UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    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 31, 1999
                                      or

[   ]   Transition Report Under Section 13 or 15(d) of the Securities Exchange
        Act of 1934 for the transition period from _________to__________ .

Commission File Number:  0-28426

                               ZOMAX INCORPORATED
             (Exact name of registrant as specified in its charter)
         Minnesota                                             No. 41-1833089
(State or Other Jurisdiction of                                 (IRS Employer
Incorporation or Organization)                               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

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 $728.5
million based on the closing sale price of the Company's Common Stock as
reported on the Nasdaq National Market on March 8, 2000.

The number of shares outstanding of the registrant's common stock as of March 8,
2000: 15,895,961 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held April 19, 2000, are incorporated by reference into Part III of this report.


<PAGE>


                                     PART I

ITEM 1.  BUSINESS

General

         Zomax 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 call centers, distribution and RMA capabilities.
The Company believes that its acquisitions enable it to provide additional
integrated services, create an opportunity to attract new customers and
cross-market its services to existing customers.

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

o             Kao Corporation, an industry leading software replicator with
              operations in Fremont and San Ramon, California; Arnprior, Canada;
              Dublin, Ireland and Langen, Germany; acquired in January 1999;

o             Primary Marketing Group Ltd., (PMG Ireland) an RMA processor and
              provider of manufacturers' representative services in Ireland;
              acquired in February 1998;

o             Certain assets and contractual rights of Kao Corporation,
              including an agreement regarding the manufacture and distribution
              of products for Novell, Inc.; acquired in February 1998;


<PAGE>

o             Next Generation Services, LLC, (NGS) an RMA processing company
              with facilities in Hayward, California and Boston, Massachusetts;
              acquired in February 1998;

o             Primary Marketing Group, (PMG) a manufacturers' representative
              group, based in San Jose, California servicing the needs of
              computer hardware and software publishers; primary sales group for
              Kao Corporation in California; acquired in February 1998;

o             Trotter Technologies, Inc., (TTI) an RMA processing, warehousing
              and distribution company based in San Jose, California; acquired
              in May 1997;

o             Benchmark Media Services, Inc., (Benchmark) a software media
              replicator with operations in Plymouth, Minnesota and
              Indianapolis, Indiana; acquired in March 1997.

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 3.6 billion. Industry analysts also project software sales will
continue their tremendous 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 will reach over 95 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
rapid growth with the explosion of 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 $42 billion in 2009.


<PAGE>

         Some software publishers and computer hardware OEMs still dedicate
in-house resources to manufacturing and fulfillment. However, significant and
increasing 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 toward 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 believes that it 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 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
call 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.

         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 the inline inspection process. The Company
currently has a combination of 60 CD and DVD production lines at its facilities.


<PAGE>

         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 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.

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 with Microsoft, which allows
the Company to replicate Microsoft(R) 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 two-year Master Services Agreement which expires
in January 2001. In addition, the Company has an agreement with Microsoft to

<PAGE>

provide RMA processing, which agreement may be terminated by Microsoft upon 30
days' notice. During 1999, all Microsoft activities accounted for 40% of the
Company's consolidated sales.

         One of the Company's primary customers is Gateway, which accounted for
4%, 17% and 38% of the Company's consolidated sales in 1999, 1998 and 1997,
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, 2000, 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 22 people. The Company's
direct sales staff is supported by a project management staff of 118 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.

o        Independent service providers. Participants in this segment include
         companies such as Zomax, Disctronics, Inc., Denon Electronics, Inc.,
         Cinram International Inc., Startek Corporation, Future Media
         Productions, Modus Media International and Metatec Corporation.
         Independent service providers generally have the ability to handle
         large volume requirements and have varying degrees of service
         capability. However, most independent manufacturers do not typically
         offer as comprehensive a range of outsource services as Zomax.

o        Affiliates of major international music companies. This category
         consists of large manufacturers who are affiliated with major
         international music companies such as Sony Music Entertainment, Inc.,
         PolyGram Holdings, Inc., Warner Music, BMG Music and EMI Music. These

<PAGE>

         service providers dedicate a majority of their manufacturing capacity
         to the production of CD-Audio for affiliated record labels and
         typically offer a very limited range of services.

o        Small localized service providers. These service providers generally
         have limited production capacity and offer a limited range of related
         services. The complexity of the manufacturing process and the large
         capital investment required to maintain and upgrade capacity generally
         constrain these small service providers.

         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
market niches 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 can 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.


<PAGE>

         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, non-transferable licenses to make, use and sell
CDs in the United States. 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 DVA patent covered by the license
which is currently in 2010. This date may change in the event of a patent
invalidity ruling, premature expiration of a currently licensed patent or the
subsequent issuance of a related patent. The Company is currently negotiating to
expand these agreements to be worldwide licenses. If the Company is unable to
obtain these licenses, it could have a material effect on the Company's 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.


         The Company has entered into a DVD license agreement with U.S. Phillips
Corporation. This agreement expires in 2009 with royalty payments due based on
the number of DVDs manufactured. 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 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 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.


<PAGE>

         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) economic factors over which the Company has
no control.

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.

<TABLE>
<CAPTION>
                              Approximate      Lease
         Location             Square Feet    Expiration              Services
---------------------------- ------------- ------------------ -------------------------------------------
<S>                             <C>        <C>                 <C>
Arnprior, Canada                158,000         Owned          Print management, mastering, replication,
                                                               printing, packaging, warehousing and
                                                               distribution.

Concord, California              30,000          2008          Customer contact center

Dublin, Ireland                 100,000    2005 - 2016 (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            275,000        2002 (3)        Graphic design, print management,
                                                               packaging, warehousing, fulfillment,
                                                               distribution and RMA processing
</TABLE>
<PAGE>

(1)  Includes leases for two different sites.
(2)  Included leases for two sites, one of which is 82,000 sq. ft, with Nathan
     Lane Partnership, LLP (described below) expires in 2000 but has an option
     which the Company can extend two additional terms of three years each.
(3)  Includes leases for three different sites, two of which expire in 2002 and
     are currently not being utilized. The Company is attempting to sublease
     sites to third parties.

         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 $8.52 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 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 1999.

                                     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 25, 1998:        High                Low

        First Quarter........................      $9.10               $4.56
        Second Quarter.......................      10.00                7.07
        Third Quarter........................       8.13                4.25
        Fourth Quarter.......................       8.25                1.94

        Fiscal Year Ended December 31, 1999:

        First Quarter........................     $37.94              $12.31
        Second Quarter.......................      44.75               17.75
        Third Quarter........................      55.56               22.50
        Fourth Quarter.......................      47.94               24.44


<PAGE>

         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 8, 2000, there were approximately 332 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 15,000
stockholders of the Company's Common Stock whose stock is held either in nominee
name and/or street name brokerage accounts.

         On February 18, 2000, the Company issued 2,730 shares of Common Stock
upon the cashless conversion of an underwriter's warrant to purchase 2,978
shares at $4.05 per share. Pursuant to such conversion, the warrant holder
forfeited 278 shares under the warrant as consideration. The Company relied upon
Section 4(2) of the Securities Act, which provides an exemption for a
transaction not involving a public offering.


<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
(000's except per share data)                                    For the years ended
                                             ---------------------------------------------------------
                                               1999         1998        1997        1996        1995
                                             ----------   ---------   ---------   ---------  ---------
Statement of Operations Data:

<S>                                           <C>          <C>         <C>         <C>        <C>
Sales                                         $229,261     $61,074     $47,877     $26,867    $16,858

Gross Profit                                    73,916      16,804      15,104       8,776      5,632

Selling, general and                            37,764      10,595       9,860       5,366      3,853
          administrative expenses

Operating Income                                36,152       6,208       5,244       3,410      1,779

Income before taxes                             37,804       6,141       5,218       3,613      3,575

Pro Forma(1):

          Income before income taxes            37,804       6,141       5,218       3,613      3,575

          Provision for income taxes           (11,977)     (2,580)     (2,090)     (1,461)    (1,434)

          Net Income                            25,827       3,561       3,128       2,152      2,141

          Earnings per share -

              Basic                               1.74        0.28        0.30        0.23       0.30

              Diluted                             1.58        0.26        0.29        0.23       0.30

          Weighted average number of shares outstanding :

              Basic                             14,831      12,734      10,448       9,198      7,200

              Diluted                           16,346      13,462      10,716       9,202      7,200

                                                 1999         1998        1997        1996       1995
                                             ----------   ---------   ---------   ---------  ---------
Balance Sheet Data:
          Cash                                  51,128    $ 25,621     $ 5,213     $ 7,945      $ 937

          Working capital                       95,691      26,969       5,049       9,029      2,631

          Total assets                         142,304      65,424      31,026      24,322     12,485

          Long-term notes payable, less          3,990       1,746       3,104       1,834      2,979
          current portion

          Total shareholders' equity            82,430      50,087      16,463      14,643      5,166
</TABLE>

(1) A pro forma provision has been established as if all consolidated companies
were taxable entities for all periods presented.


<PAGE>

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; 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; CD and DVD printing;
assembly; packaging; warehousing; distribution and fulfillment; and RMA
processing services. Over the last three years, the Company has made six
acquisitions that have expanded its geographic presence and outsourcing service
offerings.

         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.

         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 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 services. The acquisition has been 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 800,002
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.
PMG, NGS and PMG Ireland operated their respective businesses from facilities
located in and around San Jose, California; Boston, Massachusetts; and Dublin,
Ireland. 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.

         On May 1, 1997, the Company acquired the outstanding shares of Trotter
Technologies, Inc. (TTI), an RMA processing, warehouse and distribution company
based in San Jose, CA, servicing the software publishing market. The purchase
price of TTI was $712,000 cash and 59,268 shares of the Company's Common Stock.

<PAGE>

The acquisition of TTI was accounted for using the purchase method of
accounting. As a result of this treatment, the TTI purchase price was allocated
to net assets acquired based on estimated fair market values and approximately
$1.2 million of cost in excess of net assets acquired was recorded as goodwill.

         On March 31, 1997, the Company acquired the outstanding shares of
Benchmark Media Services, Inc., a software media replicator with operations in
Minneapolis, Minnesota and Indianapolis, Indiana. The Company agreed to pay
consideration for the acquisition based on revenues of Benchmark in 1997.
Revenue levels were not met; therefore, no consideration was paid. The Benchmark
acquisition was accounted for using the purchase method of accounting.

         Prior to the acquisitions described above, some of the acquired
companies operated as non-taxable entities. A pro forma tax provision has been
established as if all consolidated companies were taxable entities for all
periods presented.

Results of Operations

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

<TABLE>
<CAPTION>
                                                                    For the Years Ended

                                                     December 31,      December 25,    December 26,
                                                         1999              1998            1997
                                                    ----------------  ---------------  -------------
<S>                                                      <C>              <C>             <C>
Sales...........................................         100.0%           100.0%          100.0%
Cost of sales...................................          67.7             72.5            68.5
                                                    ----------------  ---------------  -------------
Gross profit....................................          32.3             27.5            31.5
Selling, general and administrative
expenses........................................          16.5             17.3            20.6
                                                    ----------------  ---------------  -------------
Operating income................................          15.8             10.2            10.9
Equity in losses of unconsolidated
entity..........................................           0.8              0.6             -
Gain on unconsolidated entity stock sale........
                                                          (1.6)             -               -
Interest expense................................           0.5              0.6             0.8
Interest income.................................          (0.4)            (1.6)           (0.5)
Other (income) expense, net.....................           -                0.5            (0.3)
                                                    ----------------  ---------------  --------------
Income before income taxes......................          16.5             10.1            10.9
Provision for income taxes(1)...................           5.2              4.2             4.4
                                                    ----------------  ---------------  -------------
Net income......................................          11.3%             5.9%            6.5%
                                                    ================  ===============  ==============
</TABLE>

(1)  A pro forma tax provision has been established as if all consolidated
     companies were taxable entities for 1998 and 1997.


<PAGE>

         For the Years Ended December 31, 1999 and December 25, 1998

         Sales. The Company's total net sales increased 275% to $229.3 million
in 1999 as compared to $61.1 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; and added the customer contact center capabilities, as well as
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.

         Cost of sales. Cost of sales as a percentage of sales was 67.7% in 1999
and 72.5% in 1998. In dollars, cost of sales increased $110.1 million to $155.4
million from 1998. This cost of sales percentage decrease is 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 outsources its CD production when customer orders
exceed its production capabilities. The Company outsourced 9% of its CD
manufacturing in 1999 and 7% in 1998. The cost for such outsourced production is
higher than the cost of CDs produced internally by the Company.

         Selling, general and administrative expenses. Selling, general and
administrative expenses as a percentage of sales were 16.5% in 1999 and 17.3% in
1998. In dollars, selling, general and administrative expenses increased $27.1
million to $37.7 million from 1998. The dollar increase in 1999 resulted
primarily from the acquisition of the Kao business.

         Earnings from unconsolidated entity. During 1999, the Company
recognized a loss of $1.9 million from its equity investment in Chumbo Holdings
Corporation, an Internet based reseller of software. The loss represents the
Company's share of Chumbo losses and the amortization of excess purchase price
over the fair value of the underlying net assets acquired. 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
$3.7 million, 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
$949,000 for 1999 and 1998, respectively. Interest expense was $1.2 million and
$369,000 for 1999 and 1998, respectively. Interest expense increased with
borrowings used to finance the purchase of Kao.

         Other (income) expense, net. In 1999, other expense consists of foreign
currency losses. In 1998, the Company incurred expenses totaling $278,000
relating to the acquisition of PMG, NSG and PMG Ireland. These costs were
expensed as incurred according to the pooling of interest accounting rules.

         Provision for income taxes. The effective income tax rate for 1999 was
31.7% compared to a pro forma rate of 42.0% 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 625%
from the pro forma net income of $3.6 million in 1998.


<PAGE>

         For the Years Ended December 25, 1998 and December 26, 1997

         Sales. The Company's sales were $61.1 million for 1998, an increase of
27.6% from $47.9 million in 1997. CD related sales increased 68% in 1998 from
1997. The increase in 1998 CD related sales resulted from the increased CD
capacity in the Minneapolis, Minnesota facility and the opening of new CD and
assembly/distribution facilities in San Jose, California. The Company believes
the growth in CD related sales was due to its strategy of being a full-service
provider of multimedia products and related services. Diskette related sales
decreased 41% from the prior year as customers moved their software from
diskettes to CDs. RMA processing revenue is comprised of processing fees
associated with handling customer returns from the retail channels, as well as
sales of recycled diskettes which are received in returns and processed for
resale. RMA processing revenue decreased 34.0% in 1998 compared to 1997 as fewer
recycled diskettes were processed and sold in 1998 compared to 1997 and the 1997
RMA processing revenue included a significant one-time project.

         Cost of sales. Cost of sales as a percentage of sales was 72.5% and
68.5% for 1998 and 1997, respectively. The cost of sales percentage increase
resulted from a change in product mix discussed above and start up expenses
incurred in connection with opening the new CD facility. The Company outsources
its CD production when customer orders exceed its production capabilities. The
Company outsourced 7% of its CD manufacturing in 1998 and 9% in 1997.

         Selling, general and administrative expenses. Selling, general and
administrative expenses as a percentage of sales were 17.3% in 1998 and 20.6% in
1997. In dollars, general and administrative expenses increased $735,000 from
1997. Selling, general and administrative expenses have decreased as a
percentage of sales in 1998 as the Company has achieved operational efficiencies
from integrating its acquisitions.

         Equity in losses of unconsolidated entity. In the fourth quarter of
1998, the Company purchased a one-third equity interest in Chumbo Holdings
Corporation, an Internet based reseller of software. The Company accounts for
this investment using the equity method of accounting, and accordingly,
recognized a loss of $370,000 representing its share of Chumbo net losses and
the amortization of excess purchase price over the fair value of the underlying
net assets acquired.

         Interest income and expense. Interest income was $949,000 and $228,000
for 1998 and 1997, respectively. The increase in interest income in 1998
resulted from investment income on proceeds from the Company's public stock
offering. Interest expense was $369,000 and $409,000 for 1998 and 1997,
respectively.

         Other (income) expense, net. In 1998, the Company incurred expenses
totaling $278,000 relating to the acquisition of PMG, NGS and PMG Ireland. These
costs were expensed as incurred according to the pooling-of-interest accounting
rules. In 1997, PMG generated $155,000 of other income as a result of
representing certain manufacturers' products.

         Pro forma provision for income taxes. The pro forma effective income
tax rate for 1998 was 42.0% compared to 40.1% for 1997. Such rates principally
reflect the federal statutory tax rate plus the effect of state income taxes.


<PAGE>

         Pro forma net income. Pro forma net income for 1998 was $3.6 million,
an increase of 14.0% from $3.1 million in 1997.

Liquidity and Capital Resources

         As of December 31, 1999, the Company had working capital of $47.5
million, compared to working capital of $27.0 million as of December 25, 1998
and $5.0 million as of December 26, 1997. 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 3.8 million
shares of common stock netting $30 million, net of offering costs.

         As of December 31, 1999, the Company had cash totaling $51.1 million.
Cash generated from operating activities was $64.7 million, $7.7 million and
$6.9 million during 1999, 1998 and 1997, respectively. The increase in 1999
operating cash flow results primarily from the increase in net income and
improvements in accounts receivable collections from the Kao acquired
businesses.

         Cash used in investing activities was $53.4 million, $15.0 million and
$6.6 million in 1999, 1998 and 1997, respectively. In 1999, the Company used
$42.5 million to purchase the businesses and net assets of Kao Corporation. In
1998, cash used in investing activities included $5.0 million for the purchase
of an equity interest in Chumbo Holdings Corporation. The balance of 1999, 1998
and prior years investing activities primarily relates to the purchase of
property and equipment to support the Company's growth in business.

         In 1999, the Company financed a portion of the Kao acquisition with the
proceeds of a $15.0 million term loan facility. In 1998, the Company 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. The
Company financed equipment purchases with long-term debt totaling $3.8 million
in 1997. The Company reduced the amount of notes payable in the amount of $3.6
million, $3.4 million and $3.9 million in 1999, 1998 and 1997, respectively. PMG
and NGS made distributions to its owners of $2.2 million in 1997. These
distributions were made in accordance with the dividend policies of these
companies. The Company has never declared or paid dividends on its Common Stock.

         As of 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 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.


<PAGE>

Market Risk

         Foreign currency. As a result of the Kao acquisition, 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
affected 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 $40,000 in 1999. 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 $32.2
million at December 31, 1999. During 1999, 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 translate into fewer U.S. dollars. A weaker dollar generally has
positive translation effect. In 1999, the stronger U.S. dollar reduced
translated net sales and net income by $9.1 million and $1.8 million,
respectively.

         Interest. Substantially all of the Company's debt and associated
interest expense is sensitive to changes in the level of 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, 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.

Year 2000 Compliance

         The Company developed a Year 2000 plan, the objective of which was to
determine and assess the risks of the Year 2000 issue, and plan and institute
corrective actions to minimize those risks. The Company's goal was to ensure
that current business operations would continue to function accurately with no
material disruption into and beyond year 2000. The Company formed internal
review teams and engaged an independent Year 2000 consulting firm to assist and
advise regarding Year 2000 compliance. The Year 2000 plan addressed (a)
information technology (IT) such as software and hardware, (b) non-information
system or embedded technology contained in manufacturing equipment and
facilities, and (c) readiness of key third party suppliers.


<PAGE>

         During 1999, the Company completed the assessment of Year 2000
compliance with regard to embedded technology and material suppliers and
customers, implemented remediations for any Year 2000 problems identified and
formulated contingency plans to reduce risks and exposure to Year 2000 related
issues.

         Through December 31, 1999, costs associated with the Company's Year
2000 plan were less than $50,000. Currently, no significant business
interruptions from the Year 2000 issue were encountered. The Company will
continue to monitor systems and vendors. Although the Company does not
anticipate any future business interruption, there is no assurance that such
interruption will not occur.

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
increased costs to its customers in the future.

Seasonality

         The demand for CDs and other multimedia consumer products is 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 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
continue to grow in 2000. 2000 unit prices are expected to remain somewhat
consistent. 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
manage industry changes as well as its own growth and organizational changes.

         If CD market demand does not continue to grow as expected, revenue
growth would be adversely impacted and the manufacturing capacity installed may
be underutilized. Pricing strategies of competitors and general economic
factors, such as consumer confidence and inflation, all impact the Company. A

<PAGE>

substantial part of our 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, we may lose customers and experience a significant decrease in revenue.

         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:

                                                                           Page
         Report of Independent Public Accountants on Consolidated
           Financial Statements dated January 24, 2000                      F-1
         Consolidated Balance Sheets as of December 31, 1999 and
           December 25, 1998                                                F-2
         Consolidated Statements of Operations for Years Ended December
           31, 1999, December 25, 1998 and December 26, 1997                F-3
         Consolidated Statements of Shareholders' Equity for Years Ended
           December 31, 1999, December 25, 1998 and December 26, 1997       F-4
         Consolidated Statements of Cash Flows for Years Ended December
           31, 1999, December 25, 1998 and December 26, 1997                F-5
         Notes to Consolidated Financial Statements                         F-6
         Report of Independent Public Accountants on Schedule dated
           March 29, 2000                                                   F-19
         Schedule II - Valuation and Qualifying Accounts                    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.


<PAGE>

                                    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 19, 2000. 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 connection with the Annual Meeting of
Stockholders to be held on April 19, 2000. 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 19, 2000. 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 19, 2000. Such information is incorporated herein by
reference.

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

(a)      Exhibits.

         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.


<PAGE>

(b)      Financial Statements and Schedules.

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

         Report of Independent Public Accountants on Consolidated Financial
         Statements dated January 24, 2000

         Consolidated Balance Sheets as of December 31, 1999 and December 25,
         1998

         Consolidated Statements of Operations for Years Ended December 31,
         1999, December 25, 1998 and December 26, 1997

         Consolidated Statements of Shareholders' Equity for Years Ended
         December 31, 1999, December 25, 1998 and December 26, 1997

         Consolidated Statements of Cash Flows for Years Ended December 31,
         1999, December 25, 1998 and December 26, 1997

         Notes to Consolidated Financial Statements

         Report of Independent Public Accountants on Schedule dated March 29,
         2000

         Schedule II - Valuation and Qualifying Accounts

         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.

         (c) Reports on Form 8-K.

         None



<PAGE>


                                   SIGNATURES

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

                                        ZOMAX INCORPORATED

Date:  March 29, 2000

                                        By /s/ James T. Anderson
                                           James T. Anderson
                                           Chairman and Chief Executive Officer

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

<TABLE>
<CAPTION>
  Name                       Title                                                Date

<S>                          <C>                                                  <C>
  /s/James T. Anderson       Chairman of the Board and Chief Executive            March 29, 2000
                             Officer (principal executive officer)
   James T. Anderson

  /s/Anthony Angelini        President, Chief Operating Officer                   March 29, 2000
  Anthony Angelini           and Director

  /s/James E. Flaherty       Chief Financial Officer and Secretary                March 29, 2000
                             (principal financial and accounting officer)
                             and accounting officer)
  James E. Flaherty

  /s/Phillip T. Levin        Director                                             March 29, 2000
  Phillip T. Levin

   /s/Robert Ezrilov         Director                                             March 29, 2000
  Robert Ezrilov

  /s/Howard P. Liszt         Director                                             March 29, 2000
  Howard P. Liszt

  /s/Janice Ozzello Wilcox   Director                                             March 29, 2000
  Janice Ozzello Wilcox

</TABLE>
<PAGE>



                    Report of Independent Public Accountants



To Zomax Incorporated:

We have audited the accompanying consolidated balance sheets of Zomax
Incorporated (a Minnesota corporation) as of December 31, 1999 and December 25,
1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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
as of December 31, 1999 and December 25, 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.



                                                    /s/  ARTHUR ANDERSEN LLP



Minneapolis, Minnesota,
   January 24, 2000


<PAGE>



                               ZOMAX INCORPORATED

                           Consolidated Balance Sheets

                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                             December 31,  December 25,
                                                                                1999           1998
                                                                             ------------  ------------
                                    ASSETS

<S>                                                                           <C>           <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                  $  51,128     $  25,621
   Accounts receivable, net of allowance for doubtful accounts
      of $2,645 and $2,035                                                       28,291         9,872
   Inventories                                                                    9,338         2,088
   Deferred income taxes                                                          2,899         1,425
   Prepaid expenses and other                                                     2,448           543
                                                                             ------------  ------------
               Total current assets                                              94,104        39,549

PROPERTY AND EQUIPMENT, net                                                      40,642        18,925

INVESTMENT IN UNCONSOLIDATED ENTITY                                               6,447         4,662

GOODWILL AND OTHER ASSETS, net                                                    1,111         2,287
                                                                             ------------  ------------
                                                                              $ 142,304     $  65,423
                                                                             ============  ============

                     LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current portion of notes payable                                           $   3,990     $   1,380
   Accounts payable                                                              18,768         5,468
   Accrued expenses-
      Accrued royalties                                                           4,083         2,446
      Accrued compensation                                                       11,768         1,786
      Other                                                                       6,342           566
   Income taxes payable                                                           1,687           934
                                                                             ------------  ------------
               Total current liabilities                                         46,638        12,580

LONG-TERM NOTES PAYABLE, net of current portion                                  10,603         1,746

DEFERRED INCOME TAXES                                                             2,633         1,010

COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)

SHAREHOLDERS' EQUITY:
   Common stock, no par value, 20,000 shares authorized; 15,483 and 14,378
      shares issued and outstanding                                              51,953        42,680
   Retained earnings                                                             33,234         7,407
   Other comprehensive income                                                    (2,757)         --
                                                                             ------------  ------------
               Total shareholders' equity                                        82,430        50,087
                                                                             ------------  ------------
                                                                              $ 142,304     $  65,423
                                                                             ============  ============

</TABLE>


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

<PAGE>


                               ZOMAX INCORPORATED

                      Consolidated Statements of Operations

                    (In Thousands, Except for Per Share Data)

<TABLE>
<CAPTION>

                                                                       For the Years Ended
                                                            ----------------------------------------
                                                            December 31,  December 25,  December 26,
                                                               1999           1998          1997
                                                             ---------     ---------     ---------
<S>                                                          <C>           <C>           <C>
SALES                                                        $ 229,261     $  61,074     $  47,877

COST OF SALES                                                  155,345        44,270        32,773
                                                             ---------     ---------     ---------
               Gross profit                                     73,916        16,804        15,104

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
                                                                37,724        10,595         9,860
                                                             ---------     ---------     ---------
               Operating income                                 36,192         6,209         5,244

EQUITY IN LOSSES OF UNCONSOLIDATED ENTITY
                                                                 1,890           370          --
GAIN ON UNCONSOLIDATED ENTITY STOCK SALE                        (3,685)         --            --

INTEREST EXPENSE                                                 1,179           369           409

INTEREST INCOME                                                 (1,036)         (949)         (228)

OTHER (INCOME) EXPENSE, NET                                         40           278          (155)
                                                             ---------     ---------     ---------
               Income before income taxes                       37,804         6,141         5,218

PROVISION FOR INCOME TAXES                                      11,977         2,475         1,520
                                                             ---------     ---------     ---------
NET INCOME                                                   $  25,827     $   3,666     $   3,698
                                                             =========     =========     =========

PRO FORMA (Note 3):
   Income before income taxes                                              $   6,141     $   5,218
   Provision for income taxes                                                  2,580         2,090
                                                                           ---------     ---------
               Net income                                                  $   3,561     $   3,128
                                                                           =========     =========

   Earnings per share-
      Basic                                                  $    1.74     $    0.28     $    0.30
                                                             =========     =========     =========
      Diluted                                                $    1.58     $    0.26     $    0.29
                                                             =========     =========     =========

   Weighted average common shares outstanding
                                                                14,831        12,735        10,448
   Dilutive effect of stock options and warrants                 1,515           728           267
                                                             ---------     ---------     ---------

   Weighted average common and diluted shares outstanding       16,346        13,463        10,715
                                                             =========     =========     =========

</TABLE>


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

<PAGE>

                               ZOMAX INCORPORATED

                 Consolidated Statements of Shareholders' Equity

                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                                            Shareholders' Equity
                                                                         ---------------------------------------------
                                                                                                             Accumulated
                                                                                                              Other
                                                                              Common Stock      Retained    Comprehensive
                                                                          Shares      Amount    Earnings      Income       Total
                                                                         -------    --------    --------     --------     --------

<S>                                                                       <C>       <C>         <C>          <C>          <C>
BALANCE, December 27, 1996                                                10,370    $ 12,350    $  2,293     $   --       $ 14,643
   Net income                                                               --          --         3,698         --          3,698
   Common stock issued under Employee Stock Purchase Plan                     13          31        --           --             31

   Common stock issued in connection with the acquisition of Trotter
      Technologies, Inc. on  May 1, 1997                                     119         341        --           --            341

   Dividends and distributions                                              --          --        (2,250)        --         (2,250)
                                                                         -------    --------    --------     --------     --------
BALANCE, December 26, 1997                                                10,502      12,722       3,741         --         16,463
   Net income                                                               --          --         3,666         --          3,666
   Common stock issued under Employee Stock Purchase Plan                     16          57        --           --             57
   Common stock issued upon exercise of stock options and warrants            60         172        --           --            172
   Sale of common stock at $17.00 per share, net of offering
      costs of $2,571                                                      3,800      29,729        --           --         29,729
                                                                         -------    --------    --------     --------     --------

BALANCE, December 25, 1998                                                14,378      42,680       7,407         --         50,087
   Comprehensive income:
   Net income                                                               --          --        25,827         --           --
   Translation adjustments                                                  --          --          --         (2,757)        --
               Total comprehensive income                                   --          --          --           --         23,070
   Common stock issued under Employee Stock Purchase Plan                     93         622        --           --            622
   Common stock issued upon exercise of stock options and warrants         1,012       2,740        --           --          2,740
   Tax benefit realized from exercise of stock options                      --         5,911        --           --          5,911
                                                                         -------    --------    --------     --------     --------

BALANCE, December 31, 1999                                                15,483    $ 51,953    $ 33,234     $ (2,757)    $ 82,430
                                                                         =======    ========    ========     ========     ========


</TABLE>


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

<PAGE>

                               ZOMAX INCORPORATED

                      Consolidated Statements of Cash Flows

                                 (In Thousands)

<TABLE>
<CAPTION>

                                                                                                 For the Years Ended
                                                                                       --------------------------------------
                                                                                       December 31, December 25, December 26,
                                                                                          1999         1998          1997
                                                                                        ---------    ---------    ---------
<S>                                                                                     <C>          <C>          <C>
OPERATING ACTIVITIES:
   Net income                                                                           $ 25,827     $  3,666     $  3,698
   Adjustments to reconcile net income to net cash provided by operating activities-
         Depreciation and amortization                                                     7,970        4,043        2,246
         Equity in losses of unconsolidated entity                                         1,890          370         --
         Gain on unconsolidated entity stock sale                                         (3,685)        --           --
         Deferred income taxes                                                               149         (273)        (133)
         Changes in operating assets and liabilities:
            Accounts receivable                                                           12,027       (2,712)         910
            Inventories                                                                   (1,515)        (485)          21
            Prepaid expenses and other                                                    (1,816)         336         (581)
            Accounts payable                                                               7,285        1,943         (946)
            Accrued expenses                                                               7,538          153        2,000
            Income taxes payable                                                           8,992          694         (273)
                                                                                        ---------    ---------    ---------
               Net cash provided by operating activities                                  64,662        7,735        6,942
                                                                                        ---------    ---------    ---------

INVESTING ACTIVITIES:
   Purchase of property and equipment, net                                               (11,963)      (8,894)      (6,007)
   Acquisitions, net of cash acquired                                                    (42,500)        --           (775)
   Investment in unconsolidated entity                                                      --         (5,032)        --
   Change in other assets                                                                  1,088       (1,088)         192
                                                                                        ---------    ---------    ---------
               Net cash used in investing activities                                     (53,375)     (15,014)      (6,590)
                                                                                        ---------    ---------    ---------

FINANCING ACTIVITIES:
   Proceeds from notes payable                                                            15,000        1,124        3,749
   Repayment of notes payable                                                             (3,560)      (3,396)      (3,899)
   Repayment of short-term borrowings                                                       --           --           (715)
   Dividends and distributions                                                              --           --         (2,250)
   Issuance of common stock, net of offering costs                                         3,362       29,959           31
                                                                                        ---------    ---------    ---------
               Net cash provided by (used in) financing activities                        14,802       27,687       (3,084)
                                                                                        ---------    ---------    ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                (582)        --           --
                                                                                        ---------    ---------    ---------
               Net increase (decrease) in cash                                            25,507       20,408       (2,732)

CASH AND CASH EQUIVALENTS:
   Beginning of year                                                                      25,621        5,213        7,945
                                                                                        ---------    ---------    ---------
   End of year                                                                          $ 51,128     $ 25,621     $  5,213
                                                                                        =========    =========    =========

SUPPLEMENTAL CASH FLOW DISCLOSURE:
   Cash paid for interest                                                               $  1,125     $    369     $    427
                                                                                        =========    =========    =========

   Cash paid for income taxes                                                           $  2,682     $  2,055     $  1,954
                                                                                        =========    =========    =========

   Common shares issued in connection with the acquisition of
      Trotter Technologies, Inc.                                                        $   --       $   --       $    341
                                                                                        =========    =========    =========
</TABLE>


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

<PAGE>


                               ZOMAX INCORPORATED

                   Notes to Consolidated Financial Statements



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 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 31, 1999, December 25, 1998 and December 26, 1997 are
referred to as 1999, 1998 and 1997, respectively. The fiscal period for the year
ended in 1999 includes fifty-three weeks as compared to fifty-two weeks in 1998
and 1997.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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 1999, one customer represented 40% of the Company's sales. In
1998, two customers accounted for 17% and 13% of the Company's sales. In 1997,
one customer accounted for 38% of the Company's sales.

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.


<PAGE>

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 31, 1999  December 25, 1998
                                 -----------------  -----------------
            Raw materials           $6,404             $1,682
            Finished goods             937                351
            Work in process          1,997                 55
                                    ------             ------
                                    $9,338             $2,088
                                    ======             ======


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 (in thousands):

                                           December 31, December 25,
                                              1999          1998       Lives
                                           -----------  -----------    -----
Manufacturing equipment                     $ 44,830     $ 23,581     7 years
Office equipment                               4,492        2,100     5-7 years
Land, building and leasehold improvements      6,084        1,412     4-35 years
Vehicles                                          58           55     5 years
                                            --------     --------
                                              55,464       27,148
Less- Accumulated depreciation and
    amortization                             (14,822)      (8,223)
                                            --------     --------
Property and equipment, net                 $ 40,642     $ 18,925
                                            ========     ========

Goodwill

The Company has classified as goodwill cost in excess of fair value of the
underlying net assets acquired in connection with the acquisitions described in
Note 3. Goodwill is being amortized on a straight-line basis over 15 years.
Accumulated amortization was $195,000 and $121,000 at December 31, 1999 and
December 25, 1998, respectively.

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 income tax rates in effect at
the balance sheet date.


<PAGE>

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 has assumed that the
carrying amounts approximate fair value because of their short-term nature.

Long-Lived Assets

Long-lived assets, such as property and equipment and goodwill, 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. When any such
impairment exists, the related assets will be written down to fair value.

Royalty Payments

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

Earnings Per Share

Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share 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 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
income (expense), net.

Comprehensive Income

On December 26, 1998, Zomax adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income." The standard requires the
display and reporting of comprehensive income, which includes all changes in
shareholders' equity with the exception of additional investments by
shareholders or distributions to shareholders. Comprehensive income is reported
on the consolidated statement of shareholders' equity.

Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 137
deferred the effective date of SFAS No. 133 to fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company believes that the adoption of
SFAS No. 133 will not have a material impact on the Company's financial
statements.


<PAGE>

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 business, 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 has been 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.

Pro forma consolidated results of operations as if the acquisition had taken
place at the beginning of 1998 are shown below (in thousands, except for per
share data):

                                                    Year Ended
                                                 December 25, 1998
                                                 -----------------
            Net sales                               $274,714
            Net income                                 8,585

            Earnings per share-
               Basic                                    0.67
               Diluted                                  0.64

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 800,002 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.

Net sales and pro forma net income (pro forma for the effect of income taxes)
for the year ended December 26, 1997 were as follows (in thousands):

                                                 The Acquired
                                         Zomax     Companies
                                        -------   ----------
              Net sales                 $37,907     $9,970
              Net income                  2,307        821

On May 1, 1997, the Company acquired all of the outstanding shares of Trotter
Technologies, Inc. (Trotter). The purchase price of Trotter was $712,000,
payable in cash and 59,268 shares of the Company's common stock. The acquisition
was accounted for using the purchase method of accounting and, accordingly, the
purchase price was allocated to net assets acquired based on their estimated
fair values. This treatment resulted in approximately $1,200,000 of cost in
excess of net assets acquired (which has been recorded as goodwill in the
accompanying consolidated financial statements). Trotter's results of operations

<PAGE>

have been included in the accompanying consolidated statements of operations
since the date of acquisition. Trotter was a return merchandise processing,
warehousing and distribution company based in San Jose, California, servicing
the software publishing market.

On March 31, 1997, the Company acquired all of the outstanding shares of
Benchmark, Inc. (Benchmark) for no initial consideration; however, the Company
agreed to pay additional consideration based on revenues of Benchmark during
1997. Such levels were not met; therefore, no additional consideration was paid.
The acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to net assets acquired based on
their estimated fair values. Benchmark's results of operations have been
included in the accompanying consolidated statements of operations since the
date of acquisition. Benchmark was a software replicator located in Plymouth,
Minnesota, and Indianapolis, Indiana.

Investment in Unconsolidated Entity

On October 2, 1998, the Company acquired 4,310,345 shares of the common stock of
Chumbo Holdings Corporation (Chumbo) in exchange for $5,000,000 in cash. In
addition, the Company granted warrants to certain shareholders of Chumbo to
purchase 200,000 shares of the Company's common stock at a price of $10.00 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 31, 1999, the Company
now owns 25.2% of Chumbo. The Company recognized a loss of $1,890,000 and
$370,000 in 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 and operates a website
(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 $1,156,000,
$1,213,000 and $907,000 in 1999, 1998 and 1997, 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% or LIBOR rate plus 2.25%. The revolving line-of-credit facility
provides for borrowings based on a formula using eligible accounts receivable

<PAGE>

and inventories with interest rates of prime plus .5% or LIBOR plus 2.0%. Both
facilities have five-year terms and contain certain financial covenants. The
Company was in compliance with the covenants as of December 31, 1999.

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

The Company also has several installment notes, with monthly installments
payable through November 2001, at interest rates ranging from 8.1% to 9.7%. The
notes are collateralized by certain equipment. Amounts outstanding as of
December 31, 1999 and December 25, 1998 were $1,843,000 and $3,127,000,
respectively.

Future scheduled maturities of long-term debt are as follows as of December 31,
1999 (in thousands):

            2000                                                 $ 3,990
            2001                                                   3,802
            2002                                                   3,023
            2003                                                   3,023
            2004                                                     755
                                                                 -------
            Total                                                 14,593
            Less- Current portion                                 (3,990)
                                                                 -------
            Long-term notes payable, net of current portion      $10,603
                                                                 =======

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 280,000 shares of
common stock at a price of $4.05 per share. The warrants are exercisable for a
period of four years, commencing one year from the offering date. As of December
31, 1999, warrants to purchase 9,368 shares remain outstanding.

On May 21, 1998, the Company completed the sale of 3,200,000 shares of common
stock in a secondary public offering. On June 8, 1998, the underwriters
exercised an overallotment option and purchased an additional 600,000 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. All per share and
share outstanding data in the consolidated financial statements and notes to
consolidated financial statements have been retroactively restated to reflect
the stock split.

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% of their compensation toward the
purchase of the Company's common stock at a price equal to 85% of fair market
value. A total of 500,000 shares have been reserved for issuance under this
plan. Shares issued in 1999, 1998 and 1997 were 93,194, 15,900 and 13,094,
respectively.


<PAGE>

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% 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 2,600,000, of which 227,800 remained available for
grant at December 31, 1999. These options, which can be either incentive stock
options or nonqualified options, vest over a three- to five-year schedule and
expire ten years after the grant date. During 1999, the Company also issued
nonqualified stock options for the purchase of 170,000 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.

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

<TABLE>
<CAPTION>
                                              1999                    1998                      1997
                                                   Weighted                Weighted                  Weighted
                                                   Average                 Average                   Average
                                                   Exercise                Exercise                  Exercise
                                       Shares       Price      Shares       Price        Shares        Price
                                      ------       --------   ------       --------      ------      --------
<S>                                    <C>         <C>         <C>         <C>              <C>      <C>
Options outstanding,
   beginning of year                   2,312       $   3.95    1,310       $   3.22         720      $   3.40
      Granted                            371           9.91    1,172           5.21         590          2.87
      Exercised                         (886)          3.84      (52)          3.41        --         --
      Canceled                          (192)          5.13     (118)          4.23        --         --
                                      ------       --------   ------       --------      ------      --------
Options outstanding, end of year       1,605       $   5.26    2,312       $   3.95       1,310      $   3.22
                                      ======       ========   ======       ========      ======      ========

Options exercisable, end of year         129       $   4.98      538       $   3.43         302      $   3.36
                                      ======       ========   ======       ========      ======      ========

</TABLE>

Options outstanding at December 31, 1999 have exercise prices ranging from $2.25
to $27.19 to a weighted average remaining contractual life of 8.37 years.


<PAGE>

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 earnings per
share (EPS), on a pro forma basis, would have been reported as follows (in
thousands, except per share data):

                                        1999           1998           1997
                                  ----------      ---------      ---------
        Net income:
           As reported            $   25,827      $   3,561      $   3,128
                                  ==========      =========      =========
           Pro forma              $   23,030      $   2,775      $   2,615
                                  ==========      =========      =========

        EPS:
           Basic                  $     1.74      $    0.28      $    0.30
                                  ==========      =========      =========
           Diluted                $     1.58      $    0.26      $    0.29
                                  ==========      =========      =========

        Pro forma EPS:
           Basic                  $     1.55      $    0.22      $    0.25
                                  ==========      =========      =========
           Diluted                $     1.41      $    0.21      $    0.24
                                  ==========      =========      =========


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:

                                            1999           1998          1997
                                          --------       --------     --------
  Risk-free interest rate                   5.48%          5.23%         6.72%
  Expected life of options granted        10 years       10 years      10 years
  Expected volatility of options
     granted                               82.67%         74.58%        50.23%
  Weighted average fair value of
     options granted                       $8.71          $7.88         $4.47

7.   Income Taxes:

Prior to the acquisitions described in Note 3, the Acquired Companies operated
as nontaxable entities. A pro forma income tax provision has been established as
if they were taxable entities for all periods presented.


<PAGE>

The provision for income taxes (pro forma in 1998 and 1997) for the Company was
as follows (in thousands):

                                           1999        1998        1997
                                           -------      ------     ------
            Current taxes payable:
               Federal                     $ 7,661      $2,493     $2,196
               State                           834         350        185
               Foreign                       3,333          10          -
                                           -------      ------     ------

                                            11,828       2,853      2,381
            Deferred                           149        (273)      (291)
                                           -------      ------     ------
                     Total provision       $11,977      $2,580     $2,090
                                           =======      ======     ======


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

                                                      1999      1998       1997
                                                     ------    ------     ------
        Statutory federal income tax rate             34.0%     34.0%      34.0%
        State income taxes, net of federal
           income tax benefit                          1.6       6.0        5.0
        Nondeductible loss in unconsolidated entity    1.7       1.9        -
        Foreign tax effect                            (8.3)      -          -
        Other                                          2.7       0.1        1.1
                                                     ------    ------     ------
                 Effective income tax rate            31.7%     42.0%      40.1%
                                                     ======    ======     ======

<PAGE>

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

                                                       December 31, December 25,
                                                           1999         1998
                                                       -----------  -----------
Current:
   Accounts receivable reserves                           $   698      $   760
   Inventory reserves                                         450          126
   Accrued liabilities                                        751          539
   Foreign net operating loss carryforward                  1,000         --
                                                       -----------  -----------

               Total current deferred tax asset           $ 2,899      $ 1,425
                                                       ===========  ===========

Long-term:
   Long-lived assets                                      $(1,159)     $(1,010)
   Gain on unconsolidated entity stock sale                (1,474)        --
                                                       -----------  -----------

               Total long-term deferred tax liability     $(2,633)     $(1,010)
                                                       ===========  ===========


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 on an arm's-length transaction. Lease payments for 1999, 1998 and 1997
totaled $719,000, $775,000 and $600,000, respectively.

Manufacturing Agreement

In connection with the acquisition of certain manufacturing operations of
Metacom Inc. (Metacom, a shareholder of the Company), Metacom and the Company
entered into a manufacturing agreement (the Agreement) whereby Metacom must
purchase minimum quantities of audio cassettes and CDs from the Company under
normal trade terms. In 1997 and 1996 Metacom did not fulfill its purchase
commitments. As a result of the 1996 shortfall, the Company and Metacom agreed
to allow Metacom to make up the shortfall during 1997 in exchange for a contract
extension until 2000. This contract extension specifies that Metacom is to
purchase all of its supply of CDs and audio cassettes exclusively from the
Company under normal trade terms with no minimum quantities required.

As a result of the 1997 shortfall, Metacom agreed to pay the Company $350,000
under a payment schedule through 1999. Revenue is recognized as payments are
received. As of December 31, 1999, the obligation has been paid in full.

Metacom purchases in 1999, 1998 and 1997 totaled $461,000, $411,000, and
$1,209,000 respectively.


<PAGE>

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 31, 1999 (in thousands):

            2000                                            $ 6,182
            2001                                              5,500
            2002                                              3,855
            2003                                              2,120
            2004                                              2,120
            Thereafter                                       23,610

Ireland Employment Grants

The Company and the Ireland businesses acquired have received employment grants
from the Ireland Development Authority (IDA) totaling $2,962,000 during the
period from 1995 through 1999. 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.

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 one year of service with the Company. During
1999 and 1998, the Company's discretionary contributions totaled $252,000 and
$70,000, respectively. There were no contributions made during 1997.

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.


<PAGE>

10.  Quarterly Financial Data (Unaudited):

The Company's results of operations for each of the quarters in the years ended
December 31, 1999 and December 25, 1998 reflect the pro forma effect of
providing a provision for income taxes for all consolidated companies as if they
were taxable entities for all periods presented. The pro forma EPS information
also reflects the effects of the shares issued in connection with the
acquisition of the Acquired Companies. Unaudited quarterly data is as follows
(in thousands, except per share data):

                                          Quarters Ended
                   ------------------------------------------------------------
                   March 26        June 25        September 24      December 31
                   --------       ---------         --------         --------
       1999

Sales               $48,235         $55,140          $61,603          $64,283
Gross profit         12,036          17,524           20,558           23,798
Net income            1,968           4,918            7,453           11,488
Basic EPS               .14             .34              .50              .75
Diluted EPS             .12             .30              .45              .69

                                          Quarters Ended
                   ------------------------------------------------------------
                   March 27        June 26        September 25      December 25
                   --------       ---------         --------         --------
       1998

Sales               $14,233         $14,546          $14,832          $17,463
Gross profit          4,294           3,924            3,523            5,063
Net income              748             932              819            1,062
Basic EPS              0.07            0.08             0.06             0.07
Diluted EPS            0.07            0.07             0.05             0.07


<PAGE>


11. Industry Segment and Operations by Geographic Areas:

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

            Total revenues:
               United States                                       $160,064
               Europe                                                67,759
               Canada                                                17,560
            Less- Intergeographic revenues                          (16,122)
                                                                   --------
                                                                   $229,261
                                                                   ========

            Operating income:
               United States                                       $ 28,202
               Europe                                                12,670
               Canada                                                 4,440
            Less- Corporate, interest and other income
                   (expense) and eliminations                        (9,818)
                                                                   --------
                                                                   $ 35,494
                                                                   ========

            Assets:
               United States                                         47,125
               Europe                                                34,773
               Canada                                                12,921
                                                                   --------
            Total identifiable assets                                94,819

            Corporate assets and eliminations                        47,485
                                                                   --------
                           Total assets                            $142,304
                                                                   ========

            Capital expenditures:
               United States                                       $  5,885
               Europe                                                 5,660
               Canada                                                   418
                                                                   --------
                                                                   $ 11,963
                                                                   ========

            Depreciation and amortization:
               United States                                       $  6,455
               Europe                                                 1,269
               Canada                                                   246
                                                                   --------
                                                                   $  7,970
                                                                   ========

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



We have audited, in accordance with auditing standards generally accepted in the
United States, the financial statements of Zomax Incorporated incorporated by
reference in this Form 10-K and have issued our report dated January 24, 2000.
Our audit was made for the purpose of forming an opinion on the basic financial
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 basic 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 state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

                                                       /s/ ARTHUR ANDERSEN LLP




Minneapolis, Minnesota,
   January 24, 2000


<PAGE>

Zomax Incorporated
Schedule II       Valuation and Qualifying Accounts


<TABLE>
<CAPTION>
                                           Balance at       Charges to
                                          beginning of       costs and       Charged to       Write-offs,    Balance at end
                 Description                 period          expenses      other accounts       net of          of period
                                                                                              recoveries
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------

Allowance for doubtful accounts:

<S>                                         <C>              <C>                 <C>          <C>                <C>
    For the year ended December 31, 1999    $2,035,000       $1,953,000          $0           ($1,343,000)       $2,645,000

    For the year ended December 25, 1998      $881,000       $1,149,000          $0                $5,000        $2,035,000

    For the year ended December 26, 1997      $531,000         $425,000          $0              ($75,000)         $881,000

</TABLE>

<PAGE>


                               ZOMAX INCORPORATED
                           EXHIBIT INDEX TO FORM 10-K

For the fiscal year ended:                                   Commission File No.
December 31, 1999                                                   0-28426

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. (4)

2.2      Asset Purchase and Sale Agreement dated November 28, 1998 by and among
         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. (3)

2.3      Asset Purchase and Sale Agreement dated November 28, 1998 by and among
         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. (3)

2.4      Share Purchase and Sale Agreement dated November 28, 1998 by and among
         Primary Marketing Group Limited and Kao Corporation. (3)

3.1      Articles of Incorporation as amended (Incorporated by reference to
         Exhibit 3.1 to Quarterly report on Form 10-Q for quarter ended March
         26, 1999).

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)

4.4      Form of Representative Warrant (1)

10.1*    1996 Stock Option Plan, as amended through January 19, 2000, and Forms
         of Incentive and Non-qualified Stock Option Agreements**

10.2     1996 Employee Stock Purchase Plan (1)**

10.3     Manufacturing Agreement between the Company and Metacom, Inc. dated
         January 1, 1995, as amended January 31, 1997 (Incorporated by reference
         to Exhibit 10.3 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 27, 1996).

10.4     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). (1)

10.5*    Employment Agreement with James T. Anderson dated January 1, 1999.**
<PAGE>

10.6     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).

10.7     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).

10.8     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).

10.9     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).

10.10    Credit Agreement dated as of January 6, 1999 among the Company, Certain
         Lenders and General Electric Capital Corporation. (3)

10.11    Credit Agreement dated as of January 6, 1999 among Zomax Canada
         Company, Certain Lenders and General Electric Capital Canada Inc. (3)

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)

27*      Financial Data Schedule (included in electronic version only)

*        Filed herewith.
**       Management agreement or compensatory plan or arrangement.
(1)      Incorporated by reference to the corresponding exhibit numbers to Form
         S-1 Registration Statement, SEC File No. 333-2430.
(2)      Incorporated by reference to the corresponding exhibit numbers to Form
         10-Q for quarter ended June 26, 1998.
(3)      Incorporated by reference to exhibits to Current Report on Form 8-K/A-1
         dated January 7, 1999.
(4)      Incorporated by reference to Exhibit 2.1 Current Report on Form 8-K
         dated October 2, 1998.