rail crossings on industrial  properties,  ports,  intermodal
     and terminal yards,  and on rail transit  systems.  With 370,000  estimated
     rail  crossings  in the U.S.  and with an average 1.5 tracks per  crossing,
     there are  555,000  total  crossing  surfaces  in the U.S.  With an average
     estimated  crossing length of 54 feet for each crossing surface,  the total
     potential domestic market is approximately 30 million track feet.

     Industry  estimates of useful life of a non-premium  rail-crossing  surface
     are 10 years. This means that  approximately  10%, or 3 million track feet,
     of all railroad  crossings are refurbished each year.  Management  believes
     that 12% or  approximately  360,000 track feet of annual  refurbishment  is
     done in Premium Surfaces. Assuming an average price of $150 per track foot,
     the current annual domestic  market for premium grade crossing  surfaces is
     approximately  $54  million  and is  growing  at 5% per year.  The  Company
     believes its revenues  currently  represent  approximately 30% of the total
     domestic market for all premium grade crossing surfaces and is nearly twice
     the size of the next largest competitor in North America.

                                       5
<PAGE>


     The vast majority of grade  crossings are  maintained or  retrofitted  with
     asphalt, timber planks,  concrete pavement or consolidated materials.  This
     market  segment is  estimated  at over $400 million in the U.S. and Canada.
     Because of their  benefits,  this market  segment is rapidly  converting to
     premium grade crossings.  The Company believes that, at the current rate of
     growth and  acceptance  by  customers,  within five years as much as 20% of
     this market segment will convert to premium crossings.

     Crossing  safety  is  increasingly  scrutinized  at the  federal  level and
     legislative  action is likely  to  mandate  certain  safety  standards  for
     crossings.  Such  legislation may increase the market for premium  crossing
     surfaces.

     The federal government and many state governments  recognize the importance
     of safe and well  maintained  rail  crossings.  Through the Federal Highway
     Administration  and the Intermodal Surface  Transportation  Efficiency Act,
     the federal  government  provides direct financial  support to rehabilitate
     public rail  crossings,  fund mass  transit  construction  and maintain the
     country's transportation infrastructure. The Company estimates that as much
     as 50% of domestic rail crossing system installations are funded in part by
     government programs at the federal, state or municipal level. The remainder
     of the  installations  are  made by  railroads  as part  of  their  ongoing
     maintenance programs and by industrial concerns as part of the construction
     or maintenance of their facilities.

     Where  customers  formerly  relied on  government  funding  to pay for most
     premium  crossing  surfaces,  there is a growing  recognition  that premium
     crossing surfaces significantly reduce installation and ongoing maintenance
     costs over the life of the crossing.  They have discovered significant long
     term cost savings by installing  premium crossing  surfaces using their own
     operating funds.  Major railroads such as Burlington  Northern/Santa Fe and
     Union Pacific are expected to increase their premium crossing installations
     in the future.  At the same time, the market for premium  crossing  surface
     materials can be volatile.  The major  railroads are not  consistent  about
     their maintenance policy which can cause large fluctuations in a railroad's
     demand for premium  surface  materials,  or in the type of premium  surface
     material required.


     Sales and Marketing
     -------------------

     U.S.  sales and marketing is  implemented  through a system of four regions
     designed to provide comprehensive coverage of key railroad customers. Sales
     manager employees manage two regions and independent sales  representatives
     manage  two.  In  addition,   the  Company  has  an   independent   account
     representative working in Omaha solely to service Union Pacific, one of the
     largest users of grade crossing materials. All report to the Vice President
     of Sales and Marketing.

                                       6
<PAGE>


     The  Company's  sales  employees  are  compensated  on a base  salary  plus
     commission.  Independent sales  representatives  are compensated  solely on
     commission.  Commissions  are not paid until funds are  collected  from the
     customer.

     Another component of the Company's sales and marketing effort is its unique
     customer  oriented program using part-time field technical  representatives
     who serve as an extension of the regional  sales force for technical  needs
     such as installations  and problem solving.  These  individuals have strong
     backgrounds in track construction and maintenance and are primarily retired
     railroad employees. Their prior relationships, loyalty to OMNI and customer
     service has significantly enhanced the Company's sales efforts.

     Although  the  Company  has over 300  customers,  approximately  77% of its
     fiscal 1998 sales were concentrated in its five largest customers. Sales to
     the Company's  five largest  customers as a group for the fiscal year ended
     April  30,  1997  was  43%.   Burlington   Northern-Santa   Fe  represented
     approximately 38% and 11%,  respectively,  of the Company's fiscal 1998 and
     1997  sales.  CSX  Transportation  represented  approximately  27% and 17%,
     respectively, of the Company's fiscal 1998 and 1997 sales.

     Material Supplies
     -----------------

     Basic raw  materials  required for  manufacturing  the  Company's  products
     include  off-spec virgin rubber obtained from rubber brokers,  polyurethane
     binder, concrete, steel rebar and steel angle.

     Concrete and steel  materials are  available  from many sources in multiple
     locations.  However,  availability  of these  materials as well as off-spec
     virgin  rubber is subject to  seasonal  demand and market  variations.  The
     Company  believes  that  there  is an  adequate  supply  of all  basic  raw
     materials to meet its needs.

     The Company anticipates increasing  manufacturing capacity for its concrete
     products. There are a number of sources available for the Company to use to
     produce concrete products.

     Patents and Licenses
     --------------------

     The  Company  has been  issued or has  patents  pending  on  several of its
     products,  such  as  its  Improved-Concrete  and  Standard  Concrete-Rubber
     products  incorporating  rubber next to the rail with  reinforced  concrete
     panels.  There can be no  assurance  that any patents  issued  would afford
     protection  against  competition  from similar  inventions or products,  or
     would be infringed upon or designed around by others.  However, the Company
     intends to enforce all patents it has been issued.

                                       7
<PAGE>


     Pursuant to a royalty agreement with Red Hawk Rubber Co. ("Red Hawk") which
     was transferred to OMNI in the acquisition from Reidel described above, the
     Company is obligated  to pay a royalty  equal to 5% of net sales of certain
     products acquired from Red Hawk. The agreement expires in June, 1999.

     Research and Development
     ------------------------

     The Company is engaged in a continuing  program of research and development
     to improve existing  products and develop more cost effective and efficient
     rail  crossing  products.   The  Company's  expenditures  on  research  and
     development  for the fiscal years ended April 30, 1998,  1997 and 1996 were
     $127,624, $61,646 and $70,852 respectively.

     Employees
     ---------

     As of April 30,  1998,  the Company had 98 full time  employees  and 1 part
     time  employee.  Approximately  76 full  time  employees  were  engaged  in
     manufacturing  and  the  remainder  in  marketing,   sales,   research  and
     development, administrative and executive positions.


Item 2. Description of Property
        -----------------------

     The Company owns or leases the following properties:

                              Approximate       Own or
        Location            Square Footage      Lease          Purpose
     --------------         --------------      -----          -----------------
     Portland, OR      (1)       3,000          Lease          Executive Offices

     Portland, OR      (2)      15,800          Lease          Manufacturing

     McHenry, IL       (3)      21,271          Own            Manufacturing

     Lancaster, PA     (3)      19,348          Own            Held for sale

     Ennis, TX         (3)      15,300          Own            Manufacturing

     Buena Park, CA    (4)         635          Lease          Sales Office

     Nevada City, CA   (5)      30,000          Own            Held for sale

                                       8
<PAGE>


     (1)  Leased on month-to-month basis.

     (2)  Leased through  April,  2002 with an option to renew for an additional
          five years.

     (3)  Properties are subject to a blanket  mortgage loan of $866,458 payable
          in monthly installments of $13,631,  including interest at 10% payable
          in  full  in  December  31,  1998.  Properties  are  also  pledged  as
          collateral  for a  revolving  line of  credit  and  term  and  capital
          expenditure loans.

     (4)  Leased  through  May,  2000.  The Company has entered  into a one-year
          sublease on the property with option for one-year renewal.

     (5)  Property  is  subject  to a  mortgage  loan of  $1,216,668  payable in
          monthly  installments of $12,750 including interest at 11.375% payable
          in full in  December,  1998.  One hundred  percent of the  property is
          leased to others. Ron Gangemi, a shareholder of the Company,  owns One
          percent of the property.  Property is also pledged as collateral for a
          revolving line of credit and term and capital expenditure loans.

     All properties are well maintained and in good condition.




Item 3. Legal Proceedings
        -----------------

     Approximately   August  7,  1995,  OMNI  signed  a  letter  agreement  with
     Transcontinental  Capital  Partners  ("TCP") to provide  various  financial
     services.  Pursuant to the  agreement,  certain  services were provided and
     paid for. In addition, TCP identified a potential equity investor with whom
     OMNI signed a non-binding  statement of intent for a proposed  transaction.
     On or about June 7, 1996, OMNI terminated  negotiations  with the potential
     equity investor and the agreement with TCP.

                                       9
<PAGE>


     In September,  1996, TCP filed an action against OMNI in the Superior Court
     of  California  for Santa Clara  County  alleging  that OMNI  breached  the
     financial services agreement and is obligated to pay additional fees to TCP
     for services  purportedly  rendered to OMNI. In response,  OMNI removed the
     case to the United  States  District  Court for the  Northern  District  of
     California  (Transcontinental Capital Partners v. OMNI Products, Inc., Case
     No.  C-96  21040  WAI  (PVT)),   answered   the   Complaint   and  filed  a
     Cross-Complaint  for damages  for TCP's  breach of the  financial  services
     agreement  and other common law claims.  The case has been  referred to the
     District  Court's  Early  Neutral  Evaluation  program  and  discovery  has
     commenced. The Company believes that the TCP claim is unfounded and intends
     to contest the case vigorously.

     The  Company  is not  aware of any other  material  pending  or  threatened
     litigation to which the Company or any director,  officer,  or affiliate of
     the Company is or would be a party.


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

     The Annual  meeting  of the  Company's  shareholders  was held on April 29,
     1998. The following  three  directors were elected at the meeting (all were
     directors prior to the meeting):

              Michael L. DeBonny
              Edward S. Smith
              John E. Hart

     Directors  hold office for a period of one year from their  election at the
     annual meeting of stockholders  and until their successors are duly elected
     and qualified.

     Shareholders  were also asked to approve the Company's Amended and Restated
     1994 Stock  Option Plan  ("Amended  Plan") that amends the  Company's  1994
     Stock Option Plan ("Plan"). The Amended Plan increases the number of shares
     of Common Stock  reserved for issuance  under the Plan to 3,000,000  shares
     (originally  400,000  shares)  and  reserves  for  issuance  under the plan
     500,000 of the Company's Series B Preferred  Stock.  Shares voting for were
     4,106,942 and against were 676,480.  Shareholders also voted to approve the
     Company's Amended and Restated  Certificate of Incorporation that increases
     the authorized number of shares of the Company's Common Stock and Preferred
     Stock to 50,000,000  shares and  25,000,000  shares,  respectively.  Shares
     voting for were 4,584,107 and against were 354,840.

                                       10
<PAGE>

                                     PART II

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

     The Company's Common stock commenced  trading on the NASDAQ Smallcap Market
     on May 13, 1994.  Since May,  1995, it has traded on the OTC Bulletin Board
     under  the  symbol   "CMDI."  As  of  April  30,  1998,   the  Company  had
     approximately  300 record and  beneficial  stockholders  holding  5,524,618
     shares of the Company's common stock.

     The published bid and ask  quotations for the previous two fiscal years are
     included in the chart below.  These  quotations  represent  prices  between
     dealers and do not include  retail  markup,  markdown  or  commissions.  In
     addition, these quotations may not represent actual transactions.

     ---------------------------------------------------------------------
                   Quarterly Common Stock Bid Price Ranges
     ---------------------------------------------------------------------
                             1997                          1998
     ---------------------------------------------------------------------
       Quarter        High           Low           High          Low
     ------------ -------------- ------------- ------------- -------------
         1st           .31           .25           .50           .31
     ------------ -------------- ------------- ------------- -------------
         2nd           .31           .25           .50           .29
     ------------ -------------- ------------- ------------- -------------
         3rd           .31           .25           .38           .19
     ------------ -------------- ------------- ------------- -------------
         4th           .50           .25           .25           .17
     ------------ -------------- ------------- ------------- -------------


     No  dividends  have been  declared or paid on the Common Stock and none are
     anticipated.  The Company is restricted  from paying  dividends by covenant
     with its senior lender.

     The  Company  has   authorized  and  issued  622,066  shares  of  Series  B
     Convertible Preferred Stock, par value $.01 per share with voting rights of
     one common share to each preferred share, until converted or canceled. Each
     share of Series B convertible  preferred  stock shall be  convertible  to a
     like number of common shares if the Company  reports gross annual  revenues
     of $20,000,000 or annual  pre-tax  earnings of $1,500,000  during either of
     the fiscal  years ending April 30, 1998 or 1999.  If  conversion  standards
     have not been met,  the Series B  preferred  stock shall be canceled by the
     Company  upon  the  issuance  of its  fiscal  year  ended  April  30,  1999
     consolidated financial statements.

                                       11
<PAGE>



Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations
        ------------------------------------------------------------------------

     The following  Selected  Financial Data for the years ended April 30, 1998,
     1997 and 1996  have  been  derived  from the  financial  statements  of the
     Company  audited  by KPMG  Peat  Marwick  LLP,  the  Company's  independent
     auditors.  This Selected Financial Data should be read in conjunction with,
     and is qualified in its entirety by reference to, the financial  statements
     and related notes thereto included elsewhere in this Report.

     Except for the historical  information  contained  herein,  the matters set
     forth in this Report include forward-looking  statements within the meaning
     of the "safe harbor" provisions of the Private Securities Litigation Reform
     Act of 1995.  These  forward-looking  statements  are  subject to risks and
     uncertainties  that may cause actual  results to differ  materially.  These
     risks  and  uncertainties  are  detailed  throughout  this  Report  and are
     discussed  from time to time in the Company's  periodic  reports filed with
     the  Securities and Exchange  Commission.  The  forward-looking  statements
     included in this Report speak only as of the date hereof.

     As  mentioned  in item 1 (The  Business)  the  Company,  on April 30, 1997,
     completed  an  agreement  and plan of merger with OMNI  International  Rail
     Products, Inc. (OMNI). For financial reporting purposes, the transaction is
     considered  a  reverse  acquisition  and has been  accounted  for under the
     purchase method of accounting.  Thus, the operating  results  presented and
     discussed herein reflect only the activity of OMNI.

     The following table sets forth the Company's operating results in thousands
     of dollars and as a percentage of revenue for the years ended April 30:
<TABLE>
<CAPTION>

                                               1998                    1997                  1996
                                       --------------------     ------------------     ----------------
                              

     <S>                               <C>            <C>       <C>          <C>       <C>          <C> 
     Revenue                           $ 16,449       100.0%    12,902       100.0%    13,565       100%
     Cost of goods sold                  13,447        81.7     10,558        81.8      9,598       70.8

     Gross Profit                         3,002        18.3      2,344        18.2      3,967       29.2

     Selling Expenses                     1,666        10.1      1,323        10.3      1,499       11.1
     Administrative Expenses              1,587         9.6      1,138         8.8      1,342        9.9
     Research and Development               128          .8         62          .5         71         .5
     Restructuring Charge                 1,685        10.2       --        --           --       --

     (Loss) earnings from operations     (2,063)      (12.5)      (178)       (1.4)     1,055        7.8

     Interest Expense                       633         3.8        687         5.3        714        5.3
     Other Expense                          184         1.1        486         3.8        187        1.4

     Net (loss) earnings                 (2,882)      (17.5)    (1,295)      (10.0)       118         .9

     Net (loss) earnings per share         (.52)                  (.41)                   .04
  
</TABLE>
                                       12
<PAGE>

     REVENUE

     The Company  derives  its  revenues  from the sale of premium  highway/rail
     grade crossings to railroads,  general contractors and municipalities.  Net
     revenues for fiscal 1998 were  $16,448,876  as compared to  $12,902,491  in
     1997 or a 27% increase. Much of the increase came from greater sales of the
     Company's new,  proprietary  standard  concrete and rubber product  (called
     "SCR").  This patented  product is comprised of a molded concrete form with
     rubber  rail  flangeway  filler  imbedded  into  the  concrete.  SCR  sales
     increased  from  $690,941 in 1997 to  $6,397,770  in 1998 or an increase of
     826%. At the same time,  sales of the  Company's  other  concrete  products
     dropped below prior year's sales.  Total concrete  revenues were $8,090,346
     for 1998 compared to  $5,121,332 in 1997, an increase of 58%.  Rubber sales
     declined  slightly to $7,628,987 in 1998 from $7,781,159 in 1997, a drop of
     less than 2%. Sales of rubber products shifted from the Company's standard,
     heavy duty and steel  reinforced  products (full crossing  material) to its
     "VRA/VRAX"  flangeway  filler  materials that are used in conjunction  with
     asphalt.  VRA/VRAX sales increased to $3,857,219 in 1998 from $558,189,  an
     increase of 591%.

     Revenues  for 1997 were  $12,902,491  as compared to  $13,565,411  in 1996,
     representing a decline of 4.9%. This decline is due primarily to a shift in
     customer  preference  from the Company's  rubber  crossings to its recently
     introduced  concrete  products.  Sales of rubber  crossings  declined  from
     $9,477,590  in 1996 to  $7,781,159  in  1997.  Sales of  concrete  products
     increased  from  $4,087,821  in 1996 to  $5,121,332  in 1997.  The  Company
     anticipates  that this trend will continue and expects concrete to continue
     to grow and become its dominant product in fiscal 1999 and beyond.

     COST OF GOODS SOLD AND EXPENSES

     Cost of goods sold for the year ended  April 30, 1998 were  $13,446,678  as
     compared to $10,557,688 in 1997.  Cost of sales as a percent of revenue was
     the same for both years.  Included in costs for both years were significant
     write-offs of inventory.  For 1998, the write-off was $1,085,600 or 6.6% as
     a percent of revenue  and for 1997 it was  $571,200  or 4%.  Excess  rubber
     inventory  is a  result  of  obsolete  or  out  of  specification  material
     produced,  and due to reduced demand for rubber railroad crossing material.
     Warranty costs are also included in cost of sales.  Increased warranty cost
     has become a greater component of cost of sales in the past two years.

                                       13
<PAGE>


     Cost of goods sold for the year ended April 30, 1997,  were  $10,557,688 as
     compared to $9,598,110 in 1996.  The increase in both absolute  dollars and
     percent of sales is due mainly to extraordinary costs incurred for warranty
     expense and the write off of obsolete inventory. The table below sets forth
     the Company's  inventory write-off and warranty expense in dollars and as a
     percent of revenues.

<TABLE>
<CAPTION>

                           WARRANTY EXPENSE AND INVENTORY WRITE OFF

     Fiscal year ended           April 30, 1998        April 30, 1997        April 30, 1996
                             --------------------- --------------------- ---------------------
                               Dollars    Percent    Dollars    Percent    Dollars    Percent
                               -------   of  sales   -------   of  sales   -------   of  sales
                                         ---------             ---------             ---------
<S>                          <C>            <C>    <C>            <C>    <C>            <C> 
     Warranty Expense        $  418,040     2.5%   $  483,528     3.7%   $  101,946     0.8%
     Inventory Written Off   $1,085,600     4.9%   $  571,200     4.4%   $   80,700     0.6%

</TABLE>

     The Company records a percent of each sale towards the warranty expense and
     places that amoun!t into an accrued  liability.  Actual  warranty  services
     incurred  in  1998  included  several  significant  international  warranty
     obligations that exceeded $100,000 in total.  Approximately $150,000 of the
     1997 warranty expense related to a single order shipped more than two years
     ago.  The special  order met customer  specifications,  but was replaced in
     order to maintain the relationship with a significant customer.  Since that
     order,  the  Company has not  manufactured  and will not  manufacture  that
     particular  product.  The  balance  of  the  warranty  expense  related  to
     introduction of a new manufacturing  process. The Company believes that the
     manufacturing process issues have been resolved and will not recur.

     The Company's  policy is to write off inventory that is more than two years
     old. The  majority of the  extraordinary  inventory  write off in the years
     ended  April 30,  1998 and 1997  occurred at the end of the fiscal year and
     included a $150,000 reserve in 1997 that related to overstocked  inventory.
     Management believes that further  extraordinary write off of inventory will
     not be required.

                                       14
<PAGE>


     GENERAL AND ADMINISTRATIVE EXPENSES

     General  and  Administrative  Expenses  were  $1,586,956,   $1,137,978  and
     $1,341,931  for the  fiscal  years  ended  April 30,  1998,  1997 and 1996,
     respectively.  The increase for fiscal 1998 is primarily  due to a $219,146
     increase in  consulting  charges,  $56,651  increase in fees and  licenses,
     $67,494  increase in  accounting  fees and a $38,076  increase in insurance
     premium costs. Consulting charges are up due to the Company's employment of
     various  financial  consultants  that were hired to assist  the  Company in
     obtaining equity or debt financing. Fees and licenses have increased due to
     additional  financing fees charged by the Company's  senior lender,  Finova
     Financial  Corporation.  These non-recurring fees resulted from the Company
     exceeding its borrowing  line and deferral of certain  principal  payments.
     Accounting  fees are up due to the Company's  change from a private company
     to one that is publicly traded.  Similarly,  insurance costs have increased
     due to added directors and officers liability insurance.  The decrease from
     fiscal  1996 to 1997 was due to a reduction  in the cost of legal  services
     and insurance.

     SELLING EXPENSE

     Selling  Expenses  for the years ended April 30,  1998,  1997 and 1996 were
     $1,665,506,  $1,323,070 and  $1,499,061,  respectively.  Commissions  are a
     primary component of selling costs and represented $783,284 (47% of selling
     costs), $669,619 (50% of selling costs) and $740,327 (49% of selling costs)
     for  fiscal  years  ended  1998,  1997 and 1996,  respectively.  Commission
     expense is directly  tied to total sales.  Additionally,  payroll  costs in
     1998 are up  $192,315  over l997 also due to  greater  commissions  paid to
     employees associated with greater sales. The decrease from 1996 to 1997 was
     due to a lowering of sales  commission  percentages  paid to the  Company's
     sales force.

     INTEREST EXPENSE

     Interest  Expense was  $633,316,  $687,095 and $713,825 for the years ended
     April 30, 1998,  1997 and 1996,  respectively.  The decline is due to lower
     levels of principal on all the  Company's  term debt as well as a reduction
     in borrowing on the Company's line of credit. This includes over $1 million
     in principal reduction in fiscal 1998

     LEGAL SETTLEMENT

     On July 24, 1997, the Company entered into a settlement  agreement  arising
     from  disputed  royalty  payments.  The terms of the  settlement  agreement
     required the Company to pay $50,000 within sixty days of the agreement date
     and $20,000 per quarter for five years  thereafter.  Among other  benefits,
     the settlement  relieves the Company of  contractual  liability for royalty
     payments that would have accrued  through  December,  1999.  Management has
     calculated the  discounted  present value of the settlement at $334,500 and
     accrued such amount at April 30, 1997. This one-time  charge  accounted for
     approximately  twenty-six  percent of the net loss for the year ended April
     30, 1997.

                                       15
<PAGE>


     RESTRUCTURING CHARGES

     The Company recorded restructuring charges associated with the shut down of
     two  factories  and to record  costs  associated  with the  write  down and
     liquidation of manufacturing equipment. These charges are the result of the
     Company's  refocus of its operation  into  producing  more  concrete  grade
     crossings and  elimination  of excess  capacity in the  company's  recycled
     rubber  manufacturing  operations.   The  total  restructuring  charges  of
     $1,684,833 included $1,239,567 in write down of manufacturing  equipment to
     fair  value,  $226,950  in costs  associated  with  plant  shut  downs  and
     equipment  liquidation,  $158,316 in  severance  costs and $60,000 in other
     restructuring charges. All associated assets will be liquidated and charges
     will be paid during fiscal 1999.

     NET LOSS

     The  Company's  fiscal  1998 net loss was  $2,882,185  and a loss per basic
     common  share  of  $.52.  One  time  restructuring  charges  and  inventory
     write-offs  in 1998  contributed  $2,497,673 to the loss or $.45 per share.
     The  warranty  expense  for  1998  impacted  the  loss  per  share by $.08.
     Inefficiencies  resulting  from  the  Company's  over  capacity  of  rubber
     production contributed to lower gross margins in 1998 and 1997 and directly
     impacted the net loss. The Company lost $1,295,065 or $.41 per basic common
     share for the year ended April 30, 1997 compared to a profit of $117,655 or
     $.04 per share for the year ended April 30, 1996.  The loss was caused by a
     significant increase in Cost of Goods Sold that resulted from the increased
     warranty  expense,  the  inventory  write-offs  and  the  legal  settlement
     described  above. 

     LIQUIDITY AND CAPITAL RESOURCES

     The Company's  combined cash and  investment  balance at April 30, 1998 and
     1997  amounted  to  $393,887  and  $894,758,  respectively.  The  Company's
     operating  activities  generated  cash of  $817,183  despite a net loss for
     fiscal 1998 of $2,882,185. Much of fiscal 1998's loss occurred due to write
     down or write-off of non-producing  assets.  Cash generated from operations
     in 1997 was $331,424.  The Company also  received  $100,000 of net proceeds
     from the sale of stock in fiscal 1997.

                                       16
<PAGE>


     Net  working  capital  deficit  at April  30,  1998 and  1997  amounted  to
     ($5,062,315) and  ($1,694,116),  respectively.  An increase in current debt
     maturities and other short-term  commitments  exceeded the Company's liquid
     assets available to pay such obligations. This was amplified in 1998 due to
     coming  maturity of the Company's two  mortgages.  This has resulted in the
     Company's independent auditors issuing a "going concern" emphasis paragraph
     in their report.

     The  Company  has  been  in  material  default  of  certain  financial  and
     non-financial loan covenants under its Security and Loan Agreement with its
     senior lender Finova Financial  Corporation  ("Finova").  Subsequent to the
     Company's  fiscal year end, it entered into a  Forbearance  Agreement  with
     Finova that defers Finova  taking any action  against the Company by reason
     of the existing defaults.  In addition,  under the terms of the Forbearance
     Agreement, the Company is permitted an overadvance of up to $400,000 beyond
     the normal  terms of the line of credit.  The  Forbearance  Agreement  also
     eliminates  the monthly  principal  payment  requirements  on Finova's term
     debt.  As part of the  Forbearance  Agreement  the  Company  is  subject to
     additional covenants that require, among other things, the Company to raise
     an additional $250,000 in equity capital or subordinated debt, requires the
     disposal of certain assets (proceeds must go to pay down various loans with
     Finova) and requires the Company to meet certain projected financial goals.

     The  Company's  capital  expenditures  were $231,802 and $375,316 in fiscal
     1998 and 1997,  respectively.  Expenditures in 1997 were incurred primarily
     for equipment to expand  production  capacity while 1998  expenditures were
     mostly for necessary  improvements in the Company's production  facilities.
     The  Company  also  liquidated  its  security  holdings in fiscal 1998 that
     resulted in additional proceeds to the Company of $752,573. Sales of assets
     generated  $571,038 of  proceeds  in fiscal  1998.  These  proceeds  and an
     estimated  $1,600,000  in gross  proceeds  in  fiscal  1999 will be used to
     retire  much  of the  Company's  term  debt  and  mortgages.  Sales  of the
     Company's  Lancaster,  Pennsylvania,  and McHenry,  Illinois facilities are
     expected to raise additional amounts sufficient for payoff of the Company's
     obligations that come due during next fiscal year.

     The Company's  primary source of funds is from its operations.  The Company
     is restricted as to the amount it can borrow from Finova based on a percent
     of eligible  receivables  and inventory.  Additionally,  the Company likely
     will need  replacement debt or equity financing after the end of the Finova
     agreement on August 31, 1999.  The Company  expects  operations  to improve
     during fiscal 1999 to ensure an adequate level of asset based  financing is
     available.  

                                       17
<PAGE>

     There  can be no  assurance  the  Company  will  be able  to  complete  the
     equipment sales noted above prior to the mortgage  maturity dates,  nor can
     there  be any  assurance  that  the  Company  will  be able  to  raise  the
     subordinated  funds required  pursuant to the  Forbearance  Agreement.  The
     Company's debt will require  restructuring or additional  financing must be
     found in the event  sufficient  funds are not  available to payoff  certain
     debt that comes due in fiscal  1999.  The Company may extend,  for 30 days,
     its  requirement  to raise  the  subordinated  investment  pursuant  to the
     Forbearance Agreement by paying a $10,000 fee to Finova.

     Year 2000 Compliance Issues
     ---------------------------

     The Company's  products are relatively  non-technical and are produced in a
     non-automated environment.  The Company's only use of electronic automation
     is in its  administrative  process.  The Company has  purchased or plans to
     acquire  proper  software  and hardware for its  automated  environment  to
     ensure it avoids any Year 2000 issues. In addition,  the Company's board of
     directors and management is committed to discovering any impact the Company
     may experience from automated  environments of suppliers and customers that
     do not timely  address the Year 2000 issues.  The Company  feels,  however,
     that it will likely not suffer any serious adverse difficulties from issues
     related to the Year 2000 format changes.


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




                                       18
<PAGE>





                       CREATIVE MEDICAL DEVELOPMENT, INC.
                       AND SUBSIDIARY

                       Consolidated Financial Statements

                       April 30, 1998 and 1997

                       (With Independent Auditors' Report Thereon)





                                      
<PAGE>


                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Creative Medical Development, Inc.:


We have audited the accompanying consolidated balance sheets of Creative Medical
Development,  Inc. and subsidiary as of April 30, 1998 and 1997, and the related
consolidated statements of operations,  stockholders' equity (deficit), and cash
flows for each of the years in the three year period ended April 30, 1998. These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Creative Medical
Development,  Inc. and subsidiary as of April 30, 1997 and 1998, and the results
of their operations and their cash flows for each of the years in the three year
period ended April 30, 1998 in conformity  with  generally  accepted  accounting
principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As discussed in note 12 to
the   consolidated   financial   statements,   the  Company  suffers   liquidity
constraints,  due to the  acceleration  of certain debt  maturities,  that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also disclosed in note 12. The consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.



KPMG Peat Marwick, LLP
--------------------------
Portland, Oregon
August 7, 1998

                                      F-1
                                    
<PAGE>
<TABLE>
<CAPTION>

                                          CREATIVE MEDICAL DEVELOPMENT, INC.
                                                  AND SUBSIDIARY

                                             Consolidated Balance Sheets

                                                April 30, 1998 and 1997


                                     Assets
                                                                                              1998            1997
                                                                                          ------------    ------------

Current assets:
<S>                                                                                       <C>                  <C>    
    Cash                                                                                  $    393,877         139,635
    Investment securities                                                                         --           755,123
    Accounts receivable, less allowance for doubtful
      accounts of $68,776 in 1998 and $37,863 in 1997                                        1,853,280       1,818,109
    Inventories, net                                                                         1,423,800       2,494,743
    Prepaid expenses and deposits                                                               52,158          20,680
                                                                                          ------------    ------------

              Total current assets                                                           3,723,115       5,228,290

Real estate and other assets held for sale                                                   1,618,275       1,500,000
Property, plant and equipment, net                                                           2,272,214       4,286,656
Organization costs, net of $328,040 accumulated amortization in 1997                              --           237,955
                                                                                          ------------    ------------

                                                                                          $  7,613,604      11,252,901
                                                                                          ============    ============

                      Liabilities and Stockholders' Equity

Current liabilities:
    Accounts payable                                                                         1,884,679       1,364,079
    Accrued liabilities                                                                      1,459,092       1,082,054
    Notes payable                                                                            3,305,283       4,376,723
    Current portion of long-term debt                                                        2,136,376          99,550
                                                                                          ------------    ------------

              Total current liabilities                                                      8,785,430       6,922,406
                                                                                          ------------    ------------

Long-term debt, less current portion                                                           522,342       3,111,226
Commitments and contingencies
Stockholders' equity:
    Convertible preferred stock, $.01 par value, 5,000,000 shares authorized:
        Series B, 1,000,000 shares authorized, 622,066 shares
          issued and outstanding                                                                 6,221           6,221
    Common stock, 10,000,000 shares authorized, $.01 par value, 5,524,618 and 5,554,337
      shares issued and outstanding in 1998 and 1997, respectively                              55,246          55,543
    Additional paid-in capital                                                               2,413,651       2,444,606
    Accumulated deficit                                                                     (4,169,286)     (1,287,101)
                                                                                          ------------    ------------

              Total stockholders' equity                                                    (1,694,168)      1,219,269
                                                                                          ------------    ------------

                                                                                          $  7,613,604      11,252,901
                                                                                          ============    ============

See accompanying notes to consolidated financial statements.

</TABLE>
                                       F-2
<PAGE>
<TABLE>
<CAPTION>


                                 CREATIVE MEDICAL DEVELOPMENT, INC.
                                           AND SUBSIDIARY

                                Consolidated Statements of Operations

                              Years ended April 30, 1998, 1997 and 1996



                                                           1998            1997             1996
                                                       ------------    ------------    ------------
                                                                                                        

<S>                                                    <C>               <C>             <C>       
Net sales                                              $ 16,448,876      12,902,491      13,565,411
Cost of sales                                            13,446,678      10,557,688       9,598,110
                                                       ------------    ------------    ------------


              Gross profit                                3,002,198       2,344,803       3,967,301
                                                       ------------    ------------    ------------


Selling expenses                                          1,665,506       1,323,070       1,499,061
Administrative expenses                                   1,586,956       1,137,978       1,341,931
Research, development and engineering                       127,624          61,646          70,852
                                                          1,684,833            --              --
Restructuring charges
                                                       ------------    ------------    ------------


                                                          5,064,919       2,522,694       2,911,844
                                                       ------------    ------------    ------------


              (Loss) earnings from operations            (2,062,721)       (177,891)      1,055,457
                                                       ------------    ------------    ------------


Other income (expense):
    Interest expense                                       (633,316)       (687,095)       (713,825)
    Legal settlement                                           --          (334,500)           --
    Amortization of organization costs                     (237,955)       (119,249)       (119,719)
    Miscellaneous income (expense)                           24,018          (6,781)        (40,051)
    Gain (loss) on sale of assets                            29,683         (25,156)        (27,690)
                                                       ------------    ------------    ------------


              Total other expense                          (817,570)     (1,172,781)       (901,285)
                                                       ------------    ------------    ------------


              (Loss) earnings before income taxes        (2,880,291)     (1,350,672)        154,172

(Benefit) provision for income taxes                          1,894         (55,607)         36,517
                                                       ------------    ------------    ------------


              Net (loss) earnings                      $ (2,882,185)     (1,295,065)        117,655
                                                       ============    ============    ============


Basic (loss) earnings per share                        $       (.52)           (.41)            .04
                                                       ============    ============    ============
Diluted (loss) earnings per share                      $       (.52)           (.41)            .04
                                                       ============    ============    ============
Basic and diluted weighted common shares outstanding      5,532,581       3,126,294       2,941,378
                                                       ============    ============    ============



See accompanying notes to consolidated financial statements.


</TABLE>
                                       F-3
<PAGE>
<TABLE>
<CAPTION>


                                              CREATIVE MEDICAL DEVELOPMENT, INC.
                                                       AND SUBSIDIARY

                                   Consolidated Statements of Stockholders' Equity (Deficit)

                                           Years ended April 30, 1998, 1997 and 1996



                                         Preferred stock                                                                            
                                            Series B                 Common stock          Additional    Retained        Total      
                                     -----------------------   ------------------------     paid-in      earnings    stockholders'
                                       Shares       Amount       Shares        Amount       capital      (deficit)  equity (deficit)
                                     ----------   ----------   ----------    ----------    ----------    ---------- ---------------

<S>                                  <C>          <C>           <C>          <C>              <C>            <C>          <C>    
Balance, April 30, 1995                    --     $     --      2,688,926    $   26,889       933,111        20,409       980,409

Issuance of common stock                   --           --        412,095         4,121       395,879          --         400,000
Dividends                                  --           --           --            --            --         (65,100)      (65,100)
Net earnings                               --           --           --            --            --         117,655       117,655
                                     ----------   ----------   ----------    ----------    ----------    ----------    ----------


Balance, April 30, 1996                    --           --      3,101,021        31,010     1,328,990        72,964     1,432,964

Issuance of common stock                   --           --        111,743         1,117       116,383          --         117,500
Dividends                                  --           --           --            --            --         (65,000)      (65,000)
Payment of stock dividend                  --           --        233,428         2,334       186,478          --         188,812
Preferred and common shares
    issued in merger                    622,066        6,221    2,108,145        21,082       812,755          --         840,058
Net loss                                   --           --           --            --            --      (1,295,065)   (1,295,065)
                                     ----------   ----------   ----------    ----------    ----------    ----------    ----------

Balance, April 30, 1997                 622,066        6,221    5,554,337        55,543     2,444,606    (1,287,101)    1,219,269

Repurchase of stock puts                   --           --        (29,719)         (297)      (30,955)         --         (31,252)
Net loss                                   --           --           --            --            --      (2,882,185)   (2,882,185)

                                     ----------   ----------   ----------    ----------    ----------    ----------    ----------

Balance, April 30, 1998                 622,066   $    6,221    5,524,618    $   55,246     2,413,651    (4,169,286)   (1,694,168)
                                     ==========   ==========   ==========    ==========    ==========    ==========    ==========


See accompanying notes to consolidated financial statements.



</TABLE>
                                       F-4
<PAGE>
<TABLE>
<CAPTION>

                                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                                 AND SUBSIDIARY

                                      Consolidated Statements of Cash Flows

                                    Years ended April 30, 1998, 1997 and 1996


                                                                            1998           1997           1996
                                                                        -----------    -----------    -----------
Cash flows from operating activities:
<S>                                                                     <C>             <C>               <C>    
    Net (loss) earnings                                                 $(2,882,185)    (1,295,065)       117,655
    Adjustments to reconcile net (loss) earnings to net cash
      provided by operating activities:
        Depreciation and amortization                                       587,552        491,642        444,785
        Legal settlement                                                       --          334,500           --
        (Gain) loss on sale of assets                                       (29,683)        25,156         27,690
        Restructuring charges - write down of assets                      1,239,567           --             --
        Deferred income taxes                                                  --          (55,607)        36,517
        Change in assets and liabilities:
          Accounts receivable                                               (35,171)      (199,814)       747,872
          Inventories                                                     1,070,943        296,361     (1,126,312)
          Prepaid expenses and deposits                                     (31,478)         1,876          3,734
          Accounts payable                                                  520,600        425,992       (108,902)
          Accrued liabilities                                               377,038        306,383         68,897
                                                                        -----------    -----------    -----------

                Net cash provided by operating activities                   817,183        331,424        211,936
                                                                        -----------    -----------    -----------

Cash flows from investing activities:
    Proceeds from sale of Property, Plant and Equipment                     571,038         17,166          2,500
    Proceeds from sale of securities                                        752,573           --             --
    Purchase of property, plant and equipment                              (231,802)      (375,316)      (680,492)
    Organization costs                                                         --             --            3,293
                                                                        -----------    -----------    -----------

                Net cash provided used by investing activities            1,091,809       (358,150)      (674,699)
                                                                        -----------    -----------    -----------

Cash flows from financing activities:
    Net (payment) borrowings on notes payable                            (1,071,440)      (116,326)       420,352
    Payments on long-term debt                                             (552,058)       (14,281)      (481,882)
    Borrowing on long-term notes                                               --             --          384,030
    Proceeds (repayment of) from sale of stock                              (31,252)       100,000        400,000
    Acquisition costs                                                          --         (185,065)          --
                                                                        -----------    -----------    -----------

                Net cash (used) provided by financing activities         (1,654,750)      (215,672)       722,500
                                                                        -----------    -----------    -----------

                (Decrease) increase in cash                                 254,242       (242,398)       259,737

Cash at beginning of year                                                   139,635        382,033        122,296
                                                                        -----------    -----------    -----------

Cash at end of year                                                     $   393,877        139,635        382,033
                                                                        ===========    ===========    ===========

Supplemental disclosure of cash flow information: Cash paid for:
      Interest                                                          $   628,962        677,847        726,321
      Income taxes                                                            1,894           --             --

Supplemental schedule of non-cash investing and financing activities:
      Stock dividend                                                           --           65,000         65,100
      Issuance of common stock on conversion of debt                           --           17,500           --
      Effect of acquisition:
        Fair value of assets acquired                                          --        2,255,123           --
        Liabilities assumed                                                    --        1,230,000           --

See accompanying notes to consolidated financial statements 


</TABLE>
                                       F-5
<PAGE>


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          April 30, 1998, 1997 and 1996


(1)  Summary of Significant Accounting Policies

     Description of the Company,  Basis of Presentation  and Change in Reporting
     Entity

     Creative  Medical  Development,  Inc. (CMD),  incorporated in California on
     July 20, 1992,  designed,  developed,  manufactured and marketed  propriety
     ambulatory  infusion  therapy  products for alternate site patient care. On
     September 13, 1995, CMD sold  substantially all of its operating assets and
     technology and since that time has not had significant operating results.

     Effective April 30, 1997, CMD and OMNI  International  Rail Products,  Inc.
     (OMNI),  completed an agreement  and plan of merger which  provided for the
     merger  of  OMNI   with  and  into  a   wholly-owned   subsidiary   of  CMD
     (collectively,  the Company).  Upon consummation of the merger, OMNI's name
     changed to OMNI  Products,  Inc.  Just prior to the  closing of the merger,
     OMNI  completed  a  recapitalization   in  which  the  Board  of  Directors
     authorized the conversion of:

          *    Series B  preferred  stock  into  Series A  preferred  stock (new
               Series A preferred stock);

          *    650,000  shares of new  Series A  preferred  stock  into  260,000
               shares of common stock;

          *    $188,812 in accrued dividends into 75,525 shares of common stock.

     Also,  at the closing of the merger,  CMD completed a  recapitalization  in
     which the Board of Directors authorized the conversion of 810,000 shares of
     Series A preferred stock into 270,000 shares of Series B preferred stock.

     Under the terms of the merger agreement,  the shareholders and stock option
     holders  of OMNI  exchanged  all of their  common  stock and  common  stock
     options  for  common  stock and  Series B  preferred  stock and  common and
     preferred  stock  options of the  Company.  OMNI's  common stock and common
     stock options were converted into CMD common stock and common stock options
     ("Substitute  Options")  at a ratio  of  3.091 to 1.0.  In  addition,  OMNI
     shareholders  and stock option holders  received 352,066 shares of Series B
     preferred stock and 187,934  options to purchase Series B preferred  stock,
     respectively. 

     Upon  completion of the  transaction,  former OMNI  security  holders owned
     approximately 67% of the total outstanding shares of CMD on a fully diluted
     basis.  The initial  ownership  ratio was contingent on adjustment one year
     after the close of the  transaction.  The final ownership ratio was subject
     to adjustment resulting from differences between the assumed value of CMD's
     net  assets at the time of the  merger  and a final  accounting  made as of
     April 30, 1998. This valuation adjustment was also impacted by the value of
     OMNI's  assets  based on  OMNI's  indemnification  requirements  under  the
     Agreement. Subsequent to the end of the fiscal year, it was determined that
     the final  ownership  ratio after  valuation  adjustment  differed from the
     initial  ownership  ratio in favor of CMD. As a result all CMD common stock
     and Series B preferred stock issued to escrow for OMNI's shareholders, were
     effectively  canceled as necessary to reflect the final ownership ratio. In
     addition,  the  Substitute  options  were also  subject  to a  similar  10%
     reduction as part of the ownership adjustment.

                                       F-6
<PAGE>


     The  transaction  between CMD and OMNI is considered a reverse  acquisition
     for  financial  reporting  purposes  and has been  accounted  for under the
     purchase  method of  accounting.  As a  resu!lt,  for  financial  statement
     purposes, i) the historical values of OMNI's net assets have been retained;
     ii) the net  assets  of CMD  immediately  prior  to the  merger  have  been
     recorded  at their  fair  value on the  date of the  transaction,  iii) the
     results of the operations of CMD are included in the results of the Company
     beginning on the effective date of the transaction,  iv) the dollar balance
     of OMNI's accumulated deficit has been retained,  and the balance of OMNI's
     common stock and  additional  paid-in  capital have been  reallocated to be
     consistent  with the ratio of CMD's  preferred  and  common  stock.  Assets
     acquired  consisted  of  investment   securities  and  a  building,   while
     liabilities  assumed consisted of the mortgage associated with the building
     acquired.  The fair  value of assets  acquired  exceeded  the fair value of
     liabilities assumed by approximately $1,025,000; such excess was attributed
     to the  shares  issued in the  merger.  OMNI's  costs  associated  with the
     transaction,  totaling approximately  $185,000, were also attributed to the
     shares issued in the merger.

     The  consolidated  statements of operations and cash flows for fiscal years
     1998, 1997 and 1996, reflect only the activity of OMNI.

     Unaudited  pro forma  combined  results of  operations  of the  Company for
     fiscal years 1997 and 1996 are presented below. Such pro forma presentation
     has been  prepared  assuming that the  acquisition  had been made as of the
     beginning of fiscal year 1996.

                                         1997             1996
                                     ------------      ----------

               Revenues              $ 12,902,491      13,565,411
               Net (loss) earnings       (338,012)        220,874



     Principles of Consolidation

     The consolidated  financial  statements include the accounts of CMD and its
     wholly-owned  subsidiary,  OMNI Products,  Inc., originally incorporated in
     Oregon in 1993. OMNI Products,  Inc.  manufactures  and  distributes,  on a
     world-wide  basis,  a  variety  of  rubber,  rubber/concrete  and  concrete
     railroad  premium  grade  crossing  systems.   All  material   intercompany
     transactions   and  balances  have  been  eliminated  in  the  consolidated
     financial statements.

     Investments

     The Company has adopted Statement of Financial Accounting Standards No. 115
     Accounting for Certain  Investments in Debt and Equity Securities (SFAS No.
     115). Accordingly, the Company has classified its short-term investments in
     corporate  equity   securities  as   available-for-sale   securities.   The
     securities' carrying value is equal to market value.

     Inventories

     The Company values  inventories at the lower of average  production cost or
     market (net realizable value). The Company determines cost on the first-in,
     first-out (FIFO) basis.


                                       F-7
<PAGE>


     Accounts Receivable

     Accounts  receivable are from  distributors  of the Company's  products and
     from customers.  The Company  performs  periodic credit  evaluations of its
     customers and maintains  allowances for potential  credit losses.  Also, to
     reduce the risk of credit loss, the Company requires letters of credit from
     foreign customers for which no credit history has been established.

     Property, Plant and Equipment

     Property,  plant and equipment are stated at cost. Depreciation is provided
     over the  estimated  useful  lives of the  assets  using the  straight-line
     method.  The estimated  useful lives for furniture,  vehicles and equipment
     are ten years; buildings are forty years.

     Expenditures   for  additions  and  major   improvements  are  capitalized.
     Expenditures for repairs and maintenance are charged to income as incurred.

     Warranty

     The Company  provides a six-year  warranty for its products and establishes
     an allowance at the time of sale, based on historical warranty  experience,
     to provide estimated warranty costs.

     Income Taxes

     The Company accounts for income taxes under the asset and liability method.
     Under the asset and  liability  method,  deferred  income taxes reflect the
     future tax consequences of differences  between the tax bases of assets and
     liabilities  and  their  financial  reporting  amounts  at  each  year-end.
     Deferred tax assets and  liabilities  are measured  using enacted tax rates
     expected to apply to taxable  income in the years in which those  temporary
     differences are expected to be recovered or settled. The effect on deferred
     tax assets and liabilities of a change in tax rates is recognized in income
     in the period that includes the enactment date.

     Research and Development Costs

     The Company charges all research and development  costs associated with the
     development of products to expense when incurred.

     Advertising Expenses

     Advertising  expenses are charged to expense as incurred and were  $44,424,
     $102,310 and $126,956 for 1998, 1997 and 1996, respectively.

     Revenue Recognition

     Revenues are recognized when products are shipped.

     Stock Option Plan

     Prior to May 1, 1996,  the Company  accounted  for its stock option plan in
     accordance with the provisions of Accounting Principles Board (APB) Opinion
     No.  25,   Accounting   for  Stock   Issued  to   Employees,   and  related
     interpretations.  As such, for options  granted to employees,  compensation
     expense was recorded on the date of grant only if the current  market price
     of the underlying  stock exceeded the exercise  price.  On May 1, 1996, the
     Company  adopted SFAS No. 123,  Accounting  for  Stock-Based  Compensation,
     which permits  entities to recognize as expense over the vesting period the
     fair value of all stock-based  awards on the date of grant.  Alternatively,
     SFAS No. 123 also allows  entities to continue to apply the  provisions  of
     APB Opinion No. 25 and provide pro forma net income and pro forma  earnings
     per share  disclosures  for employee  stock option  grants made in 1996 and
     future years as if the fair-value-based  method defined in SFAS No. 123 had
     been applied.  The Company has elected to continue to apply the  provisions
     of APB Opinion No. 25 and provide the pro forma  disclosure  provisions  of
     SFAS No. 123.

                                       F-8
<PAGE>


     Fair Value of Financial Instruments

     At April 30, 1997 and 1998, the carrying value of cash, trade  receivables,
     accounts  payable  and  notes  payable  approximate  fair  value due to the
     short-term  nature of these  instruments.  At April 30, 1997 and 1998,  the
     fair value of the Company's  long-term debt approximates  carrying value as
     such instruments'  stated interest rates do not differ  significantly  from
     current market rates available to the Company.

     Basic and Diluted Net (Loss) Earnings Per Common Share

     Net (loss)  earnings per share ("EPS") is computed  based on the provisions
     of Statement of Financial  Accounting Standards No. 128, Earnings per Share
     ("SFAS  128").  Under SFAS 128,  Basic EPS is computed  by dividing  income
     available to common shareholders by the  weighted-average  number of common
     shares outstanding during the period.  Contingently  issuable shares,  that
     are issuable for little or no cash consideration are considered outstanding
     common shares and included in the  computation  of basic EPS as of the date
     that all necessary conditions have been satisfied.

     The  transaction  between CMD and OMNI is considered a reverse  acquisition
     for  financial  statement  purposes  and has been  accounted  for under the
     purchase method of accounting. CMD's shares outstanding and dilutive equity
     instruments,   and  convertible   preferred  stock,  are  included  in  the
     computation of diluted  earnings per share.  The computation of diluted EPS
     is similar to the  computation of basic EPS except that the  denominator is
     increased to include the number of additional common shares that would have
     been  outstanding if the dilutive  potential common shares had been issued.
     However,  the  computation  of  diluted  EPS shall not  assume  conversion,
     exercise, or contingent issuance of securities that would have antidilutive
     effect on earnings per share.  The  calculation of diluted  earnings (loss)
     per share  excludes any  potentially  dilutive  shares as such shares would
     have an antidilutive affect.

     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.

     Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

     The Company  adopted the  provisions  of SFAS No. 121,  Accounting  for the
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
     Of, on May 1, 1996.  This  statement  requires that  long-lived  assets and
     certain identifiable intangibles be reviewed for impairment whenever events
     or changes in  circumstances  indicate that the carrying amount of an asset
     may not be  recoverable.  Recoverability  of  assets to be held and used is
     measured by a comparison  of the carrying  amount of an asset to future net
     cash  flows  expected  to be  generated  by the asset.  If such  assets are
     considered  to be impaired the  impairment  to be recognized is measured by
     the amount by which the carrying amount of the assets exceed the fair value
     of the assets.  Assets to be  disposed of are  reported at the lower of the
     carrying  amount  or fair  value  less  costs  to  sell.  Adoption  of this
     statement  did  not  have a  material  impact  on the  Company's  financial
     position, results of operations, or liquidity.

                                       F-9
<PAGE>


     Reclassifications

     Certain  reclassifications  have been made to the 1996 and 1997  amounts to
     conform with 1998 presentation.


(2)  Restructuring charges

     The Company recorded restructuring charges associated with the shut down of
     two  factories  and to record  costs  associated  with the  write  down and
     liquidation of manufacturing equipment. These charges are the result of the
     Company's refocus of its operation into producing  primarily concrete grade
     crossings  and  elimination  of excess  capacity  in the  Company's  rubber
     manufacturing   operations.   Total  restructuring  charges  of  $1,684,833
     included $1,239,567 in write down of manufacturing equipment to fair value,
     $226,950  in  costs   associated   with  plant  shut  downs  and  equipment
     liquidation, $158,316 in severance costs and $60,000 in other restructuring
     charges.  Total accrued and unpaid  restructuring  costs at the end of 1998
     were  $249,295 not  including  severance  costs that were  accounted for in
     accrued compensation. All associated assets were, or will be liquidated and
     charges were or will be paid during fiscal 1998 and 1999. In addition,  the
     Company  wrote  off  excess  or  out  of  spec  inventory  as  part  of the
     restructuring.


(3)  Inventories

     Inventories consist of the following at April 30, 1998 and 1997:

                                                   1998         1997
                                                ----------   ----------

        Raw materials                           $  539,927      461,430
        Finished goods                             898,428    2,183,313
                                                ----------   ----------

                                                 1,438,355    2,644,743

        Less allowance for excess or obsolete
            inventory                               14,555      150,000
                                                ----------   ----------

                      Inventories, net          $1,423,800    2,494,743
                                                ==========   ==========

     In conjunction with the restructuring,  the Company recorded a write-off of
     $812,840 as of the end of fiscal  1998 for excess and out of spec  recycled
     rubber  inventory.  Total fiscal 1998 and 1997  inventory  write-offs  were
     $1,085,000  and $571,200,  respectively.  The majority of these  write-offs
     occurred at the end of each fiscal year.

                                      F-10
<PAGE>


(4)  Property, Plant and Equipment

     Property,  plant and  equipment  consist of the following at April 30, 1998
     and 1997:

                                                1998         1997
                                             ----------   ----------

            Land                             $  217,593      374,201
            Buildings                         1,163,115    1,381,593
            Vehicles                             18,924       90,211
            Office furniture and equipment      127,310      121,092
            Manufacturing equipment           1,236,681    3,256,327
                                             ----------   ----------

                                              2,763,623    5,223,424

            Less accumulated depreciation       491,409      936,768
                                             ----------   ----------

                                             $2,272,214    4,286,656
                                             ==========   ==========

     Certain  property,  plant and equipment  serves as collateral for short and
     long-term debt obligations.  As discussed in note 2, certain  manufacturing
     equipment   was  written  down  during  1998  as  part  of  the   Company's
     restructuring


(5)  Accrued Liabilities

     Accrued liabilities consist of the following at April 30, 1998 and 1997:

                                               1998         1997
                                            ----------   ----------

            Warranties                      $  268,902      344,950
            Accrued compensation               486,520      249,391
            Accrued restructuring charges      249,195         --
            Accrued merger costs                60,000      151,343
            Other                              394,475      336,370
                                            ----------   ----------

                                            $1,459,092    1,082,054
                                            ==========   ==========


(6)  Notes Payable

     The  Company  has a  revolving  line  of  credit  totaling  $2,107,966  and
     $2,608,581  as of April 30, 1998 and 1997,  respectively,  under a Loan and
     Security  Agreement  ("Loan  Agreemen!t")  with Finova Capital  Corporation
     (Finova) that  generally  provides  borrowings of up to $2,750,000  (before
     amendment) against 85% of eligible accounts  receivable and 50% of eligible
     inventory.  Interest  on the line is at prime  rate plus  2.25%  (10.75% at
     April 30,  1998 and  1997),  with a minimum  interest  charge of $9,000 per
     month.  The Company also has a term loan payable and a capital loan payable
     with Finova  totaling  $689,815 and  $507,502,  respectively,  at April 30,
     1998, and $1,153,702 and $614,440,  respectively,  at April 30, 1997,  that
     are payable in monthly  installments of $55,000 and $14,625,  respectively,
     plus interest at 11.5% per annum per loan. The loans payable are secured by
     equipment and inventory. The original maturity date was extended from April
     26, 1999 to August 31, 1999 as noted below.

                                      F-11
<PAGE>


     From time to time the Company has entered  into various  amendments  to the
     Loan Agreement with Finova.  On April 29, 1997,  Finova signed a Consent to
     Merger  ("Consent")  document as part of the merger  between CMDI and OMNI,
     that, among other things, accelerated the payment of all indebtedness under
     the Loan  Agreement  to July 31,  1997.  On August 31, 1997 the Company and
     Finova entered into Amendment No. 8 to the Loan Agreement that extended the
     loans'  maturity  dates until August 31, 1999.  Amendment No. 9 was entered
     into on November 1, 1997 and  increased  the  available  borrowing  balance
     under the  revolving  line of  credit to  $3,500,000.  This  amendment  and
     Amendment No. 10 dated February 9, 1998, permitted the Company to borrow up
     to $350,000 over the permitted  calculated loan balance (referred to as the
     "Permitted Overadvance") through the Permitted Overadvance Period, June 30,
     1998.  The  Company  has  been  in  violation  of  certain   financial  and
     non-financial  loan  covenants,   including  negative  covenants  for  cash
     requirements  for  Senior  Debt  Coverage  and Net  Worth of  Borrower.  As
     explained in footnote 13 the Company,  subsequent to year end, entered into
     a Forbearance  agreement  that permits a continued  Overadvance  and waives
     prior and existing defaults.

                                      F-12

<PAGE>
<TABLE>
<CAPTION>


(7)  Long-term Debt

     Long-term  debt is  comprised  of the  following at April 30, 1998 and 1997
     (see footnote 13):

                                                                       1998         1997
                                                                    ----------   ----------
<S>                                                                 <C>           <C>      

     Notes payable to Capital Consultants in monthly
         installments of $13,631, including interest at 10%,
         payable in full in December 1998, secured
         by real estate                                             $  866,458    1,338,776
     Mortgage payable to financial institution in monthly
         installments of $12,750, including interest at
         11.375%, payable in full in December 1998,
         secured by real estate                                      1,216,668    1,230,000
     Legal settlement payable in quarterly installments of
         $20,000 for five years from December 31, 1997
         Discounted present value assuming 11% interest                268,092      334,500
     Note payable to an individual in monthly installments
         of interest only at 10%, plus additional "premium"
         interest at 7% due each May 15th, payable in full
         in April 1999.  Subject to Subordination and Standstill
         Agreement with Finova                                         200,000      200,000
     Notes payable to two individuals, in monthly installments of
         interest only at 10%, payable in full in April 1999
         Subject to Subordination and Standstill Agreement
         with Finova
                                                                       107,500      107,500
                                                                    ----------   ----------

                                                                     2,658,718    3,210,776

     Less current portion                                            2,136,376       99,550
                                                                    ----------   ----------

                   Long-term debt, due in 1999                      $  522,342    3,111,226
                                                                    ==========   ==========
</TABLE>
                                      F-13
<PAGE>



(8)  Income Taxes

     The income tax (benefit) expense consists of the following:

                                            1998        1997        1996
                                          --------    --------    --------

      Current:
          Federal                         $   --          --          --
          State                              1,894        --          --
                                          --------    --------    --------

                                             1,894        --          --
                                          --------    --------    --------

      Deferred:
          Federal                             --       (46,039)     30,234
          State                               --        (9,568)      6,283
                                          --------    --------    --------

                                              --       (55,607)     36,517
                                          --------    --------    --------

                    Total income tax
                      (benefit) expense   $  1,894     (55,607)     36,517
                                          ========    ========    ========

     The  tax  effects  of  temporary   differences   and  net  operating   loss
     carryforwards  which give rise to  significant  portions  of  deferred  tax
     assets  and  deferred  tax  liabilities  at April 30,  1998 and 1997 are as
     follows:

                                                           1998         1997
                                                        ----------   ----------

Deferred tax assets:
    Restructuring costs                                 $  143,895         --
    Investment in securities                                  --        232,418
    Warranty reserve                                        91,028      132,309
    Legal settlement payable                               123,390      128,318
    Inventory write down                                   369,307       57,534
    Bad debt reserve                                        26,380       14,523
    Self-insurance reserve                                  22,490        6,223
    Other                                                   27,879        1,994
    Capital loss carryforward                              273,043
    Net operating loss carryforwards:
      Federal                                              737,970      629,394
      State                                                 98,391      130,810
                                                        ----------   ----------

                                                         1,913,773    1,333,523

    Less valuation allowance                             1,657,570      490,416
                                                        ----------   ----------

              Net deferred tax asset                       286,203      843,107
                                                        ----------   ----------

                                      F-14
<PAGE>


Deferred tax liability:
    Property, plant and equipment, due to                   94,423
      differences in depreciation                                       651,327
    Real estate held for sale                              191,780      191,780
                                                        ----------   ----------

              Net deferred tax liability                   286,203      843,107
                                                        ----------   ----------

              Net deferred tax assets and liabilities   $     --           --
                                                        ==========   ==========

     The (benefit)  provision for income taxes differs from the amount of income
     tax determined by applying the applicable Federal statutory income tax rate
     to  (loss)  earnings  before  income  taxes  as a result  of the  following
     differences:

                                                    1998     1997     1996
                                                   ------   ------   ------

      Statutory federal income tax rate            (34.0)%  (34.0)%   34.0%
      State income taxes, net of federal income
          tax benefit                               (4.3)    (4.4)     4.4
      Change in valuation allowance                 40.5     36.2       --
      Other                                         (2.1)    (2.1)   (14.7)
                                                    ----     ----     ----

      Effective tax rates                             .1%    (4.3)%   23.7%
                                                    ====     ====     ====

     The  Company  has  a  valuation   allowance  of  $1,657,570  and  $490,416,
     respectively,  as of April 30, 1998 and 1997 an increase of $1,167,154  and
     $490,416 in the valuation  allowance for the same respective periods ended.
     The valuation allowance for fiscal 1996 was $-0-.

     At April 30, 1998 and 1997,  the Company had  approximately  $2,259,000 and
     $1,982,000,  respectively,  of net operating loss  carryforwards  to offset
     future  income for federal and state income tax purposes  which will expire
     2009 through 2013.

     A  provision  of the Tax  Reform Act of 1986,  as  amended,  requires  that
     utilization of net operating loss and credit  carryforward  be limited when
     there is a more than 50% change in ownership of the Company. Such change in
     ownership may have occurred. However, the date of the change and the amount
     of loss and credits subject to the limitation has not yet been  determined.
     Accordingly,   the  utilization  of  the  net  operating  loss  and  credit
     carryforwards to remaining  future years may be limited.  Any future change
     in the equity structure of the Company may further limit the utilization of
     the net operating loss and credit carryforwards.



(9)  Commitments and Contingencies

     Operating Lease Commitments

     The Company  leases  office  space,  vehicles  and office  equipment  under
     various operating lease agreements expiring over several years. The Company
     also has month-to-month rental agreements on its corporate office space and
     on certain  manufacturing  equipment under agreement with a director of the
     Company.  In  addition,  the  Company  leases all of its space at its Grass
     Valley  building,  shown under Real  estate and assets held for sale.  Such
     rental revenues exceed the costs to finance and operate the facility. Lease
     expense was  approximately  $159,000  $108,000  and  $105,000 for the years
     ended April 30, 1998,  1997 and 1996,  respectively.  Future  minimum lease
     payments under non-cancelable lease agreements are as follows:

                                      F-15
<PAGE>


       Year ended April 30:
           1999                                              $  101,068
           2000                                                 101,474
           2001                                                  88,176
           2002                                                  86,496
           2003                                                   7,208
                                                             ----------
                                                             $  384,422
                                                             ==========

     Royalty Agreements

     The  Company  acquired a royalty  agreement  with Red Hawk  Rubber Co. (Red
     Hawk),  from Riedel  OMNI  Rubber  Products,  Inc.  The Red Hawk  agreement
     provides  that the  Company  pay a 5% royalty on all net sales of  products
     that were being  manufactured  at the time the  agreement  was signed until
     June 1999.  Any new products  developed  and  manufactured  by OMNI are not
     subject to the Red Hawk royalty agreement. Total royalty expense for fiscal
     years ended  April 30,  1998,  1997 and 1996 were  $113,725,  $137,994  and
     $174,468, respectively.

     Litigation

     The Company is involved in various claims and legal actions  arising in the
     ordinary  course of business.  In the opinion of  management,  the ultimate
     disposition of these matters will not have a material adverse effect on the
     Company's  consolidated  financial  position,   results  of  operations  or
     liquidity.


(10) Stockholders' Equity

     Convertible Preferred Stock Series B

     The  Company  has  authorized  1,000,000  shares  of  Series B  convertible
     preferred stock, of which 622,066 are issued and outstanding.  The terms of
     these shares are as follows:

     Voting
     ------

     Each share of Series B  convertible  preferred  stock,  until  converted or
     canceled, has the right to one vote equivalent to one share of common stock
     into which such preferred series could be then converted.

     Conversion
     ----------

     Each share of Series B convertible  preferred stock shall be convertible to
     a like number of common shares if the Company reports gross annual revenues
     of $20,000,000 or annual  pre-tax  earnings of $1,500,000  during either of
     the fiscal years ending Ap!ril 30, 1998 or 1999.  If  conversion  standards
     have not been met,  the Series B  preferred  stock shall be canceled by the
     Company  upon  the  issuance  of its  fiscal  year  ended  April  30,  1999
     consolidated financial statements.

     Put Agreement

     The Company entered into stock put agreements with four individuals,  three
     of whom are board members.  Under the  agreement,  holders of the put could
     require the Company to purchase  111,741  shares valued at $134,285 in June
     1997.  In June 1997,  the Company  repurchased  23,774 shares at a value of
     $28,571,  and repurchased  another 5,944 shares at $7,043 in April 1998. Of
     the remaining 82,023 shares,  17,831 was repurchased  subsequent to the end
     of the fiscal year, and the remainder  became subject to note  modification
     and  subordination  and  standstill   agreements   discussed  in  note  13,
     Subsequent Event.

                                      F-16
<PAGE>


     Stock Options

     OMNI's 1995 Stock  Incentive  Plan (the 1995 plan) provides for granting to
     employees   and   consultants   of  either   incentive   stock  options  or
     non-qualified stock options.  Incentive stock options must be granted at an
     exercise price not less than 100% of the fair market value per share at the
     grant date.  Non-qualified  stock options  generally  must be granted at an
     exercise  price of not less than 100% of the fair market value per share at
     the grant date,  although in certain  cases may be granted at 85%. The term
     of options  granted  under the 1995 plan is  generally  ten  years,  but in
     certain cases may be five years.  The right to exercise  options granted is
     generally fully vested on the grant date.

     The per share weighted  average fair value of stock options  granted during
     1997 was $.10 on the date of grant using the Minimum  Value  option-pricing
     model with the following  weighted  average  assumptions:  expected divided
     yield 0%, risk-free interest rate of 7%, and expected life of ten years. No
     options were granted during 1995.

     The Company  applies APB  Opinion  No. 25 in  accounting  for its Plan and,
     accordingly, no compensation cost has been recognized for its stock options
     in the financial  statements.  The pro forma effects on net (loss) earnings
     of applying  SFAS No. 123 were not  material  for the years ended April 30,
     1998, 1997 and 1996.

     In January 1994,  CMD adopted an employee  stock option plan which provided
     for the issuance of incentive and  non-qualified  stock  options.  In April
     1997, in  connection  with the merger,  the Company  adopted an Amended and
     Restated 1994 Stock Option Plan (1994 plan).

     The merger agreement calls for the exchange of options in the 1995 plan for
     options in the 1994 plan. For each stock option  exchanged,  option holders
     under  the 1995  plan  received  substitute  options  in the  1994  plan to
     purchase  such number of CMD common and  preferred  shares as the holder of
     the OMNI options would have received had the options been exercised in full
     immediately prior to the merger's closing.  The terms and conditions of the
     1994 plan are essentially the same as the 1995 plan. The substitute options
     are subject to the final ownership adjustment discussed in note 1.

     The following table presents  historic stock option activity under the 1995
     plan,  converted into substitute options, and the combining effect with CMD
     options   outstanding  under  the  1994  plan  (no  options  were  granted,
     exercised,  forfeited  or expired  during the fiscal  year ended  April 30,
     1996):

                                                                  Weighted
                                                                  Average
                                                       Number     Exercise
                                                     of shares     Price
                                                     ---------    --------

        Options outstanding at April 30, 1996          651,370    $   0.69

        Granted                                      1,236,289        0.83
        Exercised                                         --          --
        Forfeited                                      (48,061)      (0.69)
        Expired                                           --          --
        CMD options outstanding at time of merger      255,000        1.68
                                                    ----------    --------

        Options outstanding at April 30, 1997        2,094,598        0.89

        Granted                                         40,907        1.00
        Exercised                                         --          --
        Forfeited                                         --          --
        Expired                                           --          --
                                                    ----------    --------

        Options outstanding at April 30, 1998        2,135,505    $   0.89
                                                    ==========    ========

                                      F-17
<PAGE>


     The Company reserved 3,000,000 shares of common stock and 500,000 shares of
     preferred stock for issuance under the 1994 plan. At April 30, 1998,  there
     were 864,495 shares available for grant under the 1994 plan.

     At April 30,  1998,  the range of  exercise  prices  and  weighted  average
     remaining  contractual life of outstanding  options under the 1994 plan was
     $0.25-$5.00 and 7 years, respectively.

     At April 30,  1998 and 1997,  the number of options  exercisable  under the
     1994 plan was  2,135,505  and  2,094,598,  respectively,  and the  weighted
     average exercise price of those options was $0.89 for both years.

     Warrants Outstanding

     The following table presents warrants outstanding at April 30, 1998, all of
     which were issued by CMD in consideration  for service  rendered,  debt and
     debt restructuring, and stock purchases and placements:

         Number of
          Common
          Shares                Exercise                 Expiration
         Issuable                price                      date
         --------              ---------                ------------

          52,500               $    6.05                May 13, 1999
          46,250                     .35                May 31, 1998
          10,000                     .75                May 31, 1998
          10,000                    1.50                May 31, 1998
         603,750                    6.50                May 13, 1999
          50,000                   10.00                April 14, 2000



(11) Major Customers and Credit Concentration

     The  Company  does  business  with  and  extends  credit  to a  variety  of
     commercial  customers,  including all of the major  railroads in the United
     States,  major cities and  municipalities  throughout the United States and
     Canada, and state-owned railroads throughout Europe and Asia.

     The Company sells products to customers  primarily in the United States. On
     April  30,  1998  and  1997,   $1,317,169   (71%)  and   1,077,000   (59%),
     respectively,  of  the  trade  receivables  were  concentrated  within  the
     domestic   railroad   industry,   and  $19,650  (1%)  and  $255,000  (14%),
     respectively,  of trade  receivables  were with companies and  distributors
     located in foreign  countries.  Although  the  Company  does not  currently
     foresee a credit risk associated with the foreign receivables, repayment is
     somewhat  dependent  upon  the  financial  stability  of  those  countries'
     national economics.

     Sales to domestic railroads were approximately $12,851,290,  $7,822,000 and
     $8,690,000  or 78%, 61% and 64% of total  sales,  for the years ended April
     30,  1998,  1997 and 1996,  respectively.  Sales to the  Company's  largest
     customer were approximately $6,214,000,  $2,220,000 and $1,986,000, or 38%,
     17% and 15% of total sales,  for the years ended April 30,  1998,  1997 and
     1996,  respectively.  Sales to the Company's  five largest  customers  were
     approximately  $12,606,383,  $5,560,000 and $5,665,000, or 77%, 43% and 42%
     of total  sales,  for the  years  ended  April  30,  1998,  1997 and  1996,
     respectively.

                                      F-18
<PAGE>



(12) Going Concern

     As  reflected  in  the  accompanying  financial  statements,  current  debt
     maturities and other short-term  commitments  exceeded the Company's liquid
     assets  available to repay such  commitments.  To finance debt  maturities,
     management has and will continue to seek both debt and equity  investors to
     provide additional capital.  The Company also started a plan to restructure
     the Company,  reducing over capacity in its rubber manufacturing facilities
     and  increasing its ability to produce and deliver  concrete  premium grade
     crossings on a timely  basis.  The Company is  liquidating  excess  assets,
     reducing staff and cutting costs. Proceeds from asset sales will be used to
     pay off debt commitments.


(13) Subsequent Event

     Finova Forbearance Agreement

     On  July  15,  1998,  the  Company  entered  into a  Forbearance  Agreement
     ("Agreement")  that  significantly   realigned  the  borrowing  arrangement
     between the Company and Finova. This Agreement, that continues through June
     1, 1999, allows the Company to borrow up to an additional $400,000 over the
     calculated  eligible borrowing balance  ("Permitted  Overadvance"),  defers
     installment  payments on the Company's term debt, waives prior and existing
     defaults  and puts in place a new  default  covenant  based on the  Company
     achieving forecast operating results.  In addition,  the Company must raise
     $250,000 in subordinated  financing to aid in the financing of the Company.
     The  Permitted  Overadvance  is subject to an  interest  rate of 6.25% over
     prime and the term note  balance is subject to the default rate of interest
     at 2% over the stated note interest rate.

     Also, as part of the Agreement,  and as part of the Company's restructuring
     plan, the Company entered into Modification  Agreements and, in some cases,
     Subordination  and Standstill  agreements with eight  unsecured  creditors.
     These  agreements  place the note holder into a  subordinate  position with
     Finova and extends payoff of any obligation over a five-year period.

                                      
                                      F-19
<PAGE>


Item  8.  Changes  In And  Disagreements  With  Accountants  On  Accounting  And
          Financial Disclosure
          ----------------------------------------------------------------------

          None.


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16 (a) in the Exchange Act.
        ------------------------------------------------------------------------

        The executive officers and directors of the Company are as follows:


                 NAME                   AGE                POSITION
                 ----                   ---                --------

          William E. Cook                49        Interim CEO

          Edward S. Smith                79        Chairman of the Board
                                                   Director

          John E. Hart                   59        Director and Secretary

          Robert E. Tuzik                46        Vice President - Sales & 
                                                   Marketing

          M. Charles Van Rossen          42        Chief Financial Officer and
                                                   Treasurer


     On December 31, 1997,  Ronald G. Nutting  retired from his position as Vice
     President and Secretary.  On January 21, 1998, Richard Kreitzberg  resigned
     as a director  and on February  5, 1998,  Joseph J.  Barclay  resigned as a
     director.   On  April  2,  1998,   Bryan   Holland's   employment  as  Vice
     President-Manufacturing  was terminated.  Effective April 30, 1998, Michael
     L. DeBonny resigned as Chief Executive Officer,  President and Treasurer of
     the Company.

     Each  director  is elected  for a period of one year and  serves  until the
     stockholders duly elect his or her successor. The Board of Directors has no
     committees.  Officers  of the  Company  are  elected  by,  and serve at the
     discretion of the Board of Directors. None of the above individuals has any
     family relationship with any other.

                                       19
<PAGE>


     The principal  occupations  of each  director and executive  officer of the
     Company, for at least the past five years, are as follows:

     William E. Cook was  retained  as Interim  Chief  Executive  Officer of the
     Company in March 1998,  replacing  Michael  DeBonny who was, up until April
     30, 1998, the Company's President, CEO and Treasurer. Mr. Cook, through his
     company Riptide Holdings, Inc., was hired by the Company to assist with the
     restructuring and turnaround of the Company. Mr. Cook has been President of
     Riptide  for three  years.  For the four years  Prior to that Mr.  Cook was
     President,  CEO, a director and board chairman of DDL Electronics,  Inc., a
     New York Stock Exchange  company with printed  circuit board and electronic
     contract assembly manufacturer  operations in the United States and Europe.
     Prior to that,  Mr.  Cook was a  partner  with TBM  Associates,  a  venture
     capital firm based in Boston,  Massachusetts.  Prior to that,  Mr. Cook was
     President  and CEO of Signal  Technology,  Inc., a company he co-founded in
     1981. Mr. Cook acts as a consultant  and/or serves on the boards of several
     private companies.  Mr. Cook has both undergraduate and graduate degrees in
     Engineering  from North Carolina  State  University and a Masters degree in
     Business Administration from MIT.

     Edward S. Smith has been a director  of the  Company  since  closing of the
     merger  with OMNI on April 30,  1997.  He had been a director  of OMNI from
     1994 to the  closing of the merger.  Mr.  Smith is  President/Owner  of Ted
     Smith & Company.  He is the former  chairman  and CEO of Omark  Industries,
     Inc.,  an  international  manufacturer  of  cutting  chain for chain  saws,
     hydraulic log loaders and sporting ammunition. His business activity during
     the last five years has been  concentrated  on private  investing and board
     memberships.  Currently he serves on the Board of Directors of Georgia Gulf
     Corporation and Expert Systems Publishing Company.

     John E. Hart has been a director of the Company since closing of the merger
     with OMNI on April  30,  1997.  Prior to the  merger,  he had been  general
     counsel to CMD since October 1993 and its  Secretary  and  Treasurer  since
     June,  1994.  From 1985 to 1994 he was engaged in the  private  practice of
     law. He resumed his law practice in May, 1997. Mr. Hart holds a J.D. degree
     from  the  University  of  Southern  California  and a BA  degree  from the
     University of Redlands.

     Robert E.  Tuzik  has been Vice  President  - Sales  and  Marketing  of the
     Company  since  closing of the merger with OMNI on April 30,  1997.  He had
     been Vice  President - Sales and Marketing  from 1996 to the closing of the
     merger.  From  1995  to  1996  he  owned  and  operated  Talus  Associates,
     specializing  in railway  marketing and media  relations.  Prior to that he
     spent   six  years  as  editor  of   Railway   Track  and   Structures,   a
     railroad-engineering  journal.  Mr.  Tuzik  holds a BA in English and MS in
     Journalism  from the  University  of Illinois  at Chicago and  Northwestern
     University.

                                       20
<PAGE>


     M. Charles Van Rossen was appointed Chief  Financial  Officer and Treasurer
     of the  Company  on  August  11,  1998.  From 1995 to 1998 he was a private
     financial and management  consultant.  Prior to that he spent four years as
     Chief Financial Officer and Controller of DDL Electronics, Inc., a New York
     Stock Exchange  company with printed circuit board and electronic  contract
     assembly manufacturer  operations in the United States and Europe. Prior to
     that he spent seven years with the Pacificorp group of companies working in
     various management positions for that company's many subsidiaries. Prior to
     that Mr. Van Rossen was an audit  manager with KPMG Peat  Marwick.  He is a
     Certified  Public  Accountant  and  holds a BS  degree  in  Accounting  and
     Quantitative Methods from the University of Oregon.



Item 10. Executive Compensation
         ----------------------

The following table sets forth  remuneration paid to certain executive  officers
for the fiscal years ended April 30, 1998, 1997 and 1996, respectively:
<TABLE>
<CAPTION>

                                          SUMMARY COMPENSATION TABLE

                                                                              Long-Term
                               Annual Compensation                            Compensation
                               ------------------------------------------     ------------------

                                                                  Other
                               Year                               Annual
                               Ended                              Compen-      Options      LTIP     All other
Name and Principal Position    April 30     Salary      Bonus     sation         SARs      Payments    Comp.
---------------------------    --------     ------      -----     ------         ----      --------    -----
<S>                            <C>           <C>          <C>        <C>          <C>          <C>        <C>
William E. Cook                1998          30,000       0          0            0            0          0
Interim CEO

Michael L. DeBonny             1998         150,000       0          0            0            0          0
CEO, President                 1997         151,814       0          0         618,144         0          0
and Treasurer                  1996         120,918       8,026      0            0            0          0

Ronald G. Nutting (1)          1998          66,702       0          0            0            0          0
Executive Vice President       1997         106,544       0          0            0            0          0
and Secretary                  1996          88,179       5,538      0            0            0          0



                                       21
</TABLE>
<PAGE>


     (1)  Mr. Nutting retired from the Company in January 1998.

     The Company's  nonsalaried  directors receive $1,000 for each Board meeting
     attended,  and receive $2,500  annually,  together with  reimbursement  for
     out-of-pocket expenses in attending Board meetings.

Item 11. Security Ownership of Certain Beneficial Owners and Management
         --------------------------------------------------------------

     The  following  table sets forth  certain  information  with respect to the
     beneficial  ownership of the Company's  Common Stock and Series B Preferred
     Stock as of the date hereof, by (i) each person who is known by the Company
     to own of  record or  beneficially  more  than 5% of the  Company's  Common
     Stock,  (ii) each of the  Company's  directors  and (iii) all directors and
     officers of the Company as a group.  The  stockholders  listed in the table
     have  sole  voting  and  investment  powers  with  respect  to  the  shares
     indicated.

             Name and Address of               Number of
            Beneficial Owner(1)(2)            SharesOwned       Percent of Class
            ----------------------            -----------       ----------------

                Michael L. DeBonny (3)         1,791,702               22%
                 16101 Parelius Circle
                 Lake Oswego, OR 97034

                      John E. Hart (4)           133,039               1.7%
                              Box 2495
                Grass Valley, CA 95945

                   Edward S. Smith (5)           630,532               8%
       921 SW Washington St., Ste. 762
                    Portland, OR 97205

             Richard A. Kreitzberg (6)           919,910               11.5%
             3332 El Dorado Loop South
                       Salem, OR 97032

                                       22
<PAGE>


                 Ronald J. Gangemi (7)           697,788               8.7%
              11950 Willow Valley Road
                 Nevada City, CA 95959

               Steven F. Rosendahl (8)           630,532               8%
           Dynasty Capital Corporation
           1000 SW Broadway, Suite 960
                   Portland, OR  97205

                 Ronald G. Nutting (9)           384,233               5%
          7400 SW Barnes Rd. Apt. 1213
                          Portland, OR

       Dean Witter Reynolds, Custodian
             for R. Andrew Davis (10)            384,233               5%
              253 East 31st Street #1D
                   New York, NY  10016

            All officers and directors           797,636               10%
                as a group (2 persons)

     ----------

     (1) Assumes no exercise or conversion of (i) common stock purchase warrants
     and  underwriter's  warrants issued in conjunction  with the Company's 1994
     public offering,  outstanding warrants, options or other commitments of the
     Company  that are  convertible  into or  exercisable  for  shares of Common
     Stock,  except that Common Stock  obtainable  by persons named in the above
     table upon exercise of options is deemed outstanding and beneficially owned
     by such persons in  calculating  their  percentage  ownership;  or (ii) the
     Series B Preferred Stock.

     (2) Includes shares of series B Preferred Stock held by the person listed.

     (3) Includes  options  held by Mr.  DeBonny to purchase  942,670  shares of
     Common  Stock  and  96,304  shares of Series B  Preferred  Stock  under the
     Company's Incentive Stock Option Plan.

     (4) Includes  options held by Mr. Hart to purchase  60,000 shares under the
     Company's Incentive Stock Option Plan.

                                       23
<PAGE>


     (5) Includes  options held by Mr. Smith to purchase 92,722 shares of Common
     Stock and 9,473  shares of Series B  Preferred  Stock  under the  Company's
     Incentive Stock Option Plan.

     (6) Includes shares owned by Mr. Kreitzberg's spouse. Also includes options
     held by Mr.  Kreitzberg  to purchase  30,907  shares Common Stock and 3,158
     shares of Series B Preferred  Stock  under the  Company's  Incentive  Stock
     Option Plan.

     (7) Includes shares owned by Mr. Gangemi's spouse and children.

     (8) Includes  options held by Mr.  Rosendahl to purchase  463,608 shares of
     Common  Stock  and  47,363  shares of Series B  Preferred  Stock  under the
     Company's Incentive Stock Option Plan.

     (9)  Includes  options  held by Mr.  Nutting to purchase  46,361  shares of
     Common  Stock  and  4,736  shares of  Series B  Preferred  Stock  under the
     Company's Incentive Stock Option Plan.

     (10) Includes options held by Mr. Davis to purchase 15,454 shares of Common
     Stock and 1,579  shares of Series B  Preferred  Stock  under the  Company's
     Incentive Stock Option Plan.

Item 12. Certain Relationships and Related Transactions
         ----------------------------------------------

     In February,  1997, three OMNI directors (Messrs.  DeBonny,  Kreitzberg and
     Smith)  purchased shares in OMNI for a total of $99,617 at $3.50 per share.
     Simultaneously,  put  agreements  were  executed  requiring  the Company to
     purchase  those  shares at a price  equivalent  to $4.00 per share 120 days
     following the investment.  Mr. Kreitzberg  exercised his put and his shares
     were repurchased in June, 1997. The put agreements with Messrs. DeBonny and
     Smith were extended 120 days and the put price  increased to the equivalent
     of $4.25 per OMNI share, or a total of $88,272.

                                       24
<PAGE>


     In March,  1997, OMNI entered into a short-term  equipment rental agreement
     with one of its directors, Edward S. Smith.

     As a condition of the merger  transaction  with OMNI,  the Company  entered
     into  agreements  with  Messrs.  Hart and Gangemi to exchange  all of their
     Series A  preferred  stock  (60,000 and 750,000  shares  respectively)  for
     20,000 and 250,000 shares, respectively, of Series B preferred stock.

     Management is of the opinion that all transactions  described above between
     the Company and its officers,  directors or  stockholders  were on terms at
     least as fair to the Company as had the transactions been concluded with an
     unaffiliated  party.  All  material  transactions  effected  in the  future
     between the Company and its officers,  directors and principal stockholders
     will  be  subject  to  approval  by a  majority  of the  Company's  outside
     directors not having an interest in the transaction.



Item 13. Exhibits and Reports on Form 8-K
         --------------------------------

     a.   The Exhibits listed on the accompanying Index of Exhibits are filed as
          part of this annual report.

     b.   No reports on Form 8-K were filed  during the quarter  ended April 30,
          1997.

     Index of Exhibits
     -----------------



     Exhibit #                           Description
     ---------                           -----------
        1.01        Form of Underwriting  Agreement with Oak Ridge  Investments,
                    Inc. (1)

        1.02        Form of Selected Dealers Agreement (1)

        1.03        Form of Representative's Warrant (1)

        1.04        Consulting Contract (1)

        2.01        Certificate of Incorporation of the Registrant (1)

                                       25
<PAGE>



     Exhibit #                           Description
     ---------                           -----------

        2.02        Bylaws of the Registrant (1)

        2.04        Bylaws of the Registrant as amended December 10, 1994 (1)

        2.05        Certificate  of  Designation  of  Preferences  of  Series  B
                    Preferred Shares (9)

        2.06        Amended and Restated Certificate of Incorporation (8)

        4.01        Form of Warrant Agreement (1)

        5.01        Opinion of John Hart, Esq., regarding legality of the Common
                    Stock and Warrants (includes Consent) (1)

        10.01       Incentive Stock Option Plan (1)

        10.03       Agreement with LBI general partnership (1)

        10.06       Merger Agreement and Plan of Reorganization (5)

        10.07       Letter from Perry-Smith & Co. (former  accountant dated July
                    24, 1997) pursuant to Item 304 (a) (3) of Regulation S-K (6)

        10.08       Employment Agreement (Mr. DeBonny) (9)

        10.09       Lease Agreement for Portland, Oregon Facility, dated May 21,
                    1997(7)

        10.10       Amended and Restated 1994 Stock Option Plan (8)

        10.11       FINOVA Forbearance Agreement

        27.05       Financial Data Schedule--April 30, 1998


     (1) Previously filed as part of the Company's SB-2  Registration  Statement
     filed on February 11, 1994, as amended and effective on May 13, 1994.

     (2)  Previously  filed as Exhibits to the  Company's  Annual Report on Form
     10-KSB for the fiscal year ended September 30, 1994.

     (3)  Previously  filed  as an  Exhibit  to  the  Company's  Post  Effective
     Amendment No. 1 to Form SB-2 Registration Statement filed on March 10, 1995
     and effective on March 28, 1995.

                                       26
<PAGE>


          (4) Previously filed as an Exhibit to the Company's  Preliminary Proxy
          Statement filed October 24, 1995.

          (5) Previously filed as an Exhibit to the Company's Form 8-K filed May
          2, 1997.

          (6)  Previously  filed as an Exhibit to the  Company's  Form 8-K filed
          July 30, 1997.

          (7)  Previously  filed  as an  Exhibit  to  the  Company's  annual  or
          quarterly report for the period ending the indicated date.

          (8)  Previously  filed as an  Exhibit  to the  Company's  Proxy  filed
          pursuant to Regulation 14A on April 3, 1998

          (9) Previously  filed as an Exhibit to the Company's Form 10-KSB filed
          for the fiscal year ended April 30, 1997.


                                       27
<PAGE>


                                   SIGNATURES

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

                                         Creative Medical Development, Inc.
                                         ----------------------------------
                                         (Registrant)


                                         By  /S/  William E. Cook
                                           -------------------------------------
                                           (Signature and Title)

                                         Interim Chief Executive Officer

                                         Date   August 21, 1998
                                             -----------------------------------

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

By /s/ M. Charles Van Rossen              By  /s/ William E. Cook
  -------------------------------           ------------------------------------
  (Signature and Title)                     (Signature and Title)
  M. Charles Van Rossen                     William E. Cook,
  Chief Financial Officer                   Interim Chief Executive Officer

Date  August 21, 1998                    Date  August 21, 1998
    -----------------------------            -----------------------------------




By /S/ JOHN E. HART                       By  /S/ EDWARD S. SMITH
  -------------------------------           ------------------------------------
  (Signature and Title)                     (Signature and Title)
  John E. Hart, Director                    Edward S. Smith, Director

Date  August 21, 1998                     Date  August 21, 1998
    -----------------------------             ----------------------------------



                                       28