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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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FORM 10-K

|/x/ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 29, 2000
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or

|/ / | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from  to .
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Commission File Number: 0-28426

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LOGO

ZOMAX INCORPORATED(Exact name of registrant as specified in its charter)

Minnesota(State or Other Jurisdiction of
Incorporation or Organization)

No. 41-1833089(IRS Employer Identification No.)


5353 Nathan Lane, Plymouth, MN 55442(Address of Principal Executive Offices)

Registrant's
telephone number(763) 553-9300

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

Securities
registered under Section 12(g) of the Exchange Act:Common Stock, no par value

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Check
whether the registrant (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-K 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-K or any amendment to this Form 10-K. / /

The
aggregate market value of the voting stock held by non-affiliates was $153 million based on the closing sale price of the Company's Common Stock as reported on the Nasdaq
National Market on March 12, 2001.

The
number of shares outstanding of the registrant's common stock as of March 12, 2001: 32,147,669 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held April 24, 2001, are incorporated by reference into Part III of
this report.

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PART I

ITEM 1. BUSINESS

General

Zomax Incorporated (Zomax or the Company) is a leading international outsource provider of process management services. The Company's fully integrated services
include "front-end" e-commerce support; call center and customer support solutions; DVD authoring services; CD and DVD mastering; CD and DVD replication; supply chain and inventory management; graphic
design; print management; assembly; packaging; warehousing; distribution and fulfillment; and RMA processing. By providing a full range of process management services, Zomax differentiates itself from
its competitors who offer only a subset of these services. Zomax believes its expertise and capital investment allow its customers to focus on their core competencies, reduce costs, accelerate time to
market, access advanced replication and design capabilities, reduce capital investment, improve inventory management and purchasing power, and access manufacturing, warehousing and distribution
capabilities in a variety of geographic regions.

The
Company services a broad customer base, including Microsoft®, Novell®, Hewlett Packard® and Gateway®. The Company has demonstrated
an ability to provide consistently high quality products and services in a short turnaround time. Zomax believes its high level of customer service and responsiveness to customers' needs provides it
with a competitive advantage which differentiates the Company from its competitors. The Company was established in 1996 and currently has nine offices and facilities with over 1,500 employees located
in the United States, Canada, Ireland and Germany.

Acquisitions

To enhance its position as a leading outsource service provider, Zomax has expanded its geographic presence and outsource services by acquiring production
capacity as well as customer contact centers, distribution and RMA capabilities. The Company believes that its acquisitions has enabled it to provide additional integrated services, create an
opportunity to attract new customers and cross-market its services to existing customers.

Within
the last four years, the Company has made the following acquisitions:



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Industry

The process management services industry consists of companies that provide a wide variety of services to software publishers, computer manufacturers, Internet
companies, book publishers, independent record labels and other producers of multimedia products ranging from replication to fulfillment to complete process management services. Growing consumer
demand for multimedia products such as CD-ROM and DVD-ROM and a corresponding increase in the installed base of CD and DVD drives as well as the increased business conducted over the Internet have
been significant factors driving the demand for process management services.

During
the 1990s, CD-ROM became the dominant medium for software distribution nearly replacing diskettes. According to industry analysts, the growth in CD-ROM unit volume is expected
to continue into 2002 with an annual unit volume of 4.5 billion. Industry analysts also project that software sales will continue their growth from $153 billion in 1999 to $270 billion in 2003.

DVD
is becoming the accepted new medium for home video distribution. Industry analysts believe the DVD-Video format will replace the VHS format in the pre-recorded market over time as
DVD-Video experiences no image or sound degradation over normal usage and offers greater storage capacity, indexing, random access and lower manufacturing costs. Industry analysts estimate the
worldwide installed base of DVD-Video players and DVD PC drives will reach over 175 million players by 2004. DVD-ROM has grown at a slower rate than DVD-Video. But its increased storage capacity
allows DVD-ROM to be the natural replacement for CD-ROM as programs expand and require more storage capacity.

The
fulfillment segment of process management services is experiencing growth due to the Internet. Analysts are projecting worldwide commerce on the Internet will grow from an
estimated $50 billion in 1998 to $1.3 trillion in 2003. Web buyers worldwide are expected to reach 183 million in 2003 as compared to 31 million in 1998. Industry analysts are projecting
Internet-driven fulfillment services are projected to grow from $632 million in 1999 to $20 billion in 2003 to $60 billion in 2010.

Some
software publishers and computer hardware OEMs still dedicate in-house resources to manufacturing and fulfillment. However, demand exists for outsource services from providers
who can reliably manufacture and process multimedia products within short turnaround times. The same factors that have led to the trend of more outsourcing are driving consolidation in the industry as
many small
local and regional service providers find it increasingly difficult to access the capital required to invest in new capital equipment and additional value-added services.

Services

The Company offers a comprehensive range of process management services. These value-added services cover each aspect of a software product's life cycle.
Customers can engage Zomax on a service-by-service basis, depending on their needs. In all cases, Zomax's project management maintains regular contact with customers and coordinates all services
provided. With the breadth of services offered by the Company, customers can bring their end products to market without ever handling the product themselves.

Customer Contact Centers.The Company offers complete front-end e-commerce and customer contact centers which include
program management, call center operations, financial services, fulfillment and information systems. The customer contact centers provide various levels of customer support, first level technical
support and outbound telemarketing services covering sixteen languages. The Company is in direct contact with its customers' customers.

Graphic Design.The Company works directly with its customers in developing product and packaging designs.

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Print Management.The Company receives print specifications from its customers, facilitates printing purchases and
implements quality controls to ensure on-time delivery of the end product. Additionally, Zomax provides print inventory management services.

Mastering.During the mastering process, a laser beam recorder transfers the digital information onto a glass mastering
substrate. This substrate then undergoes an electroforming process that creates a metal stamper from which CDs and DVDs are molded. The mastering process is critical to product quality and is
conducted in a clean-room environment free of microscopic contaminants which can obscure large amounts of data.

Replication.CDs and DVDs are replicated using an integrated robotic line process which incorporates plastic injection
molding, metalizing, lacquering and inspection equipment. The replication process begins with the injection of high quality, CD-grade polycarbonate into the mold cavity where the metal stamper has
been mounted. The top surface of the molded clear polycarbonate disc containing all of the digitized data is then covered with a metallic coating to provide for reflection of the reading laser beam in
the player. A thin layer of lacquer is then applied over the metal to protect it and to serve as a base for printing on the disc. Unacceptable CDs and DVDs are detected and discarded through an
automated, inline inspection process. The Company currently has a combination of 72 CD and DVD production lines at its facilities.

CD and DVD Printing.Printing is performed in batches off-line in order to take advantage of the high speed nature of
the printing process while avoiding the production delays typically required for printer setup. The Company's printing equipment includes screen printing presses with capabilities of up to six-color
printing. Automated label and print quality inspection equipment is integrated with the screen printers to ensure high quality control and reduce the need for manual quality inspection.

Packaging.The Company has automated equipment to provide for commonly requested packaging configurations. Currently,
standard CD packaging configurations include the plastic "jewel box" with customer or Zomax supplied print material in the bottom and top of the box and paper or chipboard sleeves. For non-automated
assembly requirements, the Company provides a full range of hand assembly options. As part of its dedication to be a full-service provider, the Company works with its customers to develop
sophisticated retail packaging configurations.

Warehousing and Inventory Management.To assist customers in minimizing costs and reducing time to market, Zomax offers
comprehensive warehousing and inventory management services. Increasingly, the Company is warehousing products for customers and shipping those products directly into the customers' distribution
channels. The Company believes this service provides customers with a more comprehensive solution and enables them to be more responsive to market demands.

Distribution and Fulfillments.The Company offers its customers flexible, just-in-time delivery programs allowing
product shipments to be closely coordinated with customers' inventory requirements. Zomax can accommodate large shipments to distribution centers and receive and fulfill same-day orders to individual
locations.

RMA Processing.Zomax employees receive, sort, count, recycle, re-price, repackage and redistribute returned, obsolete
or excess software merchandise. The Company also receives, tests and redistributes hardware products. A customer can maximize its operating efficiencies by using Zomax to coordinate RMA processing
with inventory management and replication orders. The Company estimates that,
based on discussions with software publishers, 15% of all unit shipments to software retailers ultimately require RMA processing.

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Customers and Markets

The Company markets and sells multimedia services to a variety of customers, including software publishers, computer manufacturers, Internet companies, book
publishers, independent record labels, marketing groups and data base suppliers. Zomax currently services a broad customer base in these industry segments including Microsoft and Gateway.

The
Company is an authorized replicator of Microsoft, which allows the Company to replicate Microsoft products for any authorized distributor. The Company is also authorized to
perform fulfillment services for Microsoft licensed OEMs. These arrangements are pursuant to annual agreements with Microsoft. The Company expects, but cannot guarantee, that these agreements
will be renewed. The Company also provides certain telemarketing and fulfillment services to Microsoft under a one-year Master Services Agreement, which expires in June 2001. In addition, the
Company has an agreement with Microsoft to provide RMA processing, which agreement may be terminated by Microsoft upon 30 days' notice. During 2000 and 1999, revenues derived from all of Microsoft
activities accounted for 40% and 39%, respectively of the Company's consolidated sales.

One
of the Company's primary customers is Gateway, which accounted for 7%, 4% and 17% of the Company's consolidated sales in 2000, 1999 and 1998, respectively. Zomax is a primary
supplier of CDs to Gateway. The Company has an agreement with Gateway that governs the procedures for making and receiving orders. This agreement expires July 31, 2001 but may be renewed for
additional one-year terms upon agreement of the parties, subject to earlier termination by Gateway upon 30 days' notice.

Marketing and Sales

Zomax focuses its marketing efforts on customers that require personal service, flexibility, fast turnaround time and a complete outsource solution to their
process management service needs. The Company has successfully marketed itself to these customers by managing all of the steps in the process from design to replication to packaging to delivery. As
part of its strategy, the Company also intends to continue cross-marketing its services to customers who may currently rely on the Company for only a portion of their process management service needs.

The
Company employs a direct sales staff that is responsible for maintaining relationships with existing customers and developing new business relationships. The Company has a direct
sales staff of 27 people, supported by a project management staff of 116 people that is responsible for ensuring that each order is processed on a timely basis, all required support materials are in
place and desired quality levels are achieved. Each customer account is assigned one or more project managers to provide daily contact with the customer, coordinate the purchase and manufacture of all
necessary materials, adapt to order changes and generally act as liaison with the customer.

Competition

The multimedia service industry is highly competitive and is experiencing consolidation. The Company competes primarily with independent service providers and,
to a lesser extent, with affiliates of major international music companies and small localized service providers. Each of these producers generally services a defined set of customer needs.



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Other
existing technologies also compete with the Company's products that deliver digital information. Portable media, such as digital audio tape, digital compact cassette and
mini-disc have already been introduced commercially but have not yet achieved widespread consumer acceptance. In addition, one-time recordable CDs ("CD-R") are available and are often used to
replicate short run products that are more expensive to manufacture in the traditional manner. The Company does not expect any of these technologies to expand beyond their current markets in the near
future.

Electronic
on-line delivery of digital information, such as through the Internet, is a potential future competitor of CD and DVD technology. The Company believes that current and
projected transmission speeds and infrastructure limitations of on-line delivery systems will prevent them from replacing CD and DVD technology in the foreseeable future. In addition, future advances
in CD and DVD technology, such as higher speed drives and greater data compression, could increase the advantages of these technologies over electronic on-line delivery and other potential competitive
technologies.

Competition
in the hardware and software RMA processing industry segment is extremely fragmented. Generally, participants in this industry segment include a number of independent
companies as well as publishers and OEMs that dedicate in-house resources to RMA processing.

Many
of the Company's national and regional competitors are, and future potential competitors may be, larger and more established with greater financial and other resources than the
Company, particularly as consolidation in the industry continues. As a result, such competitors may be able to respond more quickly to market changes or to devote greater resources to the manufacture,
promotion and sale of their products and services than the Company.

The
Company believes that it competes favorably with its competitors with respect to quality, service, reliability, price, manufacturing capacity and timely delivery of product, the
principal competitive factors in this industry. The Company also believes that customers are willing to incur additional costs for extra services. As such, to enhance its competitive position, the
Company offers a full range of value-added services to customers including design, preparation and printing of artwork and packaging, warehousing and shipping and RMA processing.

Proprietary Rights

Zomax, like most other CD and DVD manufacturers, uses patented technology primarily under nonexclusive licenses. These licenses generally provide for the
payment of royalties based upon the
number, size and use of CDs and DVDs sold and terminate either upon the expiration of the patents being licensed or on a certain date.

Zomax
currently has CD license agreements with U.S. Philips Corporation ("Philips") and Discovision Associates ("DVA"). These agreements grant to Zomax non-exclusive, royalty-bearing
and non-transferable licenses to make, use and sell CDs. The royalty payments due under the licenses generally depend of the number of CDs manufactured, their size and their use. The Company's license
from Philips expires in 2006. The term of the DVA license continues until the expiration of the last

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DVA patent covered by the license. If the Company is unable to maintain these licenses, it could have a material effect on the Company's results of operations.

The
Company currently has DVD license agreements with U.S. Phillips Corporation and Discovision Associates. The Philips' agreement expires in 2009 with royalty payments due based on
the number of DVDs manufactured. The Discovision agreement expires upon the expiration of the last DVA patent covered by the license. The Company is currently negotiating licenses from other owners of
DVD technology to manufacture DVDs worldwide. If the Company is unable to obtain these licenses, it could have a material effect on the Company's future results of operations. Although the Company
expects to obtain such licenses, no assurances can be made that such licenses will be obtained and the Company cannot predict the amount of the royalty that will be payable under any such license.

Employees

The Company has approximately 1,500 full-time employees and hires additional employees on a temporary basis to perform manufacturing-related services as the
need arises. The Company currently operates its Minneapolis, Arnprior, Fremont and Dublin facilities 24 hours a day, seven days a week. The Company believes that its relations with its employees are
good. None of the Company's employees is covered by a collective bargaining agreement.

Cautionary Factors That May Affect Future Results

Certain statements contained in this Annual Report on Form 10-K are forward-looking, based on current expectations. Such statements can be identified by
the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "may," "could," "possible," "plan," "project," "will,"
"forecast" and similar words or expressions. The Company's forward-looking statements generally relate to its growth strategy, financial results and sales efforts. Investors are cautioned that all
forward-looking statements involve certain risks and uncertainties, including among others those identified below. The Company undertakes no obligation to update any forward-looking statement, but
investors are advised to consult any further disclosures by the Company on this subject in its filings with the Securities and Exchange Commission. In this regard, please also see the Outlook section
of Item 7 below.

Although
it is not possible to create a comprehensive list of all factors that may cause actual results to differ from the Company's forward-looking statements, such factors include,
among others, (i) the Company's ability to sustain and manage its growth and implement its business strategy, including the integration of newly acquired and geographically dispersed
operations; (ii) the Company's ability to adapt quickly to changes in information storage and retrieval technology; (iii) the Company's reliance on a few key customer and strategic
relationships, including those with Microsoft, Gateway and Novell; (iv) the trend of consolidation in the industry and the ability of the Company to effectively compete in an intensely
competitive environment; (v) the development of new products or technologies by competitors, technological obsolescence and other changes in competitive factors; (vi) risks associated
with establishing and maintaining international operations; (vii) the risks associated with price declines; (viii) the Company's dependence on its ability to obtain and maintain licenses
to use patented technology in its manufacturing operations; and (ix) general economic factors over which the Company has no control.

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ITEM 2. PROPERTIES

The Company leases facilities throughout the U.S. and Europe and owns property in Canada. The following table sets forth information about the Company's
facilities. Management believes its facilities are adequate for the Company for the foreseeable future.

|Location               |  | Approximate Square Feet |  | Lease Expiration |  | Services                                                                                                                                         
|---------------------- |  | ----------------------- |  | ---------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Arnprior, Canada       |  | 158,000                 |  | Owned            |  | Print management, mastering, replication, printing, packaging, warehousing and distribution.                                                     
|Concord, California    |  | 30,000                  |  | 2008             |  | Customer contact center                                                                                                                          
|Dublin, Ireland        |  | 152,000                 |  | 2005 - 2026(1)   |  | Customer contact center, print management, mastering, replication, printing, packaging, warehousing, fulfillment, distribution and RMA processing
|Fremont, California    |  | 150,000                 |  | 2006             |  | Print management, mastering, replication, printing, packaging, warehousing, fulfillment and distribution.                                        
|Indianapolis, Indiana  |  | 91,000                  |  | 2002             |  | Diskette replication, packaging, fulfillment and distribution                                                                                    
|Langen, Germany        |  | 25,000                  |  | 2001             |  | Diskette duplication, packaging, warehousing and distribution.                                                                                   
|Minneapolis, Minnesota |  | 134,000                 |  | 2004(2)          |  | Graphic design, print management, mastering, replication, printing, packaging, warehousing, fulfillment, distribution and RMA processing         
|San Jose, California   |  | 325,000                 |  | 2002(3)          |  | Graphic design, print management, packaging, warehousing, fulfillment, distribution and RMA processing                                           

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The
Company leases its manufacturing, office and warehouse space in Minneapolis, Minnesota from Nathan Lane Limited Partnership, a Minnesota limited liability
partnership of which Mr. Phillip T. Levin, a director of Zomax, owns a one-third interest. Pursuant to this lease, as amended, the Company leases approximately 82,000 square feet at an average
base rent of $5.59 per net rentable square foot per annum. The Company is also obligated to pay its proportionate share of taxes and operating expenses.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in certain claims arising in the normal course of business. In management's opinion, the final resolution of these claims should not
have a material adverse effect on the Company's financial position or results from operations.

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

No matters were submitted to a vote of security holders during the fourth quarter of 2000.

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PART II

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

The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "ZOMX." The following table sets forth, for the periods indicated, the high
and low bid prices of the Company's Common Stock. These bid quotations represent inter-dealer prices and do not include retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.

Fiscal Year Ended December 31, 1999:

High

LowFirst Quarter

$
18.97

$
6.16Second Quarter


22.38


8.88Third Quarter


27.78


11.25Fourth Quarter


23.97


12.22Fiscal Year Ended December 29, 2000:First Quarter

$
33.13

$
20.44Second Quarter


28.59


12.63Third Quarter


19.88


6.63Fourth Quarter


7.44


4.00


The
Company has never declared or paid cash dividends on its capital stock and does not anticipate declaring or paying any cash dividends in the foreseeable future. The Company
intends to retain future earnings for the development of its business.

As
of March 12, 2001, there were approximately 445 record holders of the Company's Common Stock, excluding stockholders whose stock is held either in nominee name and/or street
name brokerage accounts. Based on information which the Company has obtained from its transfer agent, there are approximately 21,000 stockholders of the Company's Common Stock whose stock is held
either in nominee name and/or street name brokerage accounts.

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ITEM 6. SELECTED FINANCIAL DATA

|                                                      |         | For the Years Ended
|----------------------------------------------------- | ------- | -------------------
|
|
|Statement of operations data:                         |         |                    
|Sales                                                 |         | $                  
|Gross profit                                          |         |                    
|Selling, general and administrative expenses          |         |                    
|Operating income                                      |         |                    
|Income before income taxes                            |         |                    
|Provision for income taxes(1)                         |         |                    
|Net income                                            |         |                    
|Earnings per share:                                   |         |                    
|                                                      | Basic   |                    
|                                                      | Diluted |                    
|Weighted average number of common shares outstanding: |         |                    
|                                                      | Basic   |                    
|                                                      | Diluted |                    
|
|Balance sheet data (at year's end):                   |         |                    
|Cash and cash equivalents                             |         | $                  
|Working capital                                       |         |                    
|Total assets                                          |         |                    
|Long-term notes payable, net of current portion       |         |                    
|Total shareholders' equity                            |         |                    

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Company is a leading international outsource service provider of process management services. The Company's fully integrated services include: "front end"
e-commerce support; customer contact center and customer support solutions; DVD authoring services; CD and DVD mastering; CD and DVD replication; supply chain and inventory management; graphic design;
print management; CD and DVD printing; assembly; packaging; warehousing; distribution and fulfillment; and RMA processing services.

The
Company recognizes revenue from its customers at the time merchandise is shipped or as services are rendered. For certain customers, merchandise is invoiced upon completion of
orders with shipment occurring based on subsequent written customer instructions. In these cases, the customer accepts title to the goods as of the date of the Company's invoice.

The
Company's business has been characterized by short lead times for customer orders. For this reason and because of the timing of orders, delivery intervals and the possibility of
customer changes in

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delivery schedules, the Company's backlog as of any particular date is not a meaningful indicator of future financial results.

On
January 7, 1999, the Company acquired the businesses and certain net assets of Kao Corporation (Kao) in the United States, Canada, Ireland and Germany. The purchase price
for the Kao business, net assets and net working capital acquired was $37.5 million plus transaction costs. The assets and businesses acquired by the Company were used in the manufacturing and
sale of CDs and related businesses. The acquisition was accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to net assets acquired based on
their estimated fair market values.

On
February 4, 1998, Primary Marketing Group of California (PMG), Next Generation Services (NGS) and Primary Marketing Group Limited of Dublin Ireland (PMG Ireland) were merged
with the Company. As a result of these transactions, all ownership interests in the acquired companies were exchanged for 1,600,004 shares of the Company's Common Stock. Prior to these transactions,
the businesses of PMG, NGS and PMG Ireland consisted of providing manufacturer's representative services and RMA processing services to the computer industry. The acquisition of PMG, NGS and PMG
Ireland were accounted for using the pooling-of-interests method of accounting, and, accordingly, all periods presented have been restated to reflect the effects of these transactions.

Results of Operations

The following table sets forth certain operating data as a percentage of sales for the periods indicated.

|                                             |  | For the Years Ended |  
|-------------------------------------------- |  | ------------------- | -
|
|Sales                                        |  | 100.0               | %
|Cost of sales                                |  | 70.1                |  
|                                             |  |                     |  
|Gross profit                                 |  | 29.9                |  
|Selling, general and administrative expenses |  | 14.0                |  
|                                             |  |                     |  
|Operating income                             |  | 15.9                |  
|Equity in losses of unconsolidated entity    |  | 0.6                 |  
|Gain on unconsolidated entity stock sale     |  |                    |  
|Interest expense                             |  | 0.5                 |  
|Interest income                              |  | (1.4                | )
|Other expense, net                           |  | 0.1                 |  
|                                             |  |                     |  
|Income before income taxes                   |  | 16.1                |  
|Provision for income taxes                   |  | 5.7                 |  
|                                             |  |                     |  
|Net income                                   |  | 10.4                | %
|                                             |  |                     |  



Sales.The Company's total sales increased 0.2% to $239.1 million in 2000 as compared to $238.7 million
in 1999. The increase in sales for the year resulted from a 7.2% increase in CD and DVD related sales and a 4.1% increase from the customer contact centers. These increases were partially offset by a
58.7% decrease in diskette, audiocassette and RMA sales, which represented 4.1% of total sales in 2000. Sales in the second half of 2000 were negatively affected by the slowdown in personal computer
and software spending and worldwide economic uncertainty. Although CD and DVD unit volumes increased 11.7% in 2000, the average unit price declined as customers reduced their

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product costs in this uncertain economic environment and CD prices declined due to excess capacity within our industry.

Cost of Sales.Cost of sales as a percentage of sales was 70.1% in 2000 and 69.0% in 1999. In dollars, cost of sales
increased $2.8 million to $167.6 million from $164.8 million in 1999. The cost of sales percentage increase is primarily due to increases in polycarbonate prices, increase in
depreciation expense for additional property and equipment acquired during the year, customer efforts to reduce their product costs and changes in product mix. In addition, the manufacturing
facilities operated at lower utilization rates in 2000 with the softness of the industry and a 20% increase in capacity created in 2000. These increases were partially offset with a decrease in the
amount of outsourced production, which is more costly than CDs produced internally. The Company outsources its CD production when customer orders exceed its production capabilities. The Company
outsourced 7% of its CD production in 2000 and 9% in 1999.

Selling, general and administrative expenses.Selling, general and administrative expenses as a percentage of sales
were 14.0% in 2000 and 15.8% in 1999. In dollars, selling, general and administrative expenses decreased $4.2 million to $33.5 million in 2000 from $37.7 million in 1999. The decrease in
dollars and as
a percentage of sales was achieved with operational efficiencies, lower compensation incentives in 2000 and consolidation of certain facilities.

Equity in losses of unconsolidated entity.During 2000, the Company recognized a loss of $1.4 million from its
equity investment in Microgistix (formerly Chumbo Holdings Corporation (Chumbo)), an Internet based reseller of software compared to a $1.9 million loss in 1999. The losses represents the
Company's share of Chumbo losses and the amortization of the Company's excess purchase price of the Chumbo common stock acquired over the fair value of the underlying net assets. In
December 1999, Chumbo sold additional equity in a private round of financing. The Company recognized a gain of $3.7 million on Chumbo's issuance of additional equity, representing the
increase in the Company's share of Chumbo's net assets after the funding.

Interest income and expense.Interest income was $3.2 million and $1.0 million for 2000 and 1999,
respectively. Interest expense was $1.1 million and $1.2 million for 2000 and 1999, respectively. Interest income increased due to higher cash balances and higher interest rates on amounts
invested.

Other expense, net.Other expense consists of foreign currency losses.

Provision for income taxes.The effective income tax rate for 2000 was 35.3% compared to 31.7% in 1999. The increase in
the effective tax rate is due primarily to a lower amount of income from Ireland, which has a lower effective tax rate.

Net income.Net income for 2000 decreased 3.7% to $24.9 million compared to $25.8 million in 1999.



Sales.The Company's total net sales increased 288.2% to $238.7 million in 1999 as compared to
$61.5 million in 1998. CD and DVD related sales increased 298% in 1999. The Company's new customer contact centers contributed an additional $26.3 million to 1999 sales. Diskette,
audiocassettes and RMA sales together increased 49% in 1999. The overall increase in sales was primarily due to the Kao acquisition described above. The acquisition significantly expanded the
Company's geographic presence in the United States, Canada, Ireland and Germany, added the customer contact center capabilities and significantly increased the Company's CD and DVD manufacturing
capacity. In
addition, the Company further increased its CD and DVD production capacity in Ireland and North America with the addition of eight new manufacturing lines in the third quarter of 1999.

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Cost of sales.Cost of sales as a percentage of sales was 69.0% in 1999 and 72.7% in 1998. In dollars, cost of sales
increased $120.1 million to $164.8 million in 1999. This cost of sales percentage decrease was due to several factors, including the implementation of improved financial and operational
controls at the acquired Kao sites and operation of manufacturing facilities at higher utilization rates. This was partially offset by an increase in outsourcing. The Company outsourced 9% of its CD
manufacturing in 1999 and 7% in 1998.

Selling, general and administrative expenses.Selling, general and administrative expenses as a percentage of sales
were 15.8% in 1999 and 17.2% in 1998. In dollars, selling, general and administrative expenses increased $27.1 million to $37.7 million in 1999. The dollar increase in 1999 resulted primarily
from the acquisition of the Kao business.

Equity in losses of unconsolidated entity.During 1999, the Company recognized a loss of $1.9 million from its
equity investment in Chumbo, an Internet based reseller of software. In December 1999, Chumbo sold additional equity in a private round of financing. The Company recognized a gain of
$3.7 million on Chumbo's issuance of additional equity, representing the increase in the Company's share of Chumbo's net assets after the funding.

Interest income and expense.Interest income was $1.0 million and $0.9 million for 1999 and 1998,
respectively. Interest expense was $1.2 million and $0.4 million for 1999 and 1998, respectively. Interest expense increased with borrowings used to finance the purchase of Kao.

Other expense, net.In 1999, other expense consisted of foreign currency losses. In 1998, the Company incurred expenses
totaling $0.3 million relating to the acquisition of PMG, NSG and PMG Ireland. These costs were expensed as incurred, in accordance with the pooling of interests accounting rules.

Provision for income taxes.The effective income tax rate for 1999 was 31.7% compared to a pro forma rate of 40.3% for
1998. The reduced rate in 1999 is due primarily to the lower effective tax rate in Ireland.

Net income.Net income for 1999 was $25.8 million, an increase of 605% from net income of $3.7 million in
1998.

Liquidity and Capital Resources

As of December 29, 2000, the Company had working capital of $69.9 million, compared to working capital of $47.5 million as of
December 31, 1999 and $27.0 million as of December 25, 1998. The increase in working capital in 2000 was primarily due to the increase in cash provided by operating activities. The
increase in working capital in 1999 was primarily due to the increase in cash provided by operating activities which were significantly impacted by the Kao acquisition. The increase in working capital
in 1998 was primarily due to the proceeds received from the Company's secondary stock offering. In May 1998, the Company sold 7.6 million shares of common stock for $29.7 million,
net of offering costs.

As
of December 29, 2000, the Company had cash and cash equivalents totaling $63.6 million. Cash generated from operating activities was $32.9 million,
$64.7 million and $7.7 million during 2000, 1999 and 1998, respectively. The decrease in cash generated from operating activities in 2000 as compared to 1999 was due primarily to 1999
being a fifty-three week year, which allowed for additional collections on accounts receivable and shipping of inventory. The remainder of the decrease related to normal fluctuations in working
capital components. The increase in 1999 operating cash flow resulted primarily from the increase in net income and improvements in accounts receivable collections from the Kao acquired businesses.

13

---

Cash used in investing activities was $14.3 million, $53.4 million and $15.0 million in 2000, 1999 and 1998, respectively. The purchase of property and equipment was
$14.3 million, $12.0 million and $8.9 million in 2000, 1999 and 1998, respectively. In 1999, the Company used $42.5 million to purchase the businesses and net assets of
Kao. In 1998, cash used in investing activities included $5.0 million for the purchase of an equity interest in Chumbo.

The
Company used $4.7 million for financing activities in 2000, which was comprised of $5.0 million used to repurchase Company common stock under its current stock
buy-back program and $4.1 million used to reduce notes payable. These were offset by $4.4 million received from the issuance of common stock. In 1999, the Company financed a portion of
the Kao acquisition with the proceeds of a $15.0 million term loan facility. The Company also reduced notes payable by $3.6 million. In 1998, the Company issued 7.6 million shares
of common stock for $29.7 million in a secondary offering. The Company also acquired certain assets and assumed certain liabilities from an unrelated third party in exchange for a
short-term note in the principal amount of $1.1 million and made payments to reduce notes payable by $3.4 million.

As
of December 29, 2000 and December 31, 1999, the Company had a revolving line of credit facility for up to $25.0 million of borrowings. Such borrowings are
limited to an amount based on a formula using eligible accounts receivable and inventories. There were no borrowings outstanding under the revolving line of credit facility at December 29, 2000
and December 31, 1999.

Future
liquidity needs will depend on, among other factors, the timing of capital expenditures and expenditures in connection with any acquisitions, changes in customer order volume
and the timing and collection of receivables. The Company believes existing cash balances, anticipated cash flow from operations and amounts available under existing credit facilities will be
sufficient to fund its operations for the foreseeable future.

Market Risk

Foreign currency.A portion of the Company's operations are located in foreign jurisdictions including Ireland, Canada
and Germany. The Company's financial results could be significantly affected by factors such as changes in foreign currency or weak economic conditions in foreign markets. In addition, sales of
products and services are directly impacted by the value of the U.S. dollar relative to other currencies.

Foreign
currency gains and losses are reflected in the Company's financial statements. The net exchange loss was $0.2 million in 2000. The Company anticipates it will incur
exchange gains and losses from foreign operations in the future. The Company's net investment in foreign subsidiaries was $35.5 million at December 29, 2000. During 2000, the U.S. dollar
strengthened against the participating Euro currencies. A stronger U.S. dollar generally has a negative impact on non-U.S. results because foreign currency denominated earnings translates into fewer
U.S. dollars. A weaker dollar generally has a positive translation effect. In 2000, the stronger U.S. dollar reduced translated net sales and net income by $10.6 million and
$1.2 million, respectively.

Interest.Substantially all of the Company's debt and associated interest expense will be sensitive to changes in
interest rates.

Euro Currency Conversion

On January 1, 1999, 11 of the 15 member countries of the European Union, including Ireland and Germany, adopted the "euro" as their common legal
currency. The euro trades on currency exchanges and is available for non-cash transactions. From January 1, 2000 through January 1, 2002, each of the participating countries is scheduled
to maintain its national ("legacy") currency as legal tender for goods and services. Beginning January 1, 2002, new euro-denominated bills and coins will be issued,

14

---

and legacy currencies will be withdrawn from circulation no later than July 1, 2002. The Company's foreign operating subsidiaries affected by the euro conversion are evaluating the business
issues raised, including the competitive impact of cross-border price transparency. The Company does not anticipate any significant near-term business ramifications; however, long-term implications
such as the euro currency conversion's effect on accounting, treasury and computer systems are under review.

Inflation

Historically, inflation has not had a material impact on the Company. The cost of the Company's products is influenced by the cost of raw materials and labor.
There can be no assurance that the Company will be able to pass on any increased material and labor costs to its customers in the future.

Seasonality

The demand for CDs and other multimedia consumer products is generally seasonal, with increases during the fall reflecting increased demand relative to the new
school year and holiday season purchases. This seasonality could result in significant quarterly variations in financial results, with the third and fourth quarters generally being the strongest.

Outlook

The statements contained in this Outlook section and elsewhere in this Annual Report are based on current expectations. These statements are forward-looking
and are made pursuant to the safe harbor
provisions of the Private Securities Reform Act of 1995. Such statements can be identified by the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "may," "could,"
"possible," "plan," "project," "will," "forecast" and similar words or expressions. The Company's forward-looking statements generally relate to its growth strategy, financial results, sales efforts
and cash requirements. There are certain important factors that could cause actual results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including, among others, those identified below.

The
Company believes the total number of CDs sold worldwide will grow in 2001. 2001 unit prices may decline given the overcapacity state of the industry. The Company believes it has
the personnel, strategies and financial strength in place to support the expected increase in sales growth with a minimum increase in salaried personnel. However, increases in the Company's sales and
its ability to be a leader in the industry depends on its ability to effectively manage industry changes as well as its own growth and organizational changes.

If
CD market demand does not grow as expected, revenue growth would be directly and adversely impacted and the manufacturing capacity installed will be underutilized. Pricing
strategies of competitors and general economic factors, such as consumer confidence and inflation, all impact the Company. A substantial part of the Company's revenue is derived from a small number of
key customers; our revenues will be significantly lower than expected if we cannot keep these customers. In addition, if the Company does not respond rapidly to technological changes, it may lose
customers, which will cause a significant decrease in revenue.

On
March 5, 2001, the Company reduced its work force to match current and anticipated business levels. The Company's business has been negatively impacted by the slow down in
PC and software spending previously announced by major PC manufacturers and software providers. The costs incurred as a result of the work force reduction will not be material. The work force
reduction involved approximately 150 positions, which the Company expects will decrease quarterly operating costs by an estimated $1.0 million.

15

---



The
Company undertakes no obligation to update any forward-looking statement, but investors are advised to consult any further disclosures by the Company on this subject in its
filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K (if any), in which the Company discusses in more detail various important factors that could cause
actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an
exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See "Market Risk" and "Euro Currency Conversion" under Item 7 above.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and schedules are included immediately following the signature page of this report on the pages indicated:

PageReport of Independent Public Accountants dated January 24, 2001

F-1Consolidated Balance Sheets as of December 29, 2000 and December 31, 1999

F-2Consolidated Statements of Operations for Years Ended December 29, 2000, December 31, 1999 and December 25, 1998

F-3Consolidated Statements of Shareholders' Equity for Years Ended December 29, 2000, December 31, 1999 and December 25, 1998

F-4Consolidated Statements of Cash Flows for Years Ended December 29, 2000, December 31, 1999 and December 25, 1998

F-5Notes to Consolidated Financial Statements

F-6Schedule II - Valuation and Qualifying Accounts With Report of Independent Public Accountants

F-17


All
other schedules are omitted since they are not applicable, not required or the information is presented in the consolidated financial statements or related notes.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the Company's directors and executive officers and compliance with Section 16(a) required by this item is contained in the
sections entitled "Election of Directors," "Executive Officers of the Company" and "Compliance with Section 16(a) of the Exchange Act,"
appearing in the Company's Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on April 24, 2001. Such information is incorporated
herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is contained in the section entitled "Executive Compensation" appearing in the Company's Proxy Statement to be delivered
to stockholders in

16

---

connection with the Annual Meeting of Stockholders to be held on April 24, 2001. Such information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is contained in the sections entitled "Principal Shareholders and Management Shareholdings" appearing in the Company's
Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on April 24, 2001. Such information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is contained in the section entitled "Certain Transactions" appearing in the Company's Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held on April 24, 2001. Such information is incorporated herein by reference.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The
following exhibits are included in this report: See "Exhibit Index" immediately following the financial statements following the signature page of this Form 10-K.

The
following financial statements and schedules are included in Part II, Item 8 of this Form 10-K.



All
other schedules are omitted since they are not applicable, not required or the information is presented in the consolidated financial statements or related notes.

None

17

---



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.

|                     |  | ZOMAX INCORPORATED
|-------------------- |  | ------------------
|Date: March 26, 2001 |  | By                

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 below.

Each
person whose signature appears below constitutes and appoints James T. Anderson and James E. Flaherty as the undersigned's true and lawful attorneys-in fact and
agents, each acting alone, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any and all amendments to this Annual Report on
Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granted unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as
the undersigned might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.

|Name                                          |  | Title                                                                              |  | Date          
|--------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | --------------
|                                              |  |                                                                                    |  |               
|/s/JAMES T. ANDERSONJames T. Anderson         |  | Chairman of the Board and Chief Executive Officer (principal executive officer)    |  | March 26, 2001
|/s/ANTHONY ANGELINIAnthony Angelini           |  | President, Chief Operating Officer and Director                                    |  | March 26, 2001
|/s/JAMES E. FLAHERTYJames E. Flaherty         |  | Chief Financial Officer and Secretary (principal financial and accounting officer) |  | March 26, 2001
|/s/PHILLIP T. LEVINPhillip T. Levin           |  | Director                                                                           |  | March 26, 2001
|/s/ROBERT EZRILOVRobert Ezrilov               |  | Director                                                                           |  | March 26, 2001
|/s/HOWARD P. LISZTHoward P. Liszt             |  | Director                                                                           |  | March 26, 2001
|/s/JANICE OZZELLO WILCOXJanice Ozzello Wilcox |  | Director                                                                           |  | March 26, 2001

18

---

Report of Independent Public Accountants

To Zomax Incorporated:

We
have audited the accompanying consolidated balance sheets of Zomax Incorporated (a Minnesota corporation) and Subsidiaries as of December 29, 2000 and December 31,
1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 29, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. 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 Zomax Incorporated and Subsidiaries as of
December 29, 2000 and December 31, 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2000, in conformity
with accounting principles generally accepted in the United States.

Arthur
Andersen LLP

Minneapolis,
Minnesota,
January 24, 2001

F-1

---



ZOMAX INCORPORATED AND SUBSIDIARIES        Consolidated Balance Sheets        (In thousands)

|                                                |                                                                                                        | December 29, 2000    |                            | December 31, 1999 |      
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------ | -------------------- | -------------------------- | ----------------- | -----
|ASSETS                                          |                                                                                                       
|CURRENT ASSETS:                                 |                                                                                                        |                      |                            |                   |      
|                                                | Cash and cash equivalents                                                                              |                      | $                          | 63,577            |      
|                                                | Accounts receivable, net of allowance for doubtful accounts of $2,408 and $2,645                       |                      |                            | 32,182            |      
|                                                | Inventories                                                                                            |                      |                            | 13,992            |      
|                                                | Deferred income taxes                                                                                  |                      |                            | 2,374             |      
|                                                | Prepaid expenses and other                                                                             |                      |                            | 3,543             |      
|                                                |                                                                                                        |                      |                            |                   |      
|                                                |                                                                                                        |                      | Total current assets       |                   |      
|PROPERTY AND EQUIPMENT, net                     |                                                                                                        |                      | 46,159                     |                   |      
|INVESTMENT IN UNCONSOLIDATED ENTITY             |                                                                                                        |                      | 5,031                      |                   |      
|OTHER ASSETS                                    |                                                                                                        |                      | 1,077                      |                   |      
|                                                |                                                                                                        |                      |                            |                   |      
|                                                |                                                                                                        | $                    | 167,935                    |                   | $    
|                                                |                                                                                                        |                      |                            |                   |      
|LIABILITIES AND SHAREHOLDERS' EQUITY            |                                                                                                       
|CURRENT LIABILITIES:                            |                                                                                                        |                      |                            |                   |      
|                                                | Current portion of notes payable                                                                       |                      | $                          | 3,788             |      
|                                                | Accounts payable                                                                                       |                      |                            | 21,968            |      
|                                                | Accrued expenses                                                                                      |                      |                            |                   |      
|                                                |                                                                                                        | Accrued royalties    |                            |                   | 7,217
|                                                |                                                                                                        | Accrued compensation |                            |                   | 6,349
|                                                |                                                                                                        | Other                |                            |                   | 3,212
|                                                | Income taxes payable                                                                                   |                      |                            | 3,262             |      
|                                                |                                                                                                        |                      |                            |                   |      
|                                                |                                                                                                        |                      | Total current liabilities  |                   |      
|LONG-TERM NOTES PAYABLE, net of current portion |                                                                                                        |                      | 6,757                      |                   |      
|DEFERRED INCOME TAXES                           |                                                                                                        |                      | 3,287                      |                   |      
|COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)   |                                                                                                        |                      |                            |                   |      
|SHAREHOLDERS' EQUITY:                           |                                                                                                        |                      |                            |                   |      
|                                                | Common stock, no par value, 200,000 shares authorized; 31,737 and 30,966 shares issued and outstanding |                      |                            | 58,456            |      
|                                                | Retained earnings                                                                                      |                      |                            | 58,093            |      
|                                                | Accumulated other comprehensive loss                                                                   |                      |                            | (4,454            | )    
|                                                |                                                                                                        |                      |                            |                   |      
|                                                |                                                                                                        |                      | Total shareholders' equity |                   |      
|                                                |                                                                                                        |                      |                            |                   |      
|                                                |                                                                                                        | $                    | 167,935                    |                   | $    
|                                                |                                                                                                        |                      |                            |                   |      

The
accompanying notes are an integral part of these consolidated balance sheets.

F-2

---



ZOMAX INCORPORATED AND SUBSIDIARIES        Consolidated Statements of Operations        (In thousands, except for per share data)

|                                                       |         | For the Years Ended |                           
|------------------------------------------------------ | ------- | ------------------- | --------------------------
|
|SALES                                                  |         | $                   | 239,090                   
|COST OF SALES                                          |         |                     | 167,564                   
|                                                       |         |                     |                           
|                                                       |         |                     | Gross profit              
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES           |         |                     | 33,532                    
|                                                       |         |                     |                           
|                                                       |         |                     | Operating income          
|EQUITY IN LOSSES OF UNCONSOLIDATED ENTITY              |         |                     | 1,416                     
|GAIN ON UNCONSOLIDATED ENTITY STOCK SALE               |         |                     |                          
|INTEREST EXPENSE                                       |         |                     | 1,103                     
|INTEREST INCOME                                        |         |                     | (3,225                    
|OTHER EXPENSE, net                                     |         |                     | 249                       
|                                                       |         |                     |                           
|                                                       |         |                     | Income before income taxes
|PROVISION FOR INCOME TAXES                             |         |                     | 13,592                    
|                                                       |         |                     |                           
|NET INCOME                                             |         | $                   | 24,859                    
|                                                       |         |                     |                           
|EARNINGS PER SHARE:                                    |         |                     |                           
|                                                       | Basic   |                     | $                         
|                                                       |         |                     |                           
|                                                       | Diluted |                     | $                         
|                                                       |         |                     |                           
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             |         |                     | 31,915                    
|DILUTIVE EFFECT OF STOCK OPTIONS AND WARRANTS          |         |                     | 1,614                     
|                                                       |         |                     |                           
|WEIGHTED AVERAGE COMMON AND DILUTED SHARES OUTSTANDING |         |                     | 33,529                    
|                                                       |         |                     |                           

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

F-3

---



ZOMAX INCORPORATED AND SUBSIDIARIES        Consolidated Statements of Shareholders' Equity        (In thousands, except for per share data)

|                           |                                                                          | Common Stock            |                            |   |        | Accumulated
Other
Comprehensive
Loss |   |        |      
|-------------------------- | ------------------------------------------------------------------------ | ----------------------- | -------------------------- | - | ------ | ------------------------------------ | - | ------ | -----
|
|
|BALANCE, December 26, 1997 |                                                                          | 21,004                  |                            | $ | 12,722 |                                      | $ | 3,741  |      
|                           | Net income                                                               |                         |                           |   |        |                                     |   |        | 3,666
|                           | Common stock issued under employee stock purchase plan                   |                         | 32                         |   |        | 57                                   |   |        |     
|                           | Common stock issued upon exercise of stock options and warrants          |                         | 120                        |   |        | 172                                  |   |        |     
|                           | Sale of common stock at $4.25 per share, net of offering costs of $2,571 |                         | 7,600                      |   |        | 29,729                               |   |        |     
|                           |                                                                          |                         |                            |   |        |                                      |   |        |      
|BALANCE, December 25, 1998 |                                                                          | 28,756                  |                            |   | 42,680 |                                      |   | 7,407  |      
|                           | Comprehensive income:                                                    |                         |                            |   |        |                                      |   |        |      
|                           |                                                                          | Net income              |                            |  |        |                                      |  |        |      
|                           |                                                                          | Translation adjustments |                            |  |        |                                      |  |        |      
|                           |                                                                          |                         | Total comprehensive income |   |       |                                      |   |       |      
|                           | Common stock issued under employee stock purchase plan                   |                         | 186                        |   |        | 622                                  |   |        |     
|                           | Common stock issued upon exercise of stock options and warrants          |                         | 2,024                      |   |        | 2,740                                |   |        |     
|                           | Tax benefit realized from exercise of stock options                      |                         |                           |   |        | 5,911                                |   |        |     
|                           |                                                                          |                         |                            |   |        |                                      |   |        |      
|BALANCE, December 31, 1999 |                                                                          | 30,966                  |                            |   | 51,953 |                                      |   | 33,234 |      
|                           | Comprehensive income:                                                    |                         |                            |   |        |                                      |   |        |      
|                           |                                                                          | Net income              |                            |  |        |                                      |  |        |      
|                           |                                                                          |                         | Translation adjustments    |   |       |                                      |   |       |      
|                           | Total comprehensive income                                               |                         |                           |   |        |                                     |   |        |     
|                           | Common stock issued under employee stock purchase plan                   |                         | 143                        |   |        | 1,412                                |   |        |     
|                           | Common stock issued upon exercise of stock options and warrants          |                         | 1,428                      |   |        | 3,031                                |   |        |     
|                           | Tax benefit realized from exercise of stock options                      |                         |                           |   |        | 7,100                                |   |        |     
|                           | Common stock repurchased (Note 5)                                        |                         | (800                       | ) |        | (5,040                               | ) |        |     
|                           |                                                                          |                         |                            |   |        |                                      |   |        |      
|BALANCE, December 29, 2000 |                                                                          | 31,737                  |                            | $ | 58,456 |                                      | $ | 58,093 |      
|                           |                                                                          |                         |                            |   |        |                                      |   |        |      

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

F-4

---



ZOMAX INCORPORATED AND SUBSIDIARIES        Consolidated Statements of Cash Flows        (In thousands)

|                                                             |                                                                                   | For the Years Ended                          |                           
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------
|
|OPERATING ACTIVITIES:                                        |                                                                                   |                                              |                           
|                                                             | Net income                                                                        |                                              | $                         
|                                                             | Adjustments to reconcile net income to net cash provided by operating activities |                                              |                           
|                                                             |                                                                                   | Depreciation and amortization                |                           
|                                                             |                                                                                   | Equity in losses of unconsolidated entity    |                           
|                                                             |                                                                                   | Foreign currency exchange                    |                           
|                                                             |                                                                                   | Tax benefits from employee stock option plan |                           
|                                                             |                                                                                   | Gain on unconsolidated entity stock sale     |                           
|                                                             |                                                                                   | Deferred income taxes                        |                           
|                                                             |                                                                                   | Changes in operating assets and liabilities: |                           
|                                                             |                                                                                   |                                              | Accounts receivable       
|                                                             |                                                                                   |                                              | Inventories               
|                                                             |                                                                                   |                                              | Prepaid expenses and other
|                                                             |                                                                                   |                                              | Accounts payable          
|                                                             |                                                                                   |                                              | Accrued expenses          
|                                                             |                                                                                   |                                              | Income taxes payable      
|                                                             |                                                                                   |                                              |                           
|                                                             |                                                                                   |                                              |                           
|                                                             |                                                                                   |                                              |                           
|INVESTING ACTIVITIES:                                        |                                                                                   |                                              |                           
|                                                             | Purchase of property and equipment                                                |                                              |                           
|                                                             | Acquisitions, net of cash acquired                                                |                                              |                           
|                                                             | Investment in unconsolidated entity                                               |                                              |                           
|                                                             | Change in other assets                                                            |                                              |                           
|                                                             |                                                                                   |                                              |                           
|                                                             |                                                                                   |                                              |                           
|                                                             |                                                                                   |                                              |                           
|FINANCING ACTIVITIES:                                        |                                                                                   |                                              |                           
|                                                             | Proceeds from notes payable                                                       |                                              |                           
|                                                             | Repayment of notes payable                                                        |                                              |                           
|                                                             | Repurchase of common stock                                                        |                                              |                           
|                                                             | Issuance of common stock, net                                                     |                                              |                           
|                                                             |                                                                                   |                                              |                           
|                                                             |                                                                                   |                                              |                           
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |                                                                                   |                                              | (1,363                    
|                                                             |                                                                                   |                                              |                           
|                                                             |                                                                                   |                                              |                           
|CASH AND CASH EQUIVALENTS:                                   |                                                                                   |                                              |                           
|                                                             | Beginning of year                                                                 |                                              |                           
|                                                             |                                                                                   |                                              |                           
|                                                             | End of year                                                                       |                                              | $                         
|                                                             |                                                                                   |                                              |                           
|SUPPLEMENTAL CASH FLOW DISCLOSURE:                           |                                                                                   |                                              |                           
|                                                             | Cash paid for interest                                                            |                                              | $                         
|                                                             |                                                                                   |                                              |                           
|                                                             | Cash paid for income taxes                                                        |                                              | $                         
|                                                             |                                                                                   |                                              |                           

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

F-5

---



ZOMAX INCORPORATED AND SUBSIDIARIES        Notes to Consolidated Financial Statements        December 29, 2000 and December 31, 1999

1 Business description

Zomax Incorporated (Zomax or the Company) is a leading international outsource provider of process management services. The Company's fully integrated services
include front-end e-commerce support, call center and customer support solutions; DVD authorizing services; CD and DVD mastering; CD and DVD replication; supply chain and inventory management; graphic
design; print management; assembly; packaging; warehousing; distribution and fulfillment; and RMA processing.

2 Summary of significant accounting policies

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.

Fiscal year-end

The Company's fiscal year ends on the last Friday of the calendar year. For the purposes of these notes to the consolidated financial statements, the fiscal
years ended December 29, 2000, December 31, 1999 and December 25, 1998 are referred to as 2000, 1999 and 1998, respectively. The fiscal year ended in 1999 includes fifty-three
weeks as compared to fifty-two weeks in 2000 and 1998.

Use of estimates

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

Revenue recognition

The Company records sales revenue at the time merchandise is shipped or as services are rendered. For certain customers, merchandise is invoiced upon
completion of orders, with shipment occurring based on written customer instructions. In these cases, the customer accepts title to the goods as of the date of the Company's invoice. In each case of
bill and hold sales, the Company ensures that the transaction complies with the seven conditions and the six considerations contained in Accounting and Auditing Enforcement Release No. 108 of the
Securities and Exchange Commission (SEC). In 2000 and 1999, one customer represented 40 percent and 39 percent of the Company's sales, respectively. In 1998, two customers accounted for 17 percent and
13 percent of the Company's sales.

In
November 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101, as amended, sets forth the SEC staff's position regarding the
point at which it is appropriate for a registrant to recognize revenue. The staff believes that revenue is realizable and earned when all of the following criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred or service has been rendered, the seller's price to the buyer is fixed or determinable and collectibility is reasonably assured. The Company uses the above
criteria to determine whether revenue can be recognized, and therefore, believes that the issuance of this bulletin does not have a material impact on these financial statements. The Company has
adopted SAB No. 101 in the fourth quarter of 2000 and the effect of adopting was not material to the consolidated financial statements.

F-6

---

Effective January 1, 2000, the Company began recording amounts being charged to customers for shipping and handling as revenue in accordance with recently released Emerging
Issues Task Force (EITF) Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." Historically, the Company had netted the shipping and handling revenue with the cost of shipping and
handling in cost of sales. The Company has reclassified $9,437,000 and $411,000 in 1999 and 1998, respectively, from cost of sales to sales in the accompanying consolidated statements of operations.

Cash and cash equivalents

Cash and cash equivalents primarily consist of highly liquid short-term investments with original maturities of 90 days or less and are recorded at cost, which
approximates market value.

Inventories

Inventories, consisting of material, labor and overhead, are stated at the lower of first-in, first-out cost or market. Inventories were as follows (in
thousands):

December 29, 2000

December 31, 1999Raw materials

$
8,709

$
6,404Finished goods


1,428


937Work in process


3,855


1,997$
13,992

$
9,338


Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Repairs and maintenance are charged to expense as incurred, while significant
improvements are capitalized. Depreciation is calculated using the straight-line method for financial reporting purposes over the estimated useful lives.

Property
and equipment consisted of the following (dollars in thousands):

December 29, 2000

December 31, 1999

LivesManufacturing equipment

$
57,101

$
44,830

7 yearsOffice equipment


6,325


4,492

5-7 yearsLand, building and leasehold improvements


6,780


6,084

4-35 yearsVehicles


92


58

5 years70,298


55,464LessAccumulated depreciation and amortization


(24,139
)

(14,822
)Property and equipment, net

$
46,159

$
40,642


F-7

---

Income taxes

The Company and its subsidiaries file a consolidated federal income tax return and separate state and foreign returns. Deferred income taxes are provided for
differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, based on the expected income tax rates for the year in which these temporary
differences are expected to reverse.

Fair value of financial instruments

The financial instruments with which the Company is involved are primarily of a traditional nature. For most instruments, including cash, receivables, accounts
payable, accrued expenses and short-term debt, the Company believes that the carrying amounts approximate fair value because of their short-term nature.

Long-lived assets

Long-lived assets, such as property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. If any such impairment exists, the related assets would be written down to fair
value.

Royalty payments

The Company has license agreements with certain companies for the use of certain CD and DVD manufacturing technology. The Company accrues for royalties based
on units manufactured.

Earnings per share

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted EPS is
computed by dividing net income by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if potentially dilutive common
shares related to stock options and warrants had been issued.

Foreign currency translation

Zomax converts assets and liabilities of foreign operations to their U.S. dollar equivalents at rates in effect at the balance sheet date and records
translation adjustments in shareholders' equity in the consolidated balance sheets. Income statements of foreign operations are translated from the operations' functional currency to U.S. dollar
equivalents at the exchange rate on the transaction dates. Foreign exchange transaction gains and losses are reported in other expense, net on the consolidated statements of operations.

Recently issued accounting pronouncement

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, is effective for
years beginning after June 15, 2000 (fiscal 2001 for the Company). SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133

F-8

---

requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. Special accounting for qualifying hedges allows a derivative's gains or
loses to offset related results on the hedged item in the statement of operations and requires that a company must formally document, designate and assess the effectiveness of transactions that
receive hedge accounting. The adoption of SFAS No. 133 is not expected to have a material effect on the Company's financial position or results of operations.

3 Acquisitions

In January 1999, the Company acquired the businesses and certain net assets of Kao Corporation (Kao) in the United States, Canada, Ireland and Germany.
The purchase price for the businesses, net assets and net working capital acquired was $37,500,000 in cash, plus transaction costs. The assets and
businesses acquired by the Company were used in the manufacturing and sale of CDs and related businesses, and the Company intends to continue to use the assets and businesses in a similar manner. The
acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to net assets acquired based on their estimated fair values. Kao's results
of operations have been included in the accompanying consolidated statements of operations since the date of acquisition.

In
February 1998, the Company acquired all of the outstanding shares of Primary Marketing Group, Next Generation Services, LLC and Primary Marketing Group Limited
(collectively, the Acquired Companies) in exchange for 1,600,004 shares of the Company's common stock. The acquisitions of the Acquired Companies were accounted for as a pooling of interests and,
accordingly, the consolidated financial statements have been restated to reflect the effects of the transactions for all periods presented.

Investment in unconsolidated entity

On October 2, 1998, the Company acquired 4,310,345 shares of the common stock of Microgistix (formerly Chumbo Holdings Corporation (Chumbo)), a private
company, in exchange for cash and warrants for total consideration of $5,000,000. The warrants were granted to certain shareholders of Chumbo to purchase 400,000 shares of the Company's common stock
at a price of $5.00 per share. The warrants were immediately exercisable for a period of three years. At the time of the investment, the Company owned approximately one-third of the outstanding equity
of Chumbo, which is accounted for using the equity method of accounting. As part of the agreement, Zomax has access to Chumbo's proprietary Internet software to service customers of the Company. The
Company's chief executive officer (CEO) served as Chumbo's CEO until August 27, 1999, and in recognition of his additional duties and responsibilities, received warrants to purchase Chumbo's
common stock.

In
December 1999, Chumbo sold additional equity in a private round of financing. The Company recognized a gain on Chumbo's issuance of additional equity in the amount of
$3,685,000, representing the increase in the Company's share of Chumbo's net assets after the transaction. As of December 29, 2000, the Company owns 25.2 percent of Chumbo. The Company
recognized a loss of $1,416,000, $1,890,000 and $370,000 in 2000, 1999 and 1998, respectively, representing its share of Chumbo's net loss and amortization of the purchase price in excess of the
underlying fair value of net assets acquired.

Chumbo
conducts its operations through two wholly owned subsidiaries, Chumbo.com, Inc. and Point Group Corporation. Chumbo.com, Inc. has developed proprietary software
for Internet commerce

F-9

---

and operates a web site (http/www.chumbo.com) selling computer software over the Internet. Point Group Corporation is a licensee and reseller of computer software.

Sales
by the Company to the Point Group Corporation totaled $6,097,000, $1,156,000 and $1,213,000 in 2000, 1999 and 1998, respectively. Point Group Corporation's accounts receivable
balances totaled $2,222,000 and $125,000 in 2000 and 1999, respectively.

4 Credit facilities and long-term notes payable

On January 7, 1999, the Company entered into a $15,000,000 term loan facility which was used to finance the purchase of the businesses and net assets of
Kao. A $25,000,000 revolving line-of-credit facility was also established. The term loan facility requires quarterly principal payments of $750,000 on a straight-line amortization schedule. The
interest rate is at the lower of prime plus .75 percent or LIBOR plus 2.25 percent (8.87 percent at December 29, 2000). The revolving line-of-credit facility provides for borrowings based on a
formula using eligible accounts receivable and inventories with interest rates of prime plus .5 percent or LIBOR plus 2.0 percent (8.62 percent at December 29, 2000). Both facilities have
five-year terms and contain certain financial covenants. The Company was in compliance with such covenants as of December 29, 2000.

The
amount outstanding on the term loan facility at December 29, 2000 and December 31, 1999 was $9,760,000 and $12,750,000, respectively. The Company had no borrowings
outstanding under the revolving line-of-credit facility at December 29, 2000 and December 31, 1999.

The
Company also has an installment note, with monthly installments payable through November 2001, at an interest rate of 8.1 percent. The note is collateralized by certain
equipment. Amounts outstanding as of December 29, 2000 and December 31, 1999 were $785,000 and $1,843,000, respectively.

Future
scheduled maturities of long-term debt are as follows as of December 29, 2000 (in thousands):

2001

$
3,7882002


3,0032003


3,0032004


7512005


Total


10,545LessCurrent portion


3,788Long-term notes payable, net of current portion

$
6,757


5 Shareholders' equity

In connection with an initial public stock offering in May 1996, the underwriter purchased, for a nominal purchase price, warrants to purchase 560,000
shares of common stock at a price of $2.03 per
share. The warrants are exercisable for a period of four years, commencing one year from the offering date. As of December 29, 2000, all warrants have been exercised.

F-10

---

On May 21, 1998, the Company completed the sale of 6,400,000 shares of common stock in a secondary public offering. On June 8, 1998, the underwriters exercised an
overallotment option and purchased an additional 1,200,000 shares. The Company received proceeds from the offering, net of issuance costs, of $29,729,000.

Effective
August 11, 1999, the Company's board of directors approved a 2-for-1 stock split effected as a stock dividend to shareholders. On May 8, 2000, the Company's
board of directors approved a second 2-for-1 stock split effected as a stock dividend to shareholders. All per share and share outstanding data in the consolidated financial statements and notes to
consolidated financial statements have been retroactively restated to reflect both stock splits. The Company's board of directors authorized a stock repurchase plan in October 2000 which allows the
Company to repurchase up to 2,000,000 common shares. Under the repurchase plan, 800,200 shares have been repurchased at a cost of $5,040,000.

6 Stock plans

Employee stock purchase plan

The Company has an employee stock purchase plan (the Employee Plan) which enables employees to contribute up to 10 percent of their compensation toward the
purchase of the Company's common stock at a price equal to 85 percent of fair market value. A total of 1,000,000 shares have been reserved for issuance under this plan. Shares issued in 2000, 1999 and
1998 were 143,198, 186,388 and 31,800, respectively.

Stock option plan

The Company has a 1996 Stock Option Plan (the Plan) to provide for the granting of stock options to employees, officers, directors and independent consultants
of the Company at exercise prices not less than 100 percent of the fair market value of the Company's common stock on the date of grant. The authorized number of shares reserved for issuance totaled
6,400,000, of which 1,155,200 remained available for grant at December 29, 2000. These options, which can be either incentive stock options or nonqualified options, vest over a three- to
five-year schedule and expire 10 years after the grant date. During 1999, the Company also issued nonqualified stock options for the purchase of 340,000 shares of common stock. These options were
issued at the fair market value of the Company's stock on the date of grant and vest over five years.

F-11

---

Information regarding the options are summarized below (shares in thousands):

|                                       |           | 2000  |        | 1999 |      | 1998 
|-------------------------------------- | --------- | ----- | ------ | ---- | ---- | -----
|
|Options outstanding, beginning of year |           | 3,210 |        | $    | 2.63 |      
|                                       | Granted   |       | 1,160  |      |      | 20.63
|                                       | Exercised |       | (1,410 | )    |      | 2.04 
|                                       | Canceled  |       | (692   | )    |      | 22.60
|                                       |           |       |        |      |      |      
|Options outstanding, end of year       |           | 2,268 |        | $    | 7.40 |      
|                                       |           |       |        |      |      |      
|Options exercisable, end of year       |           | 690   |        | $    | 3.30 |      
|                                       |           |       |        |      |      |      

Options
outstanding at December 29, 2000 have exercise prices ranging from $1.13 to $24.13 and a weighted average remaining contractual life of 7.9 years.

The
Company accounts for its stock option grants under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Since options have been granted
at not less than the market value on the date of grant, no compensation expense has been recognized for the stock options granted. Had the compensation cost of option grants been determined consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's income and EPS, on a pro forma basis, would have been reported as follows (in thousands, except per share
data):

2000

1999

1998Net income:As reported

$
24,859

$
25,827

$
3,666Pro forma

$
24,122

$
23,030

$
2,880EPS as reported:Basic

$
0.78

$
0.87

$
0.14Diluted

$
0.74

$
0.79

$
0.13Pro forma EPS:Basic

$
0.76

$
0.78

$
0.11Diluted

$
0.72

$
0.71

$
0.11


F-12

---

In
determining the compensation cost of the options granted, as specified by SFAS No. 123, the fair value of each option grant has been estimated on the date of grant using the
Black-Scholes option pricing model. The weighted average assumptions used in these calculations are summarized below:

2000

1999

1998Risk-free interest rate


6.40
%

5.48
%

5.23
%Expected life of options granted


10 years


10 years


10 yearsExpected volatility of options granted


127.79
%

82.67
%

74.58
%Weighted average fair value of options granted

$
19.55

$
8.71

$
7.88


7 Income taxes

The provision for income taxes for the Company was as follows (in thousands):

2000

1999

1998Current taxes payable:Federal

$
8,607

$
7,661

$
2,388State


1,284


834


350Foreign


2,522


3,333


1012,413


11,828


2,748Deferred


1,179


149


(273
)Total provision

$
13,592

$
11,977

$
2,475


A
reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:

2000

1999

1998Statutory federal income tax rate

34.0
%
34.0
%
34.0
%State income taxes, net of federal income tax benefit

0.5

1.6

4.3Nondeductible loss in unconsolidated entity

1.3

1.7

1.9Foreign tax effect

(3.4
)
(8.3
)
Other

2.9

2.7

0.1Effective income tax rate

35.3%

31.7%

40.3%


F-13

---

The
components of the deferred tax asset (liability) were as follows (in thousands):

December 29, 2000

December 31, 1999Current:Accounts receivable reserves

$
793

$
698Inventory reserves


581


450Accrued liabilities


571


751Foreign net operating loss carryforward


429


1,000Total current deferred tax asset

$
2,374

$
2,899Long-term:Depreciation and amortization

$
(1,813
)
$
(1,159
)Gain on unconsolidated entity stock sale


(1,474
)

(1,474
)Total long-term deferred tax liability

$
(3,287
)
$
(2,633
)


8 Related-party transactions

Operating lease

The Company leases one of its manufacturing and office facilities from a partnership which is majority-owned by a significant shareholder and director of the
Company. The Company believes the terms are equivalent to those that would be paid in an arm's-length transaction. Lease payments for 2000, 1999 and 1998 totaled $641,000, $719,000 and $775,000,
respectively.

Sales
to Metacom Inc., a shareholder of the Company, totaled $354,000, $461,000 and $411,000 in 2000, 1999 and 1998, respectively.

9 Commitments and contingencies

Operating leases

The Company is committed under operating leases with related and unrelated parties for the rental of manufacturing, warehouse and office facilities. Future
minimum lease obligations are as follows as of December 29, 2000 (in thousands):

2001

$
5,2172002


4,8712003


4,0982004


3,4382005


3,089Thereafter


22,435$
43,148


Ireland employment grants

The Company and the Ireland businesses acquired have received employment grants from the Ireland Development Authority (IDA) totaling $3,454,000 during the
period from 1995 through 2000.

F-14

---

These grants were awarded by the IDA for creating and maintaining permanent employment positions in Ireland for a period of at least five years. The receipt of future grant installments will extend
this period of contingent repayment to five years from the date of the last receipt. Termination of any number of these positions within a five-year period would result in the pro rata return of the
grants based on the number of positions terminated compared to the number of new positions originally created.

The
Company recognizes income from the grants on a straight-line basis over the term of the grants. The income is included in selling, general and administrative expenses in the
consolidated statements of operations.

401(k) plan

The Company has a discretionary 401(k) plan for all employees who are at least 21 years of age and have completed 60 days of service with the Company. During
2000, 1999 and 1998, the Company's discretionary contributions totaled $665,000, $252,000 and $70,000, respectively.

Litigation

The Company is involved in various claims arising in the normal course of business. In management's opinion, the final resolution of these claims should not
have a material adverse effect on the Company's financial position or the results of its operations.

10 Quarterly financial data (unaudited)

Unaudited quarterly data is as follows (in thousands, except per share data):

|             |  | Quarters Ended
|------------ |  | --------------
|
|2000         |  |               
|Sales        |  | $             
|Gross profit |  |               
|Net income   |  |               
|Basic EPS    |  |               
|Diluted EPS  |  |               

|             |  | Quarters Ended
|------------ |  | --------------
|
|1999         |  |               
|Sales        |  | $             
|Gross profit |  |               
|Net income   |  |               
|Basic EPS    |  |               
|Diluted EPS  |  |               

F-15

---

11 Industry segment and operations by geographic areas

The Company operates in one industry segment. Prior to 1999, the Company operated predominantly in the United States. The geographic distributions of the
Company's identifiable assets, operating income and revenues for 2000 and 1999 are summarized as follows (in thousands):

2000

1999Total revenues:United States

$
170,852

$
161,488Europe


62,646


75,543Canada


22,108


17,789LessIntergeographic revenues


(16,516
)

(16,122
)$
239,090

$
238,698Operating income:United States

$
32,406

$
28,202Europe


7,627


12,670Canada


5,861


4,440LessCorporate, interest and other income (expense) and eliminations


(7,900
)

(9,120
)$
37,994

$
36,192Assets:United States

$
58,119

$
47,125Europe


39,965


34,773Canada


17,835


12,921Total identifiable assets


115,919


94,819Corporate assets and eliminations


52,016


47,485$
167,935

$
142,304Capital expenditures:United States

$
7,675

$
5,885Europe


3,592


5,660Canada


3,016


418$
14,283

$
11,963Depreciation and amortization:United States

$
7,108

$
6,455Europe


1,679


1,269Canada


971


246$
9,758

$
7,970


F-16

---

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Zomax Incorporated:

We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of Zomax Incorporated
incorporated by reference this Form 10-K and have issued our report thereon dated January 24, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule of valuation and qualifying accounts is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission rules
and is not part of the consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole.

Minneapolis,
Minnesota,
January 24, 2001

F-17

---



Zomax Incorporated        Schedule II  Valuation and Qualifying Accounts

|Description                      |                                      | Balance at
Beginning of
Period |           | Charges to
Costs and
Expenses |           | Charged to
Other Accounts |   | Write-Offs, Net
of Recoveries |            | Balance at
End of
Period
|-------------------------------- | ------------------------------------ | ------------------------------ | --------- | ----------------------------- | --------- | ------------------------- | - | ----------------------------- | ---------- | ------------------------
|Allowance for doubtful accounts: |                                      |                                |           |                               |           |                           |   |                               |            |                         
|                                 | For the year ended December 29, 2000 |                                | 2,645,000 |                               | 98,000    |                           |  |                               | (335,000   | )                       
|                                 | For the year ended December 31, 1999 |                                | 2,035,000 |                               | 1,953,000 |                           |  |                               | (1,343,000 | )                       
|                                 | For the year ended December 25, 1998 |                                | 881,000   |                               | 1,149,000 |                           |  |                               | 5,000      |                         

F-18

---



ZOMAX INCORPORATED  EXHIBIT INDEX TO FORM 10-K

For
the Fiscal Year Ended:                                      
                                         
            Commission File No. 0-28426
December 29, 2000

|Exhibit
Number |   | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |   | Stock Purchase Agreement dated October 2, 1998 by and among the Company, Chumbo Holdings Corporation and the shareholders of Chumbo Holdings Corporation. Upon the request of the Commission, the Registrant agrees to
furnish a copy of the exhibits and schedules to the Stock Purchase Agreement, subject to requests for confidential treatment of certain information contained in such exhibits and schedules (Incorporated by reference to Exhibit 2.1 to Current Report
on Form 8-K dated October 2, 1998).
|2.2            |   | Asset Purchase and Sale Agreement dated November 28, 1998 between the Company and Kao Infosystems Company. Upon the request of the Commission, the Registrant agrees to furnish a copy of the exhibits and schedules to
the Asset Purchase and Sale Agreement, subject to requests for confidential treatment of certain information contained in such exhibits and schedules. (2)                                                                                                                                 
|2.3            |   | Asset Purchase and Sale Agreement dated November 28, 1998 between Zomax Canada Company and Kao Infosystems Canada, Inc. Upon the request of the Commission, the Registrant agrees to furnish a copy of the exhibits
and schedules to the Asset Purchase and Sale Agreement, subject to requests for confidential treatment of certain information contained in such exhibits and schedules. (2)                                                                                                                    
|2.4            |   | Share Purchase and Sale Agreement dated November 28, 1998 between Primary Marketing Group Limited and Kao Corporation. (2)                                                                                                                                                                                                                                                                                                                                                                                         
|3.1            | * | Articles of Incorporation, as amended                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.2            |   | Bylaws. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.1            |   | Form of Stock Certificate. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.2            |   | Articles of Incorporation (See Exhibit 3.1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.3            |   | Bylaws (See Exhibit 3.2).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.1           |   | 1996 Stock Option Plan, as amended through January 19, 2000, and Forms of Incentive and Nonqualified Stock Option Agreements (Incorporated by reference to Exhibit 10.1 to Annual Report on Form 10-K for the year ended
December 31, 1999).**                                                                                                                                                                                                                                                                     
|10.2           |   | 1996 Employee Stock Purchase Plan. (1)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.3           |   | Lease between the Company and Nathan Lane Partnership, LLP dated January 1, 1995, as amended October 28, 1997 (Incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-1, SEC File No.
333-2430 and Exhibit 10.15 to Annual Report on Form 10-KSB for the year ended December 26, 1997).                                                                                                                                                                                                     
|10.4           |   | Employment Agreement with James T. Anderson dated January 1, 1999 (Incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K for the year ended December 31, 1999).**                                                                                                                                                                                                                                                                                                                                
|10.5           |   | License Agreement with U.S. Phillips Corporation effective January 1, 1996 (Incorporated by reference to Exhibit 10.7 to Registration Statement on form S-1, SEC File No. 333-2430).                                                                                                                                                                                                                                                                                                                               
|10.6           |   | License Agreement with Discovision Associates dated January 1, 1994 (Incorporated by reference to Exhibit 10.8 to Registration Statement on Form S-1, SEC File No. 333-2430).                                                                                                                                                                                                                                                                                                                                      

E-1

---

|10.7  |   | Revolving Credit and Term Loan Agreement between the Company and Marquette Capital Bank dated December 31, 1995, as amended April 30, 1997 (Incorporated by reference to Exhibit 10.16 to Registration Statement on
Form S-1, SEC File No. 333-2430, and Exhibit 10.16 to Quarterly Report on Form 10-QSB for the quarter ended March 27, 1997).
|----- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8  |   | Lease between the Company and Chaboya Ranch dated June 5, 1997 (Incorporated by reference to Exhibit 10.16 to Quarterly Report on Form 10-QSB for the quarter ended March 28, 1997).                                                                                                                                                            
|10.9  |   | Credit Agreement dated as of January 6, 1999 among the Company, Certain Lenders and General Electric Capital Corporation. (2)                                                                                                                                                                                                                   
|10.10 |   | Credit Agreement dated as of January 6, 1999 among Zomax Canada Company, Certain Lenders and General Electric Capital Canada Inc. (2)                                                                                                                                                                                                           
|21.1  |   | Subsidiaries of the Company (Incorporated by reference to Exhibit 21.1 to Annual Report on Form 10-K for the year ended December 25, 1998)                                                                                                                                                                                                      
|23    | * | Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                                                                                  
|24    | * | Power of Attorney (included on signature page of this report)                                                                                                                                                                                                                                                                                   

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E-2

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