SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 8-K


                                 CURRENT REPORT


       Pursuant to Section 13 or 15(d) of the Securities Exchange of 1934



                 Date of earliest reported event: July 22, 1997


                       Creative Medical Development, Inc.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)



    Delaware                       33-75276                     68-0281098
--------------                    -----------                ------------------
   (State of                      (Commission                  (IRS Employer
incorporation)                    File Number)               Identification No.)



975 SE Sandy Blvd., Portland, Oregon                                97214 
------------------------------------------                       ----------
(Address of principal executive offices)                         (Zip Code)



        Registrant's telephone number, including area code (503) 230-8034
                                                            -------------





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


                                       

<PAGE>


Item 4.  Changes in Registrant's Certifying Accountant.

     (a) (i) On July 22, 1997,  the  Registrant's  board of directors  adopted a
resolution to change independent accountants from Perry-Smith & Co. to KPMG Peat
Marwick  LLP  ("KPMG")  because  the  Company's   previously   announced  merger
transaction with OMNI  International  Rail Products,  Inc. ("OMNI") which closed
April 30, 1997 resulted in Registrant's  principal  office and operations  being
outside the regional area served by Perry-Smith & Co.

          (ii) The principal  accountant's report for the last two years did not
contain an adverse  opinion or a disclaimer  of opinion and was not qualified or
modified as to uncertainty, audit scope, or accounting principles.

          (iii) The decision to change  accountants was approved by the board of
directors.

          (iv) There were no  disagreements  with the former  accountant  on any
matter of accounting principles or practices, financial statement disclosure, or
auditing  scope or  procedure,  which  disagreement(s),  if not  resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreement(s) in connection with its report.

          (v) None of the events listed in paragraphs  (a)(1)(iv) of Item 304 of
Regulation S-K has occurred.

     (b) On July 22,  1997,  the  Registrant's  board  of  directors  adopted  a
resolution to change independent  accountants from Perry-Smith & Co. to KPMG for
the reasons  described  above.  Prior to the closing of the merger  transaction,
KPMG provided OMNI limited accounting services.

Item 7.  Financial Statements and Exhibits.

     (a) Financial statements of businesses acquired.

<PAGE>


                       CREATIVE MEDICAL DEVELOPMENT, INC.

                                 AND SUBSIDIARY

                        Consolidated Financial Statements

                                 April 30, 1997


                   (With Independent Auditors' Report Thereon)


<PAGE>

KPMG Peat Marwick LLP
     
     Suite 2000
     1211 South West Fifth Avenue
     Portland, OR 97204



                          Independent Auditors' Report




The Board of Directors
Creative Medical Development, Inc.:


We have audited the accompanying  consolidated balance sheet of Creative Medical
Development,  Inc.  and  subsidiary  as of  April  30,  1997,  and  the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years ended  April 30, 1997 and 1996.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Creative Medical
Development,  Inc. and subsidiary as of April 30, 1997, and the results of their
operations  and their cash flows for the years  ended April 30, 1997 and 1996 in
conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As discussed in note 11 to
the   consolidated   financial   statements,   the  Company  suffers   liquidity
constraints, due to the unexpected acceleration of certain debt maturities, that
raise  substantial  doubt  about its  ability to  continue  as a going  concern.
Management's plans in regard to these matters are also disclosed in note 11. The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.



                                             KPMG PEAT MARWICK LLP


Portland, Oregon
June 27, 1997, except as to
     note 12(c) to the consolidated
     financial statements as to
     which the date is July 24, 1997



<PAGE>


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                           Consolidated Balance Sheet

                                 April 30, 1997


                                     Assets
                                     ------

Current assets:
     Cash                                                          $    139,635
     Investment securities                                              755,123
     Accounts receivable, less allowance for doubtful
        accounts of $37,863                                           1,818,109
     Inventories, net                                                 2,494,743
     Prepaid expenses and deposits                                       20,680
                                                                   ------------

                  Total current assets                                5,228,290

Real estate held for sale                                             1,500,000
Property, plant and equipment, net                                    4,286,656
Organization costs, net of $328,040 accumulated amortization            237,955
                                                                   ------------

                                                                   $ 11,252,901
                                                                   ------------

                      Liabilities and Stockholders' Equity
                      ------------------------------------

Current liabilities:
     Accounts payable                                                 1,364,079
     Accrued liabilities                                              1,150,604
     Notes payable                                                    4,376,723
     Current portion of long-term debt                                   31,000
                                                                   ------------

                  Total current liabilities                           6,922,406
                                                                   ------------
Long-term debt, less current portion                                  2,845,276
Non-current accrued liabilities                                         265,950

Commitments and contingencies

Stockholders' equity:
     Convertible preferred stock, $.01 par value,
        5,000,000 shares authorized:
        Series B, 1,000,000 shares authorized,
        622,066 shares issued and outstanding                             6,221
     Common stock, 10,000,000 shares authorized, $.01 par
        value, 5,554,337 shares issued and outstanding                   55,543
     Additional paid-in capital                                       2,444,606
     Retained deficit                                                (1,287,101)
                                                                   ------------

                  Total stockholders' equity                          1,219,269
                                                                   ------------

                                                                   $ 11,252,901
                                                                   ============


See accompanying notes to consolidated financial statements.


<PAGE>
<TABLE>
<CAPTION>

                                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                                 AND SUBSIDIARY

                                      Consolidated Statements of Operations

                                       Years ended April 30, 1997 and 1996


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

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

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

Selling expenses                                                     1,323,070                 1,499,061
Administrative expenses                                              1,257,227                 1,461,650
Research and development                                                61,646                    70,852
                                                                  ------------              ------------

                                                                     2,641,943                 3,031,563

                  (Loss) earnings from operations                     (297,140)                  935,738
                                                                  ------------              ------------

Other income (expense):
     Interest expense                                                 (687,095)                 (713,825)
     Legal settlement                                                 (334,500)                     --
     Miscellaneous expense                                              (6,781)                  (40,051)
     Loss on sale of assets                                            (25,156)                  (27,690)
                                                                  ------------              ------------

                  Total other expense                               (1,053,532)                 (781,566)
                                                                  ------------              ------------

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

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

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

Net (loss) earnings per share                                     $       (.41)                      .04
                                                                  ============              ============

Weighted average common shares outstanding                           3,126,294                 2,808,516
                                                                  ============              ============


See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                                CREATIVE MEDICAL DEVELOPMENT, INC.
                                                                          AND SUBSIDIARY

                                                          Consolidated Statements of Stockholders' Equity

                                                                Years ended April 30, 1997 and 1996





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

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

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

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

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

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


See accompanying notes to consolidated financial statements.


</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                 CREATIVE MEDICAL DEVELOPMENT, INC.
                                                          AND SUBSIDIARY

                                                Consolidated Statements of Cash Flows

                                                 Years ended April 30, 1997 and 1996




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

Cash flows from operating activities:
<S>                                                                             <C>                <C>    
     Net (loss) earnings                                                        $(1,295,065)       117,655
     Adjustments to reconcile net (loss) earnings to net cash
        provided by operating activities:
           Depreciation and amortization                                            491,642        444,785
           Legal settlement                                                         334,500           --
           Loss on sale of assets                                                    25,156         27,690
           Deferred income taxes                                                    (55,607)        36,517
           Change in assets and liabilities:
               Accounts receivable                                                 (199,814)       747,872
               Inventories                                                          296,361     (1,126,312)
               Prepaid expenses and deposits                                          1,876          3,734
               Accounts payable                                                     425,992       (108,902)
               Accrued liabilities                                                  306,383         68,897
                                                                                -----------    -----------

                      Net cash provided by operations                               331,424        211,936
                                                                                -----------    -----------

Cash flows from investing activities:
     Proceeds from sale of assets                                                    17,166          2,500
     Purchase of property, plant and equipment                                     (375,316)      (680,492)
     Organization costs                                                                --            3,293
                                                                                -----------    -----------

                      Net cash used by investing activities                        (358,150)      (674,699)
                                                                                -----------    -----------

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

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

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

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

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


                                                                                                (Continued)

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                               CREATIVE MEDICAL DEVELOPMENT, INC.
                                                       AND SUBSIDIARY

                                      Consolidated Statements of Cash Flows, Continued




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

Supplemental disclosure of cash flow information: Cash paid for:
<S>                                                                             <C>                     <C>    
        Interest                                                                $  677,847              726,321
        Income taxes                                                                  --                   --

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


See accompanying notes to consolidated financial statements.


</TABLE>

<PAGE>

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                                 April 30, 1997




(1) Summary of Significant Accounting Policies

     (a)  Description  of the  Company,  Basis of  Presentation  and  Change  in
          Reporting Entity
          ----------------------------------------------------------------------

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

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

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

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

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

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

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

                                                                     (Continued)
<PAGE>

                                        2


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




          Upon the completion of the  transaction,  former OMNI security holders
          owned approximately 67% of the total outstanding shares of the Company
          on a fully diluted basis.  The initial  ownership  ratio is subject to
          adjustment  one year after the closing of the  transaction.  The final
          ownership   ratio  will  reflect  any   adjustments   resulting   from
          differences  between the assumed value of CMD's net assets at the time
          of the  merger  and a final  determination  to be made as of April 30,
          1998. If the final ownership ratio differs from the initial  ownership
          ratio in favor of OMNI, OMNI's  shareholders  will receive  additional
          shares of CMD common  and Series B  preferred  stock as  necessary  to
          reflect  the  final   ownership   ratio  thus   increasing   the  OMNI
          shareholders' relative ownership. If the final ownership ratio differs
          from the initial  ownership ratio in favor of CMD, an amount up to 10%
          of the CMD common  stock and  Series B  preferred  stock  issued to an
          escrow  for OMNI's  shareholders  will be  canceled  as  necessary  to
          reflect  the final  ownership  ratio,  thus  decreasing  the  relative
          percentage  ownership  of  OMNI's  shareholders.  In no case will this
          adjustment result in OMNI's shareholders owning less than 64.3% of the
          total outstanding shares.

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

          The consolidated  statements of operations and cash flows reflect only
          the activity of OMNI.

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

                                                     1997           1996
                                                     ----           ----

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


                                                                     (Continued)


<PAGE>



                                        3


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




     (b) Principles of Consolidation
         ---------------------------

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

     (c) Investments
         -----------

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

     (d) Inventories
         -----------

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

     (e) Accounts Receivable
         -------------------

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

     (f) Property, Plant and Equipment
         -----------------------------

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

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

     (g) Organization Cost
         ------------------

          Organization costs are amortized over a five-year period.


                                                                     (Continued)


<PAGE>



                                        4


                       CREATIVE MEDICAL DEVELOPMENT, INC.

                   Notes to Consolidated Financial Statements




     (h) Warranty
         --------

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

     (i) Income Taxes
         ------------

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

     (j) Research and Development Costs
         ------------------------------

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

     (k) Advertising Expenses
         --------------------

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

     (l) Revenue Recognition
         -------------------

          Revenues are recognized when products are shipped.

     (m) Stock Option Plan
         -----------------

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


                                                                     (Continued)


<PAGE>



                                        5


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




     (n) Fair Value of Financial Instruments
         -----------------------------------

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

     (o) Net (Loss) Earnings Per Common and Common Equivalent Share
         ----------------------------------------------------------

          Net (loss)  earnings per share is computed using the weighted  average
          number of common and dilutive common  equivalent  shares assumed to be
          outstanding  during the period  (using the  treasury  stock method for
          dilutive common equivalent  shares).  Common equivalent shares consist
          of  convertible  preferred  stock,  options  and  warrants to purchase
          common stock, which have been excluded from the computation of primary
          net (loss) earnings per share due to their anti-dilutive effect.

          The  transaction   between  CMD  and  OMNI  is  considered  a  reverse
          acquisition  for financial  statement  purposes and has been accounted
          for under the purchase method of accounting.  CMD's shares outstanding
          and dilutive equity instruments,  and convertible preferred stock, are
          included in the computation of common  equivalent shares from the date
          of acquisition.  As the acquisition was consummated on April 30, 1997,
          such share and  dilutive  equity  instruments  are not included in the
          computation  of common  equivalent  shares for the fiscal  years ended
          April 30, 1997 and 1996.

     (p) Use of Estimates
         ----------------

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


                                                                     (Continued)


<PAGE>



                                        6


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




     (q) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
         -----------------------------------------------------------------------

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

     (r) Prior Period Adjustments
         ------------------------

          The accompanying  consolidated  financial  statements were prepared in
          connection  with  the  merger  agreement  discussed  in note  1(a) and
          present  for the  first  time the  combined  results  of OMNI and CMD.
          Certain   adjustments   were  made  to  record  certain  prior  period
          adjustments to the individual entities.  Prior period adjustments were
          made to inventory,  cost of sales,  accrued income taxes and provision
          for income taxes.

     (s) Reclassifications
         -----------------

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

(2) Inventories
    -----------

     Inventories consist of the following at April 30, 1997:

         Raw materials                                            $    461,430
         Finished goods                                              2,183,313
                                                                  ------------

                                                                     2,644,743

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

                      Inventories, net                            $  2,494,743
                                                                  ============
                                                              


                                                                     (Continued)



<PAGE>



                                        7


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




(3) Property, Plant and Equipment
    -----------------------------

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

         Land                                                $    374,201
         Buildings                                              1,381,593
         Vehicles                                                  90,211
         Office furniture and equipment                           121,092
         Manufacturing equipment                                3,256,327
                                                             ------------

                                                                5,223,424

         Less accumulated depreciation                            936,768
                                                             ------------

                                                             $  4,286,656
                                                             ============

     Certain  property,  plant and equipment  serves as collateral for short and
     long-term debt obligations.

(4) Accrued Liabilities
    -------------------

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

         Warranties                                             $     344,950
         Accrued compensation                                         249,391
         Accrued merger costs                                         151,343
         Other                                                        404,920
                                                                 ------------

                                                                $   1,150,604
                                                                =============

(5) Notes Payable
    -------------

     The Company has a revolving line of credit totaling  $2,608,581 with Finova
     Capital  Corporation  (Finova)  that  generally  provides  borrowing  up to
     $2,750,000 against 85% of eligible accounts  receivable and 50% of eligible
     inventory.  Interest on the line is prime rate plus 2.25%  (10.75% at April
     30, 1997),  with a minimum  interest charge of $9,000 per month. The line's
     original maturity date was April 26, 1999.  However, on April 29, 1997, the
     Company was notified that the revolving  line of credit expires on July 31,
     1997.

     In addition, the Company has a term loan payable and a capital loan payable
     with Finova totaling  $1,153,702 and $614,440,  respectively,  at April 30,
     1997,  and are  payable in monthly  installments  of  $40,000  and  $8,500,
     respectively,  plus interest at 11.5% per annum per loan. The loans payable
     are secured by equipment  and  inventory.  The original  maturity  date was
     April 26, 1999.  However,  on April 29, 1997, the Company was notified that
     the loans expire on July 31, 1997.


                                                                     (Continued)


<PAGE>

                                        8


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements



     The Company can extend the debt maturities to August 31, 1997 provided that
     the Company i) provides  Finova with a commitment  letter by July 31, 1997,
     issued by a new funding  source which  specifically  states that the Finova
     loans will be paid by August 31, 1997,  and ii) pays an extension fee equal
     to  one-quarter  percent  (1/4%) of the total  Finova  loans as of July 31,
     1997.

(6) Long-term Debt
    --------------

     Long-term debt is comprised of the following at April 30, 1997:

       Notes  payable to  Capital  Consultants  in
          monthly    installments    of   $13,631,
          including  interest  at 10%,  payable in
          full in December  1998,  secured by real
          estate                                                   $ 1,338,776
       Mortgage  payable to financial  institution
          in  monthly   installments  of  $12,750,
          including  interest at 11.375%,  payable
          in full in  December  1998,  secured  by
          real estate                                                1,230,000
        Note payable  to an  individual  in monthly
          installments  of  interest  only at 10%,
          plus additional "premium" interest at 7%
          due each May  15th,  payable  in full in
          April 1999                                                   200,000
         

       Note  payable  to  individuals  in  monthly
          installments  of  interest  only at 10%,
          payable  in full in April  1999                              107,500
                                                                  ------------

                                                                     2,876,276

         Less current portion                                           31,000
                                                                  ------------
                      Long-term debt, due in 1999                  $ 2,845,276
                                                                   ===========
                                                      
(7) Income Taxes
    ------------

     The income tax (benefit) expense consists of the following:
<TABLE>
<CAPTION>


                                                             1997            1996
                                                           --------        --------
         <S>                                               <C>              <C> 
           Current:
             Federal                                       $   --              --
             State                                             --              --
                                                           --------        --------

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

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

                                                            (55,607)         36,517

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

                                                                         (Continued)
</TABLE>


<PAGE>



                                        9


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




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

         Deferred tax assets:
             Investment in securities                            $ 232,418
             Warranty reserve                                      132,309
             Legal settlement reserve                              128,318
             Inventory reserve                                      57,534
             Bad debt reserve                                       14,523
             Self-insurance reserve                                  6,223
             Other                                                   1,994
             Net operating loss carryforwards:
                Federal                                            629,394
                State                                              130,810
                                                                 ---------

                                                                 1,333,523

         Less valuation allowance                                  490,416
                                                                 ---------
                   Net deferred tax asset                          843,107
                                                                 ---------
         Deferred tax liability:
             Property, plant and equipment, due to
                differences in depreciation                        651,327
             Real estate held for sale                             191,780
                                                                 ---------

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

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


                                                                     (Continued)


<PAGE>



                                       10


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




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

                                                        1997        1996
                                                        ----        ----

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

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

     The Company has a valuation  allowance of $490,416 and $-0-,  respectively,
     as of April  30,  1997 and 1996 an  increase  of  $490,416  and $-0- in the
     valuation allowance for the same respective periods ended.

     At April 30, 1997 and 1996,  the Company had  approximately  $1,982,000 and
     $899,000,  respectively,  of net  operating  loss  carryforwards  to offset
     future  income for federal and state income tax purposes  which will expire
     2010 through 2012.

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


                                                                     (Continued)


<PAGE>

                                       11


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




(8) Commitments and Contingencies
    -----------------------------

     (a) Employment Contract Commitments
         -------------------------------

          The Company  has  entered  into  employment  contracts  with its chief
          executive  officer/chairman  and  president,  and  vice  president  of
          operations  through  1999  and  1998,  respectively,   with  automatic
          extensions  of  one-year  increments.  These  contracts  provide for a
          minimum  salary  with  annual  adjustments  based  on cost  of  living
          changes,  corporate and individual  performance  and general  business
          conditions.  At April 30, 1997,  the aggregate  future  commitment was
          $383,500.

     (b) Operating Lease Commitments
         ---------------------------

          The Company leases office space,  vehicles and office  equipment under
          various operating lease agreements  expiring over several years. Lease
          expense was  approximately  $108,000  and $105,000 for the years ended
          April 30, 1997 and 1996,  respectively.  Future minimum lease payments
          under non-cancelable lease agreements are as follows:

           Year ended April 30:
                1998                                      $   88,582
                1999                                          65,800
                2000                                          66,100
                2001                                          66,300
                2002                                          66,650
                                                            --------

                                                          $  353,432
                                                          ==========

     (c) Purchase Commitment
         -------------------

          The Company has a commitment  to purchase all  retreading  buffings at
          $108 per ton produced by a retread  manufacturer  through December 31,
          1998.  Purchases  under a  similar  purchase  agreement  with the same
          manufacturer totaled approximately $225,000 and $298,000 for the years
          ended April 30, 1997 and 1996, respectively.


                                                                     (Continued)


<PAGE>



                                       12


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




     (d) Royalty Agreements
         ------------------

          The Company acquired a royalty agreement with Red Hawk Rubber Co. (Red
          Hawk),  from Riedel OMNI Rubber Products,  Inc. The Red Hawk agreement
          provides  that  the  Company  pay a 5%  royalty  on all net  sales  of
          products  that were being  manufactured  at the time the agreement was
          signed until June 1999. Any new products developed and manufactured by
          OMNI are not subject to the Red Hawk royalty agreement.

     (e) Medical Claims
         --------------

          The Company is self-insured  for the cost of medical  coverage up to a
          maximum of $15,000 per  individual per year. The Company has an excess
          coverage  insurance  providing for claims over $15,000 per  individual
          per year.

     (f) Litigation
         ----------

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

(9) Stockholders' Equity
    --------------------

     (a) Convertible Preferred Stock Series B
         ------------------------------------

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

          Voting
          ------

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

          Conversion
          ----------

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


                                                                     (Continued)


<PAGE>

                                       13


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements



     (b) Stock Options
         -------------

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

          The per share  weighted  average fair value of stock  options  granted
          during  1996 was $.10 on the date of grant  using  the  Minimum  Value
          option-pricing  model with the following weighted average assumptions:
          expected divided yield 0%, risk-free interest rate of 7%, and expected
          life of ten years. No options were granted during 1995.

          The Company applies APB Opinion No. 25 in accounting for its Plan and,
          accordingly,  no  compensation  cost has been recognized for its stock
          options  in the  financial  statements.  The pro forma  effects on net
          (loss)  earnings of applying  SFAS No. 123 were not  material  for the
          years ended December 31, 1996 and 1995.

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

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


                                                                     (Continued)


<PAGE>

                                       14


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




          The following table presents  historic stock option activity under the
          1995 plan, converted into substitute options, and the combining effect
          with CMD options outstanding under the 1994 plan:

<TABLE>
<CAPTION>
                                                                                    Weighted
                                                                                      average
                                                                 Number              exercise
                                                                of shares              price
                                                             ------------           ---------
<S>                                                           <C>                   <C>     
           Options outstanding at April 30, 1995                  651,370           $   0.69

           Granted                                                   -                   -
           Exercised                                                 -                   -
           Forfeited                                                 -                   -
           Expired                                                   -                   -
                                                             ------------           --------

           Options outstanding at April 30, 1996                  651,370               0.69

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

           Options outstanding at April 30, 1997                2,094,598           $   0.89
                                                             ============           ========
</TABLE>

          The  Company  reserved  3,000,000  shares of common  stock and 500,000
          shares of preferred  stock for issuance  under the 1994 plan. At April
          30, 1997, there were 905,402 shares available for grant under the 1994
          plan.

          At April 30, 1997, the range of exercise  prices and weighted  average
          remaining  contractual life of outstanding options under the 1994 plan
          was $0.25-$5.00 and 8.03 years, respectively.

          At April 30, 1997 and 1996,  the number of options  exercisable  under
          the  1994  plan  was  2,094,598  and  651,370,  respectively,  and the
          weighted  average exercise price of those options was $0.89 and $0.69,
          respectively.


                                                                     (Continued)


<PAGE>



                                       15


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




     (c) Warrants Outstanding
         --------------------

          The following table presents  warrants  outstanding at April 30, 1997,
          all of which were issued by CMD in consideration for service rendered,
          debt and debt restructuring, and stock purchases and placements:

              Number of        
               common
               shares               Exercise                Expiration
              issuable                price                    date
              --------             ----------              --------------

                20,000             $    2.50                 May 31, 1997
                76,000                  0.75                 May 31, 1997
               100,000                  0.35                March 1, 1998
                52,500                  6.05                 May 13, 1998
                46,250                  0.35                 May 31, 1998
                10,000                  0.75                 May 31, 1998
                10,000                  1.50                 May 31, 1998
               603,750                  6.50                 May 13, 1999
                50,000                 10.00               April 14, 2000

(10) Major Customers and Credit Concentration
     ----------------------------------------

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

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

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


                                                                     (Continued)


<PAGE>

                                       16


                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements




(11) Going Concern
     -------------

     As  reflected  in  the  accompanying  financial  statements,  current  debt
     maturities and other short-term  commitments  exceeded the Company's liquid
     assets  available to repay such  commitments.  This is due primarily to the
     unexpected  acceleration  of  certain  debt  maturities.  To  finance  debt
     maturities,  management  has and will continue to seek both debt and equity
     investors to provide additional capital.

(12) Subsequent Event
     ----------------

     (a) Sale-leaseback
         --------------

          On May 21, 1997,  under a sale and  leaseback  agreement,  the Company
          sold its manufacturing  facility in Portland,  Oregon for $560,000 and
          leased it back under a  five-year  lease  agreement.  The  transaction
          produced a gain of  approximately  $83,000  which will be deferred and
          amortized  ratably  over  the  life of the  lease.  A  portion  of the
          proceeds  from the  sale  were  used to  retire  $423,773  in debt and
          accrued interest.

          The lease is an operating  lease with future minimum lease payments as
          follows:

           Year ended April 30:
                1998                                          $    86,496
                1999                                               86,496
                2000                                               86,496
                2001                                               86,496
                2002                                               86,496
                                                              -----------

                      Total minimum lease payments            $   432,480
                                                              ===========

     (b) Put Agreement
         -------------

          The Company has a stock put agreement with four individuals,  three of
          whom are board members. Under the agreement,  holders of the put could
          require the Company to purchase  111,741  shares valued at $134,285 in
          June 1997. In June 1997,  the Company  repurchased  23,774 shares at a
          value of $28,571,  while the holders of the  remaining  87,967  shares
          required the Company to repurchase  such shares at a value of $120,962
          on October 3, 1997.

     (c) Legal Settlement
         ----------------

          On July 24, 1997,  the Company  entered  into a  settlement  agreement
          arising from disputed  royalty  payments.  The terms of the settlement
          agreement  require the Company  pay $50,000  within  sixty days of the
          agreement  date and $20,000  per  quarter  for five years  thereafter.
          Management has reserved the discounted present value of the settlement
          at April 30, 1997.

<PAGE>


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                                  Balance Sheet

                                 April 30, 1997


                   (With Independent Auditors' Report Thereon)


<PAGE>

KPMG Peat Marwick LLP

     Suite 2000
     1211 South West Fifth Avenue
     Portland, OR 97204




                          Independent Auditors' Report
                          ----------------------------




The Board of Directors
OMNI International Rail Products, Inc.:


We have  audited  the  accompanying  balance  sheet of OMNI  International  Rail
Products,   Inc.  as  of  April  30,  1997.  This  financial  statement  is  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on this financial statement based on our audit.

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

In our opinion,  the balance sheet  referred to above  presents  fairly,  in all
material  respects,  the financial position of OMNI International Rail Products,
Inc. as of April 30, 1997,  in conformity  with  generally  accepted  accounting
principles.

The accompanying  balance sheet has been prepared assuming that the Company will
continue as a going concern. As discussed in note 11 to the financial statement,
the Company suffers liquidity constraints, due to the unexpected acceleration of
certain  debt  maturities,  that raise  substantial  doubt  about its ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  disclosed in note 11. The balance  sheet does not include any  adjustments
that might result from the outcome of this uncertainty.



                                               KPMG PEAT MARWICK LLP



Portland, Oregon
June 27, 1997, except as to note 12(d)
     to which the date is July 24, 1997




<PAGE>

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                                  Balance Sheet

                                 April 30, 1997




                                     Assets
                                     ------


Current assets:
     Cash                                                        $   139,635
     Accounts receivable, net                                      1,818,109
     Inventories, net                                              2,494,743
     Capitalized merger costs                                        185,065
     Prepaid expenses and deposits                                    20,680
                                                                 -----------

                  Total current assets                             4,658,232

Property, plant and equipment, net                                 4,286,656
Organization costs, net                                              237,955
                                                                 -----------

                                                                 $ 9,182,843
                                                                 ===========

                      Liabilities and Stockholders' Equity
                      ------------------------------------

Current liabilities:
     Accounts payable                                              1,364,079
     Accrued liabilities                                           1,150,604
     Notes payable
                                                                   4,376,723
     Current portion of long-term debt                                17,140
                                                                  ----------

                  Total current liabilities                        6,908,546
                                                                  ----------
Long-term debt, less current portion                               1,629,136
Non-current accrued liabilities                                      265,950

Commitments and contingencies

Stockholders' equity:
     Common stock                                                  1,666,312
     Retained deficit                                             (1,287,101)
                                                                 -----------

                  Total stockholders' equity                         379,211
                                                                 -----------

                                                                 $ 9,182,843
                                                                 ===========


See accompanying notes to balance sheet.


<PAGE>


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

                                 April 30, 1997




(1) Summary of Significant Accounting Policies
    ------------------------------------------

     (a) Description of the Company
         --------------------------

          OMNI  International  Rail Products,  Inc.,  incorporated  in Oregon in
          1993,  manufactures and distributes,  on a world-wide basis, a variety
          of  rubber,  rubber/concrete  and  concrete  railroad  grade  crossing
          systems.

     (b) Inventories
         -----------

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

     (c) Accounts Receivable
         -------------------

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

     (d) Property, Plant and Equipment
         -----------------------------

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

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

     (e) Organization Cost
         -----------------

          Organization costs are amortized over a five-year period.

     (f) Warranty
         --------

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



                                                                     (Continued)


<PAGE>



                                        2


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




     (g) Income Taxes
         ------------

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

     (h) Research and Development Costs
         ------------------------------

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

     (i) Advertising Expenses
         --------------------

          Advertising expenses are charged to expense as incurred.

     (j) Revenue Recognition
         -------------------

          Revenues are recognized when products are shipped.

     (k) Stock Option Plan
         -----------------

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



                                                                     (Continued)


<PAGE>

                                        3


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




     (l) Fair Value of Financial Instruments
         -----------------------------------

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

     (m) Use of Estimates
         ----------------

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

     (n) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
         -----------------------------------------------------------------------

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



                                                                     (Continued)


<PAGE>

                                        4


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




(2) Inventories
    -----------

     Inventories consist of the following at April 30, 1997:

         Raw materials                                         $     461,430
         Finished goods                                            2,183,313
                                                               -------------
                                                                   2,644,743

         Less allowance for excess or obsolete
              inventory                                              150,000
                                                               -------------
                      Inventories, net                         $   2,494,743
                                                               =============
                                                   

(3) Property, Plant and Equipment
    -----------------------------

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

         Land                                                  $     374,201
         Buildings                                                 1,381,593
         Vehicles                                                     90,211
         Office furniture and equipment                              121,092
         Manufacturing equipment                                   3,256,327
                                                               -------------

                                                                   5,223,424

         Less accumulated depreciation                               936,768
                                                               -------------

                                                               $   4,286,656
                                                               =============

     Certain  property,  plant and equipment  serves as collateral for short and
     long-term debt obligations.

(4) Accrued Liabilities
    -------------------

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

         Warranties                                           $     344,950
         Accrued compensation                                       249,391
         Accrued merger costs                                       151,343
         Other                                                      404,920
                                                              -------------

                                                              $   1,150,604
                                                              =============



                                                                     (Continued)


<PAGE>

                                        5


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




(5) Notes Payable
    -------------

     The Company has a revolving line of credit totaling  $2,608,581 with Finova
     Capital  Corporation  (Finova)  that  generally  provides  borrowing  up to
     $2,750,000 against 85% of eligible accounts  receivable and 50% of eligible
     inventory.  Interest on the line is prime rate plus 2.25%  (10.75% at April
     30, 1997),  with a minimum  interest charge of $9,000 per month. The line's
     original maturity date was April 26, 1999.  However, on April 29, 1997, the
     Company was notified that the revolving  line of credit expires on July 31,
     1997.

     In addition, the Company has a term loan payable and a capital loan payable
     with Finova totaling  $1,153,702 and $614,440,  respectively,  at April 30,
     1997,  and are  payable in monthly  installments  of  $40,000  and  $8,500,
     respectively,  plus interest at 11.5% per annum per loan. The loans payable
     are secured by equipment  and  inventory.  The original  maturity  date was
     April 26, 1999.  However,  on April 29, 1997, the Company was notified that
     the loans expire on July 31, 1997.

     The Company can extend the debt maturities to August 31, 1997 provided that
     the Company i) provides  Finova with a commitment  letter by July 31, 1997,
     issued by a new funding  source which  specifically  states that the Finova
     loans will be paid by August 31, 1997,  and ii) pays an extension fee equal
     to  one-quarter  percent  (1/4%) of the total  Finova  loans as of July 31,
     1997.

(6) Long-term Debt
    --------------

     Long-term debt is comprised of the following at April 30, 1997:

       Notes  payable to  Capital  Consultants  in
          monthly    installments    of   $13,631,
          including  interest  at 10%,  payable in
          full in December  1998,  secured by real
          estate                                                  $ 1,338,776
       Note payable  to an  individual  in monthly
          installments  of  interest  only at 10%,
          plus additional "premium" interest at 7%
          due each May  15th,  payable  in full in
          April 1999                                                  200,000
        

       Note  payable  to  individuals  in  monthly
          installments  of  interest  only at 10%,
          payable  in full in April  1999                             107,500
                                                                 ------------

                                                                    1,646,276

       Less current portion                                            17,140
                                                                 ------------
                      Long-term debt, due in 1999               $   1,629,136
                                                                =============
                                                
                                                                     (Continued)


<PAGE>

                                        6


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




(7) Income Taxes
    --------------

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

         Deferred tax assets:
             Warranty reserve                                       $   132,309
             Legal settlement reserve                                   128,318
             Inventory reserve                                           57,534
             Bad debt reserve                                            14,523
             Self-insurance reserve                                       6,223
             Other                                                        1,994
             Net operating loss carryforwards:
                Federal                                                 629,394
                State                                                   130,810
                                                                    -----------

                                                                      1,101,105

         Less valuation allowance                                       449,778
                                                                    -----------

                   Net deferred tax asset                               651,327
                                                                    -----------
         Deferred tax liability:
             Property, plant and equipment, due to
                differences in depreciation                             651,327
                                                                    -----------
                   Net deferred tax liability                           651,327
                                                                    -----------
                   Net deferred tax assets and liabilities          $         -
                                                                    ===========

     The Company has a valuation  allowance of $449,778 as of April 30, 1997 and
     an  increase of $449,778  in the  valuation  allowance  for the period then
     ended.

     At April 30, 1997 and 1996,  the Company had  approximately  $1,982,000 and
     $899,000,  respectively,  of net  operating  loss  carryforwards  to offset
     future  income for federal and state income tax purposes  which will expire
     2010 through 2012.

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



                                                                     (Continued)



<PAGE>
                                        7


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




(8) Commitments and Contingencies
    -----------------------------

     (a) Employment Contract Commitments
         -------------------------------

          The Company  has  entered  into  employment  contracts  with its chief
          executive  officer/chairman  and  president,  and  vice  president  of
          operations  through  1999  and  1998,  respectively,   with  automatic
          extensions  of  one-year  increments.  These  contracts  provide for a
          minimum  salary  with  annual  adjustments  based  on cost  of  living
          changes,  corporate and individual  performance  and general  business
          conditions.  At April 30, 1997,  the aggregate  future  commitment was
          $383,500.

     (b) Operating Lease Commitments
         ---------------------------

          The Company leases office space,  vehicles and office  equipment under
          various operating lease agreements expiring over several years. Future
          minimum lease payments under  non-cancelable  lease  agreements are as
          follows:

           Year ended April 30:
                1998                                              $  88,582
                1999                                                 65,800
                2000                                                 66,100
                2001                                                 66,300
                2002                                                 66,650
                                                                  ---------

                                                                  $ 353,432
                                                                  =========

     (c) Purchase Commitment
         -------------------

          The Company has a commitment  to purchase all  retreading  buffings at
          $108 per ton produced by a retread  manufacturer  through December 31,
          1998.  Purchases  under a  similar  purchase  agreement  with the same
          manufacturer totaled approximately $225,000 and $298,000 for the years
          ended April 30, 1997 and 1996, respectively.

     (d) Royalty Agreements
         ------------------

          The Company acquired a royalty agreement with Red Hawk Rubber Co. (Red
          Hawk),  from Riedel OMNI Rubber Products,  Inc. The Red Hawk agreement
          provides  that  the  Company  pay a 5%  royalty  on all net  sales  of
          products  that were being  manufactured  at the time the agreement was
          signed until June 1999. Any new products developed and manufactured by
          OMNI are not subject to the Red Hawk royalty agreement.



                                                                     (Continued)


<PAGE>

                                        8


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet



     (e) Medical Claims
         --------------

          The Company is self-insured  for the cost of medical  coverage up to a
          maximum of $15,000 per  individual per year. The Company has an excess
          coverage  insurance  providing for claims over $15,000 per  individual
          per year.

     (f) Litigation
         ----------

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

(9) Stockholders' Equity
    --------------------

     (a) Stock Options
         -------------

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

          The per share  weighted  average fair value of stock  options  granted
          during  1996 was $.10 on the date of grant  using  the  Minimum  Value
          option-pricing  model with the following weighted average assumptions:
          expected divided yield 0%, risk-free interest rate of 7%, and expected
          life of ten years. No options were granted during 1995.

          The Company applies APB Opinion No. 25 in accounting for its Plan and,
          accordingly,  no  compensation  cost has been recognized for its stock
          options  in the  financial  statements.  The pro forma  effects on net
          (loss)  earnings of applying  SFAS No. 123 were not  material  for the
          years ended December 31, 1996 and 1995.



                                                                     (Continued)


<PAGE>
                                        9


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




     Stock  option  activity  for the years  ended April 30, 1997 and 1996 is as
     follows:

<TABLE>
<CAPTION>

                                                                                Weighted
                                                                                 average
                                                             Number             exercise
                                                            of shares             price
                                                            ---------           ---------

<S>                                                        <C>               <C>     
           Options outstanding at April 30, 1995              651,370           $   0.69

           Granted                                               -                   -
           Exercised                                             -                   -
           Forfeited                                             -                   -
           Expired                                               -                   -
                                                         ------------           --------

           Options outstanding at April 30, 1996              651,370               0.69

           Granted                                          1,236,289               0.83
           Exercised                                             -                   -
           Forfeited                                          (48,061)             (0.69)
           Expired                                               -                   -
                                                         ------------           --------

           Options outstanding at April 30, 1997            1,839,598           $   0.78
                                                         ============           ========
</TABLE>

     The Company  reserved  3,090,720  shares of common stock for issuance under
     the 1995 plan. At April 30, 1997, there were 1,251,122 shares available for
     grant under the 1995 plan.

     At April 30,  1997,  the range of  exercise  prices  and  weighted  average
     remaining  contractual life of outstanding  options under the 1995 plan was
     $0.65-$1.05 and 8.54 years, respectively.

     At April 30,  1997 and 1996,  the number of options  exercisable  under the
     1995 plan was 1,839,598 and 651,370, respectively, and the weighted average
     exercise price of those options was $0.78 and $0.69, respectively.



                                                                     (Continued)


<PAGE>
                                       10


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




(10) Major Customers and Credit Concentration
     ----------------------------------------

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

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

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

(11) Going Concern
     -------------

     As  reflected  in  the  accompanying  financial  statements,  current  debt
     maturities and other short-term  commitments  exceeded the Company's liquid
     assets  available to repay such  commitments.  This is due primarily to the
     unexpected  acceleration  of  certain  debt  maturities.  To  finance  debt
     maturities,  management  has and will continue to seek both debt and equity
     investors to provide additional capital.



                                                                     (Continued)


<PAGE>
                                       11


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




(12) Subsequent Event
     ----------------

     (a) Merger
         ------

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

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

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

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

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

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



                                                                     (Continued)


<PAGE>
                                       12


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




          Upon the completion of the  transaction,  former OMNI security holders
          owned approximately 67% of the total outstanding shares of the Company
          on a fully diluted basis.  The initial  ownership  ratio is subject to
          adjustment  one year after the closing of the  transaction.  The final
          ownership   ratio  will  reflect  any   adjustments   resulting   from
          differences  between the assumed value of CMD's net assets at the time
          of the  merger  and a final  determination  to be made as of April 30,
          1998. If the final ownership ratio differs from the initial  ownership
          ratio in favor of OMNI, OMNI's  shareholders  will receive  additional
          shares of CMD common  and Series B  preferred  stock as  necessary  to
          reflect  the  final   ownership   ratio  thus   increasing   the  OMNI
          shareholders' relative ownership. If the final ownership ratio differs
          from the initial  ownership ratio in favor of CMD, an amount up to 10%
          of the CMD common  stock and  Series B  preferred  stock  issued to an
          escrow  for OMNI's  shareholders  will be  canceled  as  necessary  to
          reflect  the final  ownership  ratio,  thus  decreasing  the  relative
          percentage  ownership  of  OMNI's  shareholders.  In no case will this
          adjustment result in OMNI's shareholders owning less than 64.3% of the
          total outstanding shares.

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

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



                                                                     (Continued)


<PAGE>



                                       13


                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet




     (b) Sale-leaseback
         --------------

          On May 21, 1997,  under a sale and  leaseback  agreement,  the Company
          sold its manufacturing  facility in Portland,  Oregon for $560,000 and
          leased it back under a  five-year  lease  agreement.  The  transaction
          produced a gain of  approximately  $83,000  which will be deferred and
          amortized  ratably  over  the  life of the  lease.  A  portion  of the
          proceeds  from the  sale  were  used to  retire  $423,773  in debt and
          accrued interest.

          The lease is an operating  lease with future minimum lease payments as
          follows:

           Year ended April 30:
                1998                                        $   86,496
                1999                                            86,496
                2000                                            86,496
                2001                                            86,496
                2002                                            86,496
                                                            ----------

                      Total minimum lease payments          $  432,480
                                                            ==========

     (c) Put Agreement
         -------------

          The Company has a stock put agreement with four individuals,  three of
          whom are board members. Under the agreement,  holders of the put could
          require the Company to purchase  111,741  shares valued at $134,285 in
          June 1997. In June 1997,  the Company  repurchased  23,774 shares at a
          value of $28,571,  while the holders of the  remaining  87,967  shares
          required the Company to repurchase  such shares at a value of $120,962
          on October 3, 1997.

     (d) Legal Settlement
         ----------------

          On July 24, 1997,  the Company  entered  into a  settlement  agreement
          arising from disputed  royalty  payments.  The terms of the settlement
          agreement  require the Company  pay $50,000  within  sixty days of the
          agreement  date and $20,000  per  quarter  for five years  thereafter.
          Management has reserved the discounted present value of the settlement
          at April 30, 1997.






<PAGE>

     (b) Pro forma financial information.


                       Creative Medical Development, Inc.
                         Pro Forma Financial Information
                                   (Unaudited)


The following unaudited pro forma information  reflects the business combination
between  Omni  International  Rail  Products,  Inc (OMNI) and  Creative  Medical
Development,  Inc (CMD) under the purchase  method of accounting.  The pro forma
information is based on the companies'  historical  financial statements and the
notes  thereto,  which are  included  elsewhere  in this Form 8K.  The pro forma
information combines OMNI's historical  consolidated statement of operations for
the year  ended  April 30,  1997 and CMD's  historical  unaudited  statement  of
operations  for  the  year  ended  April  30,  1997  as if the  transaction  was
consummated at the beginning of the period presented.

The pro forma information is presented for illustrative purposes only and is not
necessarily  indicative of the operating results that would have occurred if the
combination had been consummated at the beginning of the period  presented,  nor
is it  necessarily  indicative  of  future  operating  results.  This pro  forma
information  should  be read in  conjunction  with  the  consolidated  financial
statements and notes thereto of CMD and subsidiary included elsewhere herein.

Pursuant to Article 11, Rule 11.02 (c)(1) pro forma balance sheet information is
not presented  because the transaction is already  reflected in the consolidated
balance sheet presented elsewhere in this Form 8K. Because of the limited number
of pro  forma  adjustments  and  the  ease  with  which  those  adjustments  are
understood,  a narrative description of the pro forma effects of the transaction
is being furnished in lieu of the statements described by Article 11.

In compliance  with the reporting  requirement of this item,  financial  results
from  discontinued  operations are excluded for purposes of presenting pro forma
information.  Thus, the statements of operations  presented in the  consolidated
financial  statements  of CMD  and  subsidiary  included  elsewhere  herein  are
essentially the same as the required pro forma information.

CMD's  net loss on  leasing  activities  during  fiscal  1997  totaling  $29,263
represents CMD's only results included in the pro forma statement of operations.
Accordingly,  pro forma loss for the year ended  April 30,  1997 is  $1,324,328.
Given the pro forma weighted  average number of shares  outstanding of 5,234,439
for the year ended April 30, 1997, net loss per share is $.25.

<PAGE>



Exhibit 10.7     Letter from Perry-Smith & Co. (former accountant dated
                 July 24, 1997, pursuant to Item 304(a)(3) of Regulation S-K.



<PAGE>

Item 8.  Change in Fiscal Year.

     On July 22, 1997, the Registrant's  board of directors adopted a resolution
to change the Registrant's fiscal year end to April 30, beginning with April 30,
1997. Registrant will file a Form 10-KSB covering the transition period.



                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                             Creative Medical Development, Inc.


Date:  July 24, 1997                           By: /S/  JEFF EDWARDS
                                                --------------------------------
                                                Jeff Edwards, CFO
[{"type": "8-K", "sequence": "1", "secsgml_size_bytes": 116088}]
{"company-data": {"conformed-name": "CREATIVE MEDICAL DEVELOPMENT INC", "cik": "0000919045", "assigned-sic": "3841", "irs-number": "680281098", "state-of-incorporation": "DE", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-11725", "film-number": "97648492"}, "business-address": {"street1": "870 GOLD FLAT RD", "city": "NEVADA CITY", "state": "CA", "zip": "95959", "phone": "9162658222"}, "mail-address": {"street1": "870 GOLD FLAT ROAD", "city": "NEVADA CITY", "state": "CA", "zip": "95959"}}
SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 8-K

                                 CURRENT REPORT

       Pursuant to Section 13 or 15(d) of the Securities Exchange of 1934

                 Date of earliest reported event: July 22, 1997

                       Creative Medical Development, Inc.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

    Delaware                       33-75276                     68-0281098
--------------                    -----------                ------------------
   (State of                      (Commission                  (IRS Employer
incorporation)                    File Number)               Identification No.)

975 SE Sandy Blvd., Portland, Oregon                                97214 
------------------------------------------                       ----------
(Address of principal executive offices)                         (Zip Code)

        Registrant's telephone number, including area code (503) 230-8034
                                                            -------------

                  
           -----------------------------------------------------------
          (Former name or former address, if changed since last report)
Item 4.  Changes in Registrant's Certifying Accountant.

     (a) (i) On July 22, 1997,  the  Registrant's  board of directors  adopted a
resolution to change independent accountants from Perry-Smith & Co. to KPMG Peat
Marwick  LLP  ("KPMG")  because  the  Company's   previously   announced  merger
transaction with OMNI  International  Rail Products,  Inc. ("OMNI") which closed
April 30, 1997 resulted in Registrant's  principal  office and operations  being
outside the regional area served by Perry-Smith & Co.

          (ii) The principal  accountant's report for the last two years did not
contain an adverse  opinion or a disclaimer  of opinion and was not qualified or
modified as to uncertainty, audit scope, or accounting principles.

          (iii) The decision to change  accountants was approved by the board of
directors.

          (iv) There were no  disagreements  with the former  accountant  on any
matter of accounting principles or practices, financial statement disclosure, or
auditing  scope or  procedure,  which  disagreement(s),  if not  resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreement(s) in connection with its report.

          (v) None of the events listed in paragraphs  (a)(1)(iv) of Item 304 of
Regulation S-K has occurred.

     (b) On July 22,  1997,  the  Registrant's  board  of  directors  adopted  a
resolution to change independent  accountants from Perry-Smith & Co. to KPMG for
the reasons  described  above.  Prior to the closing of the merger  transaction,
KPMG provided OMNI limited accounting services.

Item 7.  Financial Statements and Exhibits.

     (a) Financial statements of businesses acquired.
CREATIVE MEDICAL DEVELOPMENT, INC.

                                 AND SUBSIDIARY

                        Consolidated Financial Statements

                                 April 30, 1997

                   (With Independent Auditors' Report Thereon)
KPMG Peat Marwick LLP
     
     Suite 2000
     1211 South West Fifth Avenue
     Portland, OR 97204

                          Independent Auditors' Report

The Board of Directors
Creative Medical Development, Inc.:

We have audited the accompanying  consolidated balance sheet of Creative Medical
Development,  Inc.  and  subsidiary  as of  April  30,  1997,  and  the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years ended  April 30, 1997 and 1996.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Creative Medical
Development,  Inc. and subsidiary as of April 30, 1997, and the results of their
operations  and their cash flows for the years  ended April 30, 1997 and 1996 in
conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As discussed in note 11 to
the   consolidated   financial   statements,   the  Company  suffers   liquidity
constraints, due to the unexpected acceleration of certain debt maturities, that
raise  substantial  doubt  about its  ability to  continue  as a going  concern.
Management's plans in regard to these matters are also disclosed in note 11. The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

                                             KPMG PEAT MARWICK LLP

Portland, Oregon
June 27, 1997, except as to
     note 12(c) to the consolidated
     financial statements as to
     which the date is July 24, 1997
CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                           Consolidated Balance Sheet

                                 April 30, 1997

                                     Assets
                                     ------

Current assets:
     Cash                                                          $    139,635
     Investment securities                                              755,123
     Accounts receivable, less allowance for doubtful
        accounts of $37,863                                           1,818,109
     Inventories, net                                                 2,494,743
     Prepaid expenses and deposits                                       20,680
                                                                   ------------

                  Total current assets                                5,228,290

Real estate held for sale                                             1,500,000
Property, plant and equipment, net                                    4,286,656
Organization costs, net of $328,040 accumulated amortization            237,955
                                                                   ------------

                                                                   $ 11,252,901
                                                                   ------------

                      Liabilities and Stockholders' Equity
                      ------------------------------------

Current liabilities:
     Accounts payable                                                 1,364,079
     Accrued liabilities                                              1,150,604
     Notes payable                                                    4,376,723
     Current portion of long-term debt                                   31,000
                                                                   ------------

                  Total current liabilities                           6,922,406
                                                                   ------------
Long-term debt, less current portion                                  2,845,276
Non-current accrued liabilities                                         265,950

Commitments and contingencies

Stockholders' equity:
     Convertible preferred stock, $.01 par value,
        5,000,000 shares authorized:
        Series B, 1,000,000 shares authorized,
        622,066 shares issued and outstanding                             6,221
     Common stock, 10,000,000 shares authorized, $.01 par
        value, 5,554,337 shares issued and outstanding                   55,543
     Additional paid-in capital                                       2,444,606
     Retained deficit                                                (1,287,101)
                                                                   ------------

                  Total stockholders' equity                          1,219,269
                                                                   ------------

                                                                   $ 11,252,901
                                                                   ============

See accompanying notes to consolidated financial statements.
CREATIVE MEDICAL DEVELOPMENT, INC.
                                                 AND SUBSIDIARY

                                      Consolidated Statements of Operations

                                       Years ended April 30, 1997 and 1996

                                                                       1997                      1996
                                                                  ------------              ------------
Net sales                                                         $ 12,902,491                13,565,411
Cost of sales                                                       10,557,688                 9,598,110
                                                                  ------------              ------------

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

Selling expenses                                                     1,323,070                 1,499,061
Administrative expenses                                              1,257,227                 1,461,650
Research and development                                                61,646                    70,852
                                                                  ------------              ------------

                                                                     2,641,943                 3,031,563

                  (Loss) earnings from operations                     (297,140)                  935,738
                                                                  ------------              ------------

Other income (expense):
     Interest expense                                                 (687,095)                 (713,825)
     Legal settlement                                                 (334,500)                     --
     Miscellaneous expense                                              (6,781)                  (40,051)
     Loss on sale of assets                                            (25,156)                  (27,690)
                                                                  ------------              ------------

                  Total other expense                               (1,053,532)                 (781,566)
                                                                  ------------              ------------

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

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

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

Net (loss) earnings per share                                     $       (.41)                      .04
                                                                  ============              ============

Weighted average common shares outstanding                           3,126,294                 2,808,516
                                                                  ============              ============

See accompanying notes to consolidated financial statements.
CREATIVE MEDICAL DEVELOPMENT, INC.
                                                                          AND SUBSIDIARY

                                                          Consolidated Statements of Stockholders' Equity

                                                                Years ended April 30, 1997 and 1996

                                    Preferred stock                                        
                                      Series B                        Common stock          Additional    Retained       Total
                            --------------------------       --------------------------       paid-in     earnings     stockholders'
                              Shares            Amount           Shares          Amount       capital     (deficit)        equity
                              ------            ------           ------          ------       -------     ---------    -------------
Balance, April 30, 1995              -          $    -          2,688,926      $ 26,889      933,111        20,409        980,409

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

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

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

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

See accompanying notes to consolidated financial statements.
CREATIVE MEDICAL DEVELOPMENT, INC.
                                                          AND SUBSIDIARY

                                                Consolidated Statements of Cash Flows

                                                 Years ended April 30, 1997 and 1996

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

Cash flows from operating activities:
Net (loss) earnings                                                        $(1,295,065)       117,655
     Adjustments to reconcile net (loss) earnings to net cash
        provided by operating activities:
           Depreciation and amortization                                            491,642        444,785
           Legal settlement                                                         334,500           --
           Loss on sale of assets                                                    25,156         27,690
           Deferred income taxes                                                    (55,607)        36,517
           Change in assets and liabilities:
               Accounts receivable                                                 (199,814)       747,872
               Inventories                                                          296,361     (1,126,312)
               Prepaid expenses and deposits                                          1,876          3,734
               Accounts payable                                                     425,992       (108,902)
               Accrued liabilities                                                  306,383         68,897
                                                                                -----------    -----------

                      Net cash provided by operations                               331,424        211,936
                                                                                -----------    -----------

Cash flows from investing activities:
     Proceeds from sale of assets                                                    17,166          2,500
     Purchase of property, plant and equipment                                     (375,316)      (680,492)
     Organization costs                                                                --            3,293
                                                                                -----------    -----------

                      Net cash used by investing activities                        (358,150)      (674,699)
                                                                                -----------    -----------

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

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

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

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

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

                                                                                                (Continued)
CREATIVE MEDICAL DEVELOPMENT, INC.
                                                       AND SUBSIDIARY

                                      Consolidated Statements of Cash Flows, Continued

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

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

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

See accompanying notes to consolidated financial statements.
CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                                 April 30, 1997

(1) Summary of Significant Accounting Policies

     (a)  Description  of the  Company,  Basis of  Presentation  and  Change  in
          Reporting Entity
          ----------------------------------------------------------------------

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

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

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

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

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

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

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

                                                                     (Continued)
2

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

          Upon the completion of the  transaction,  former OMNI security holders
          owned approximately 67% of the total outstanding shares of the Company
          on a fully diluted basis.  The initial  ownership  ratio is subject to
          adjustment  one year after the closing of the  transaction.  The final
          ownership   ratio  will  reflect  any   adjustments   resulting   from
          differences  between the assumed value of CMD's net assets at the time
          of the  merger  and a final  determination  to be made as of April 30,
          1998. If the final ownership ratio differs from the initial  ownership
          ratio in favor of OMNI, OMNI's  shareholders  will receive  additional
          shares of CMD common  and Series B  preferred  stock as  necessary  to
          reflect  the  final   ownership   ratio  thus   increasing   the  OMNI
          shareholders' relative ownership. If the final ownership ratio differs
          from the initial  ownership ratio in favor of CMD, an amount up to 10%
          of the CMD common  stock and  Series B  preferred  stock  issued to an
          escrow  for OMNI's  shareholders  will be  canceled  as  necessary  to
          reflect  the final  ownership  ratio,  thus  decreasing  the  relative
          percentage  ownership  of  OMNI's  shareholders.  In no case will this
          adjustment result in OMNI's shareholders owning less than 64.3% of the
          total outstanding shares.

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

          The consolidated  statements of operations and cash flows reflect only
          the activity of OMNI.

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

                                                     1997           1996
                                                     ----           ----

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

                                                                     (Continued)
3

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

     (b) Principles of Consolidation
         ---------------------------

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

     (c) Investments
         -----------

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

     (d) Inventories
         -----------

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

     (e) Accounts Receivable
         -------------------

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

     (f) Property, Plant and Equipment
         -----------------------------

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

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

     (g) Organization Cost
         ------------------

          Organization costs are amortized over a five-year period.

                                                                     (Continued)
4

                       CREATIVE MEDICAL DEVELOPMENT, INC.

                   Notes to Consolidated Financial Statements

     (h) Warranty
         --------

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

     (i) Income Taxes
         ------------

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

     (j) Research and Development Costs
         ------------------------------

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

     (k) Advertising Expenses
         --------------------

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

     (l) Revenue Recognition
         -------------------

          Revenues are recognized when products are shipped.

     (m) Stock Option Plan
         -----------------

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

                                                                     (Continued)
5

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

     (n) Fair Value of Financial Instruments
         -----------------------------------

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

     (o) Net (Loss) Earnings Per Common and Common Equivalent Share
         ----------------------------------------------------------

          Net (loss)  earnings per share is computed using the weighted  average
          number of common and dilutive common  equivalent  shares assumed to be
          outstanding  during the period  (using the  treasury  stock method for
          dilutive common equivalent  shares).  Common equivalent shares consist
          of  convertible  preferred  stock,  options  and  warrants to purchase
          common stock, which have been excluded from the computation of primary
          net (loss) earnings per share due to their anti-dilutive effect.

          The  transaction   between  CMD  and  OMNI  is  considered  a  reverse
          acquisition  for financial  statement  purposes and has been accounted
          for under the purchase method of accounting.  CMD's shares outstanding
          and dilutive equity instruments,  and convertible preferred stock, are
          included in the computation of common  equivalent shares from the date
          of acquisition.  As the acquisition was consummated on April 30, 1997,
          such share and  dilutive  equity  instruments  are not included in the
          computation  of common  equivalent  shares for the fiscal  years ended
          April 30, 1997 and 1996.

     (p) Use of Estimates
         ----------------

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

                                                                     (Continued)
6

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

     (q) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
         -----------------------------------------------------------------------

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

     (r) Prior Period Adjustments
         ------------------------

          The accompanying  consolidated  financial  statements were prepared in
          connection  with  the  merger  agreement  discussed  in note  1(a) and
          present  for the  first  time the  combined  results  of OMNI and CMD.
          Certain   adjustments   were  made  to  record  certain  prior  period
          adjustments to the individual entities.  Prior period adjustments were
          made to inventory,  cost of sales,  accrued income taxes and provision
          for income taxes.

     (s) Reclassifications
         -----------------

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

(2) Inventories
    -----------

     Inventories consist of the following at April 30, 1997:

         Raw materials                                            $    461,430
         Finished goods                                              2,183,313
                                                                  ------------

                                                                     2,644,743

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

                      Inventories, net                            $  2,494,743
                                                                  ============
                                                              

                                                                     (Continued)
7

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

(3) Property, Plant and Equipment
    -----------------------------

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

         Land                                                $    374,201
         Buildings                                              1,381,593
         Vehicles                                                  90,211
         Office furniture and equipment                           121,092
         Manufacturing equipment                                3,256,327
                                                             ------------

                                                                5,223,424

         Less accumulated depreciation                            936,768
                                                             ------------

                                                             $  4,286,656
                                                             ============

     Certain  property,  plant and equipment  serves as collateral for short and
     long-term debt obligations.

(4) Accrued Liabilities
    -------------------

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

         Warranties                                             $     344,950
         Accrued compensation                                         249,391
         Accrued merger costs                                         151,343
         Other                                                        404,920
                                                                 ------------

                                                                $   1,150,604
                                                                =============

(5) Notes Payable
    -------------

     The Company has a revolving line of credit totaling  $2,608,581 with Finova
     Capital  Corporation  (Finova)  that  generally  provides  borrowing  up to
     $2,750,000 against 85% of eligible accounts  receivable and 50% of eligible
     inventory.  Interest on the line is prime rate plus 2.25%  (10.75% at April
     30, 1997),  with a minimum  interest charge of $9,000 per month. The line's
     original maturity date was April 26, 1999.  However, on April 29, 1997, the
     Company was notified that the revolving  line of credit expires on July 31,
     1997.

     In addition, the Company has a term loan payable and a capital loan payable
     with Finova totaling  $1,153,702 and $614,440,  respectively,  at April 30,
     1997,  and are  payable in monthly  installments  of  $40,000  and  $8,500,
     respectively,  plus interest at 11.5% per annum per loan. The loans payable
     are secured by equipment  and  inventory.  The original  maturity  date was
     April 26, 1999.  However,  on April 29, 1997, the Company was notified that
     the loans expire on July 31, 1997.

                                                                     (Continued)
8

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

     The Company can extend the debt maturities to August 31, 1997 provided that
     the Company i) provides  Finova with a commitment  letter by July 31, 1997,
     issued by a new funding  source which  specifically  states that the Finova
     loans will be paid by August 31, 1997,  and ii) pays an extension fee equal
     to  one-quarter  percent  (1/4%) of the total  Finova  loans as of July 31,
     1997.

(6) Long-term Debt
    --------------

     Long-term debt is comprised of the following at April 30, 1997:

       Notes  payable to  Capital  Consultants  in
          monthly    installments    of   $13,631,
          including  interest  at 10%,  payable in
          full in December  1998,  secured by real
          estate                                                   $ 1,338,776
       Mortgage  payable to financial  institution
          in  monthly   installments  of  $12,750,
          including  interest at 11.375%,  payable
          in full in  December  1998,  secured  by
          real estate                                                1,230,000
        Note payable  to an  individual  in monthly
          installments  of  interest  only at 10%,
          plus additional "premium" interest at 7%
          due each May  15th,  payable  in full in
          April 1999                                                   200,000
         

       Note  payable  to  individuals  in  monthly
          installments  of  interest  only at 10%,
          payable  in full in April  1999                              107,500
                                                                  ------------

                                                                     2,876,276

         Less current portion                                           31,000
                                                                  ------------
                      Long-term debt, due in 1999                  $ 2,845,276
                                                                   ===========
                                                      
(7) Income Taxes
    ------------

     The income tax (benefit) expense consists of the following:
1997            1996
                                                           --------        --------
Current:
             Federal                                       $   --              --
             State                                             --              --
                                                           --------        --------

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

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

                                                            (55,607)         36,517

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

                                                                         (Continued)
9

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

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

         Deferred tax assets:
             Investment in securities                            $ 232,418
             Warranty reserve                                      132,309
             Legal settlement reserve                              128,318
             Inventory reserve                                      57,534
             Bad debt reserve                                       14,523
             Self-insurance reserve                                  6,223
             Other                                                   1,994
             Net operating loss carryforwards:
                Federal                                            629,394
                State                                              130,810
                                                                 ---------

                                                                 1,333,523

         Less valuation allowance                                  490,416
                                                                 ---------
                   Net deferred tax asset                          843,107
                                                                 ---------
         Deferred tax liability:
             Property, plant and equipment, due to
                differences in depreciation                        651,327
             Real estate held for sale                             191,780
                                                                 ---------

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

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

                                                                     (Continued)
10

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

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

                                                        1997        1996
                                                        ----        ----

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

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

     The Company has a valuation  allowance of $490,416 and $-0-,  respectively,
     as of April  30,  1997 and 1996 an  increase  of  $490,416  and $-0- in the
     valuation allowance for the same respective periods ended.

     At April 30, 1997 and 1996,  the Company had  approximately  $1,982,000 and
     $899,000,  respectively,  of net  operating  loss  carryforwards  to offset
     future  income for federal and state income tax purposes  which will expire
     2010 through 2012.

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

                                                                     (Continued)
11

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

(8) Commitments and Contingencies
    -----------------------------

     (a) Employment Contract Commitments
         -------------------------------

          The Company  has  entered  into  employment  contracts  with its chief
          executive  officer/chairman  and  president,  and  vice  president  of
          operations  through  1999  and  1998,  respectively,   with  automatic
          extensions  of  one-year  increments.  These  contracts  provide for a
          minimum  salary  with  annual  adjustments  based  on cost  of  living
          changes,  corporate and individual  performance  and general  business
          conditions.  At April 30, 1997,  the aggregate  future  commitment was
          $383,500.

     (b) Operating Lease Commitments
         ---------------------------

          The Company leases office space,  vehicles and office  equipment under
          various operating lease agreements  expiring over several years. Lease
          expense was  approximately  $108,000  and $105,000 for the years ended
          April 30, 1997 and 1996,  respectively.  Future minimum lease payments
          under non-cancelable lease agreements are as follows:

           Year ended April 30:
                1998                                      $   88,582
                1999                                          65,800
                2000                                          66,100
                2001                                          66,300
                2002                                          66,650
                                                            --------

                                                          $  353,432
                                                          ==========

     (c) Purchase Commitment
         -------------------

          The Company has a commitment  to purchase all  retreading  buffings at
          $108 per ton produced by a retread  manufacturer  through December 31,
          1998.  Purchases  under a  similar  purchase  agreement  with the same
          manufacturer totaled approximately $225,000 and $298,000 for the years
          ended April 30, 1997 and 1996, respectively.

                                                                     (Continued)
12

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

     (d) Royalty Agreements
         ------------------

          The Company acquired a royalty agreement with Red Hawk Rubber Co. (Red
          Hawk),  from Riedel OMNI Rubber Products,  Inc. The Red Hawk agreement
          provides  that  the  Company  pay a 5%  royalty  on all net  sales  of
          products  that were being  manufactured  at the time the agreement was
          signed until June 1999. Any new products developed and manufactured by
          OMNI are not subject to the Red Hawk royalty agreement.

     (e) Medical Claims
         --------------

          The Company is self-insured  for the cost of medical  coverage up to a
          maximum of $15,000 per  individual per year. The Company has an excess
          coverage  insurance  providing for claims over $15,000 per  individual
          per year.

     (f) Litigation
         ----------

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

(9) Stockholders' Equity
    --------------------

     (a) Convertible Preferred Stock Series B
         ------------------------------------

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

          Voting
          ------

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

          Conversion
          ----------

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

                                                                     (Continued)
13

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

     (b) Stock Options
         -------------

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

          The per share  weighted  average fair value of stock  options  granted
          during  1996 was $.10 on the date of grant  using  the  Minimum  Value
          option-pricing  model with the following weighted average assumptions:
          expected divided yield 0%, risk-free interest rate of 7%, and expected
          life of ten years. No options were granted during 1995.

          The Company applies APB Opinion No. 25 in accounting for its Plan and,
          accordingly,  no  compensation  cost has been recognized for its stock
          options  in the  financial  statements.  The pro forma  effects on net
          (loss)  earnings of applying  SFAS No. 123 were not  material  for the
          years ended December 31, 1996 and 1995.

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

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

                                                                     (Continued)
14

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

          The following table presents  historic stock option activity under the
          1995 plan, converted into substitute options, and the combining effect
          with CMD options outstanding under the 1994 plan:
Weighted
                                                                                      average
                                                                 Number              exercise
                                                                of shares              price
                                                             ------------           ---------
Options outstanding at April 30, 1995                  651,370           $   0.69

           Granted                                                   -                   -
           Exercised                                                 -                   -
           Forfeited                                                 -                   -
           Expired                                                   -                   -
                                                             ------------           --------

           Options outstanding at April 30, 1996                  651,370               0.69

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

           Options outstanding at April 30, 1997                2,094,598           $   0.89
                                                             ============           ========
The  Company  reserved  3,000,000  shares of common  stock and 500,000
          shares of preferred  stock for issuance  under the 1994 plan. At April
          30, 1997, there were 905,402 shares available for grant under the 1994
          plan.

          At April 30, 1997, the range of exercise  prices and weighted  average
          remaining  contractual life of outstanding options under the 1994 plan
          was $0.25-$5.00 and 8.03 years, respectively.

          At April 30, 1997 and 1996,  the number of options  exercisable  under
          the  1994  plan  was  2,094,598  and  651,370,  respectively,  and the
          weighted  average exercise price of those options was $0.89 and $0.69,
          respectively.

                                                                     (Continued)
15

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

     (c) Warrants Outstanding
         --------------------

          The following table presents  warrants  outstanding at April 30, 1997,
          all of which were issued by CMD in consideration for service rendered,
          debt and debt restructuring, and stock purchases and placements:

              Number of        
               common
               shares               Exercise                Expiration
              issuable                price                    date
              --------             ----------              --------------

                20,000             $    2.50                 May 31, 1997
                76,000                  0.75                 May 31, 1997
               100,000                  0.35                March 1, 1998
                52,500                  6.05                 May 13, 1998
                46,250                  0.35                 May 31, 1998
                10,000                  0.75                 May 31, 1998
                10,000                  1.50                 May 31, 1998
               603,750                  6.50                 May 13, 1999
                50,000                 10.00               April 14, 2000

(10) Major Customers and Credit Concentration
     ----------------------------------------

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

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

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

                                                                     (Continued)
16

                       CREATIVE MEDICAL DEVELOPMENT, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

(11) Going Concern
     -------------

     As  reflected  in  the  accompanying  financial  statements,  current  debt
     maturities and other short-term  commitments  exceeded the Company's liquid
     assets  available to repay such  commitments.  This is due primarily to the
     unexpected  acceleration  of  certain  debt  maturities.  To  finance  debt
     maturities,  management  has and will continue to seek both debt and equity
     investors to provide additional capital.

(12) Subsequent Event
     ----------------

     (a) Sale-leaseback
         --------------

          On May 21, 1997,  under a sale and  leaseback  agreement,  the Company
          sold its manufacturing  facility in Portland,  Oregon for $560,000 and
          leased it back under a  five-year  lease  agreement.  The  transaction
          produced a gain of  approximately  $83,000  which will be deferred and
          amortized  ratably  over  the  life of the  lease.  A  portion  of the
          proceeds  from the  sale  were  used to  retire  $423,773  in debt and
          accrued interest.

          The lease is an operating  lease with future minimum lease payments as
          follows:

           Year ended April 30:
                1998                                          $    86,496
                1999                                               86,496
                2000                                               86,496
                2001                                               86,496
                2002                                               86,496
                                                              -----------

                      Total minimum lease payments            $   432,480
                                                              ===========

     (b) Put Agreement
         -------------

          The Company has a stock put agreement with four individuals,  three of
          whom are board members. Under the agreement,  holders of the put could
          require the Company to purchase  111,741  shares valued at $134,285 in
          June 1997. In June 1997,  the Company  repurchased  23,774 shares at a
          value of $28,571,  while the holders of the  remaining  87,967  shares
          required the Company to repurchase  such shares at a value of $120,962
          on October 3, 1997.

     (c) Legal Settlement
         ----------------

          On July 24, 1997,  the Company  entered  into a  settlement  agreement
          arising from disputed  royalty  payments.  The terms of the settlement
          agreement  require the Company  pay $50,000  within  sixty days of the
          agreement  date and $20,000  per  quarter  for five years  thereafter.
          Management has reserved the discounted present value of the settlement
          at April 30, 1997.
OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                                  Balance Sheet

                                 April 30, 1997

                   (With Independent Auditors' Report Thereon)
KPMG Peat Marwick LLP

     Suite 2000
     1211 South West Fifth Avenue
     Portland, OR 97204

                          Independent Auditors' Report
                          ----------------------------

The Board of Directors
OMNI International Rail Products, Inc.:

We have  audited  the  accompanying  balance  sheet of OMNI  International  Rail
Products,   Inc.  as  of  April  30,  1997.  This  financial  statement  is  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on this financial statement based on our audit.

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

In our opinion,  the balance sheet  referred to above  presents  fairly,  in all
material  respects,  the financial position of OMNI International Rail Products,
Inc. as of April 30, 1997,  in conformity  with  generally  accepted  accounting
principles.

The accompanying  balance sheet has been prepared assuming that the Company will
continue as a going concern. As discussed in note 11 to the financial statement,
the Company suffers liquidity constraints, due to the unexpected acceleration of
certain  debt  maturities,  that raise  substantial  doubt  about its ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  disclosed in note 11. The balance  sheet does not include any  adjustments
that might result from the outcome of this uncertainty.

                                               KPMG PEAT MARWICK LLP

Portland, Oregon
June 27, 1997, except as to note 12(d)
     to which the date is July 24, 1997
OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                                  Balance Sheet

                                 April 30, 1997

                                     Assets
                                     ------

Current assets:
     Cash                                                        $   139,635
     Accounts receivable, net                                      1,818,109
     Inventories, net                                              2,494,743
     Capitalized merger costs                                        185,065
     Prepaid expenses and deposits                                    20,680
                                                                 -----------

                  Total current assets                             4,658,232

Property, plant and equipment, net                                 4,286,656
Organization costs, net                                              237,955
                                                                 -----------

                                                                 $ 9,182,843
                                                                 ===========

                      Liabilities and Stockholders' Equity
                      ------------------------------------

Current liabilities:
     Accounts payable                                              1,364,079
     Accrued liabilities                                           1,150,604
     Notes payable
                                                                   4,376,723
     Current portion of long-term debt                                17,140
                                                                  ----------

                  Total current liabilities                        6,908,546
                                                                  ----------
Long-term debt, less current portion                               1,629,136
Non-current accrued liabilities                                      265,950

Commitments and contingencies

Stockholders' equity:
     Common stock                                                  1,666,312
     Retained deficit                                             (1,287,101)
                                                                 -----------

                  Total stockholders' equity                         379,211
                                                                 -----------

                                                                 $ 9,182,843
                                                                 ===========

See accompanying notes to balance sheet.
OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

                                 April 30, 1997

(1) Summary of Significant Accounting Policies
    ------------------------------------------

     (a) Description of the Company
         --------------------------

          OMNI  International  Rail Products,  Inc.,  incorporated  in Oregon in
          1993,  manufactures and distributes,  on a world-wide basis, a variety
          of  rubber,  rubber/concrete  and  concrete  railroad  grade  crossing
          systems.

     (b) Inventories
         -----------

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

     (c) Accounts Receivable
         -------------------

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

     (d) Property, Plant and Equipment
         -----------------------------

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

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

     (e) Organization Cost
         -----------------

          Organization costs are amortized over a five-year period.

     (f) Warranty
         --------

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

                                                                     (Continued)
2

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

     (g) Income Taxes
         ------------

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

     (h) Research and Development Costs
         ------------------------------

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

     (i) Advertising Expenses
         --------------------

          Advertising expenses are charged to expense as incurred.

     (j) Revenue Recognition
         -------------------

          Revenues are recognized when products are shipped.

     (k) Stock Option Plan
         -----------------

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

                                                                     (Continued)
3

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

     (l) Fair Value of Financial Instruments
         -----------------------------------

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

     (m) Use of Estimates
         ----------------

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

     (n) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
         -----------------------------------------------------------------------

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

                                                                     (Continued)
4

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

(2) Inventories
    -----------

     Inventories consist of the following at April 30, 1997:

         Raw materials                                         $     461,430
         Finished goods                                            2,183,313
                                                               -------------
                                                                   2,644,743

         Less allowance for excess or obsolete
              inventory                                              150,000
                                                               -------------
                      Inventories, net                         $   2,494,743
                                                               =============
                                                   

(3) Property, Plant and Equipment
    -----------------------------

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

         Land                                                  $     374,201
         Buildings                                                 1,381,593
         Vehicles                                                     90,211
         Office furniture and equipment                              121,092
         Manufacturing equipment                                   3,256,327
                                                               -------------

                                                                   5,223,424

         Less accumulated depreciation                               936,768
                                                               -------------

                                                               $   4,286,656
                                                               =============

     Certain  property,  plant and equipment  serves as collateral for short and
     long-term debt obligations.

(4) Accrued Liabilities
    -------------------

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

         Warranties                                           $     344,950
         Accrued compensation                                       249,391
         Accrued merger costs                                       151,343
         Other                                                      404,920
                                                              -------------

                                                              $   1,150,604
                                                              =============

                                                                     (Continued)
5

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

(5) Notes Payable
    -------------

     The Company has a revolving line of credit totaling  $2,608,581 with Finova
     Capital  Corporation  (Finova)  that  generally  provides  borrowing  up to
     $2,750,000 against 85% of eligible accounts  receivable and 50% of eligible
     inventory.  Interest on the line is prime rate plus 2.25%  (10.75% at April
     30, 1997),  with a minimum  interest charge of $9,000 per month. The line's
     original maturity date was April 26, 1999.  However, on April 29, 1997, the
     Company was notified that the revolving  line of credit expires on July 31,
     1997.

     In addition, the Company has a term loan payable and a capital loan payable
     with Finova totaling  $1,153,702 and $614,440,  respectively,  at April 30,
     1997,  and are  payable in monthly  installments  of  $40,000  and  $8,500,
     respectively,  plus interest at 11.5% per annum per loan. The loans payable
     are secured by equipment  and  inventory.  The original  maturity  date was
     April 26, 1999.  However,  on April 29, 1997, the Company was notified that
     the loans expire on July 31, 1997.

     The Company can extend the debt maturities to August 31, 1997 provided that
     the Company i) provides  Finova with a commitment  letter by July 31, 1997,
     issued by a new funding  source which  specifically  states that the Finova
     loans will be paid by August 31, 1997,  and ii) pays an extension fee equal
     to  one-quarter  percent  (1/4%) of the total  Finova  loans as of July 31,
     1997.

(6) Long-term Debt
    --------------

     Long-term debt is comprised of the following at April 30, 1997:

       Notes  payable to  Capital  Consultants  in
          monthly    installments    of   $13,631,
          including  interest  at 10%,  payable in
          full in December  1998,  secured by real
          estate                                                  $ 1,338,776
       Note payable  to an  individual  in monthly
          installments  of  interest  only at 10%,
          plus additional "premium" interest at 7%
          due each May  15th,  payable  in full in
          April 1999                                                  200,000
        

       Note  payable  to  individuals  in  monthly
          installments  of  interest  only at 10%,
          payable  in full in April  1999                             107,500
                                                                 ------------

                                                                    1,646,276

       Less current portion                                            17,140
                                                                 ------------
                      Long-term debt, due in 1999               $   1,629,136
                                                                =============
                                                
                                                                     (Continued)
6

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

(7) Income Taxes
    --------------

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

         Deferred tax assets:
             Warranty reserve                                       $   132,309
             Legal settlement reserve                                   128,318
             Inventory reserve                                           57,534
             Bad debt reserve                                            14,523
             Self-insurance reserve                                       6,223
             Other                                                        1,994
             Net operating loss carryforwards:
                Federal                                                 629,394
                State                                                   130,810
                                                                    -----------

                                                                      1,101,105

         Less valuation allowance                                       449,778
                                                                    -----------

                   Net deferred tax asset                               651,327
                                                                    -----------
         Deferred tax liability:
             Property, plant and equipment, due to
                differences in depreciation                             651,327
                                                                    -----------
                   Net deferred tax liability                           651,327
                                                                    -----------
                   Net deferred tax assets and liabilities          $         -
                                                                    ===========

     The Company has a valuation  allowance of $449,778 as of April 30, 1997 and
     an  increase of $449,778  in the  valuation  allowance  for the period then
     ended.

     At April 30, 1997 and 1996,  the Company had  approximately  $1,982,000 and
     $899,000,  respectively,  of net  operating  loss  carryforwards  to offset
     future  income for federal and state income tax purposes  which will expire
     2010 through 2012.

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

                                                                     (Continued)
7

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

(8) Commitments and Contingencies
    -----------------------------

     (a) Employment Contract Commitments
         -------------------------------

          The Company  has  entered  into  employment  contracts  with its chief
          executive  officer/chairman  and  president,  and  vice  president  of
          operations  through  1999  and  1998,  respectively,   with  automatic
          extensions  of  one-year  increments.  These  contracts  provide for a
          minimum  salary  with  annual  adjustments  based  on cost  of  living
          changes,  corporate and individual  performance  and general  business
          conditions.  At April 30, 1997,  the aggregate  future  commitment was
          $383,500.

     (b) Operating Lease Commitments
         ---------------------------

          The Company leases office space,  vehicles and office  equipment under
          various operating lease agreements expiring over several years. Future
          minimum lease payments under  non-cancelable  lease  agreements are as
          follows:

           Year ended April 30:
                1998                                              $  88,582
                1999                                                 65,800
                2000                                                 66,100
                2001                                                 66,300
                2002                                                 66,650
                                                                  ---------

                                                                  $ 353,432
                                                                  =========

     (c) Purchase Commitment
         -------------------

          The Company has a commitment  to purchase all  retreading  buffings at
          $108 per ton produced by a retread  manufacturer  through December 31,
          1998.  Purchases  under a  similar  purchase  agreement  with the same
          manufacturer totaled approximately $225,000 and $298,000 for the years
          ended April 30, 1997 and 1996, respectively.

     (d) Royalty Agreements
         ------------------

          The Company acquired a royalty agreement with Red Hawk Rubber Co. (Red
          Hawk),  from Riedel OMNI Rubber Products,  Inc. The Red Hawk agreement
          provides  that  the  Company  pay a 5%  royalty  on all net  sales  of
          products  that were being  manufactured  at the time the agreement was
          signed until June 1999. Any new products developed and manufactured by
          OMNI are not subject to the Red Hawk royalty agreement.

                                                                     (Continued)
8

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

     (e) Medical Claims
         --------------

          The Company is self-insured  for the cost of medical  coverage up to a
          maximum of $15,000 per  individual per year. The Company has an excess
          coverage  insurance  providing for claims over $15,000 per  individual
          per year.

     (f) Litigation
         ----------

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

(9) Stockholders' Equity
    --------------------

     (a) Stock Options
         -------------

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

          The per share  weighted  average fair value of stock  options  granted
          during  1996 was $.10 on the date of grant  using  the  Minimum  Value
          option-pricing  model with the following weighted average assumptions:
          expected divided yield 0%, risk-free interest rate of 7%, and expected
          life of ten years. No options were granted during 1995.

          The Company applies APB Opinion No. 25 in accounting for its Plan and,
          accordingly,  no  compensation  cost has been recognized for its stock
          options  in the  financial  statements.  The pro forma  effects on net
          (loss)  earnings of applying  SFAS No. 123 were not  material  for the
          years ended December 31, 1996 and 1995.

                                                                     (Continued)
9

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

     Stock  option  activity  for the years  ended April 30, 1997 and 1996 is as
     follows:
Weighted
                                                                                 average
                                                             Number             exercise
                                                            of shares             price
                                                            ---------           ---------
Options outstanding at April 30, 1995              651,370           $   0.69

           Granted                                               -                   -
           Exercised                                             -                   -
           Forfeited                                             -                   -
           Expired                                               -                   -
                                                         ------------           --------

           Options outstanding at April 30, 1996              651,370               0.69

           Granted                                          1,236,289               0.83
           Exercised                                             -                   -
           Forfeited                                          (48,061)             (0.69)
           Expired                                               -                   -
                                                         ------------           --------

           Options outstanding at April 30, 1997            1,839,598           $   0.78
                                                         ============           ========
The Company  reserved  3,090,720  shares of common stock for issuance under
     the 1995 plan. At April 30, 1997, there were 1,251,122 shares available for
     grant under the 1995 plan.

     At April 30,  1997,  the range of  exercise  prices  and  weighted  average
     remaining  contractual life of outstanding  options under the 1995 plan was
     $0.65-$1.05 and 8.54 years, respectively.

     At April 30,  1997 and 1996,  the number of options  exercisable  under the
     1995 plan was 1,839,598 and 651,370, respectively, and the weighted average
     exercise price of those options was $0.78 and $0.69, respectively.

                                                                     (Continued)
10

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

(10) Major Customers and Credit Concentration
     ----------------------------------------

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

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

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

(11) Going Concern
     -------------

     As  reflected  in  the  accompanying  financial  statements,  current  debt
     maturities and other short-term  commitments  exceeded the Company's liquid
     assets  available to repay such  commitments.  This is due primarily to the
     unexpected  acceleration  of  certain  debt  maturities.  To  finance  debt
     maturities,  management  has and will continue to seek both debt and equity
     investors to provide additional capital.

                                                                     (Continued)
11

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

(12) Subsequent Event
     ----------------

     (a) Merger
         ------

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

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

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

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

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

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

                                                                     (Continued)
12

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

          Upon the completion of the  transaction,  former OMNI security holders
          owned approximately 67% of the total outstanding shares of the Company
          on a fully diluted basis.  The initial  ownership  ratio is subject to
          adjustment  one year after the closing of the  transaction.  The final
          ownership   ratio  will  reflect  any   adjustments   resulting   from
          differences  between the assumed value of CMD's net assets at the time
          of the  merger  and a final  determination  to be made as of April 30,
          1998. If the final ownership ratio differs from the initial  ownership
          ratio in favor of OMNI, OMNI's  shareholders  will receive  additional
          shares of CMD common  and Series B  preferred  stock as  necessary  to
          reflect  the  final   ownership   ratio  thus   increasing   the  OMNI
          shareholders' relative ownership. If the final ownership ratio differs
          from the initial  ownership ratio in favor of CMD, an amount up to 10%
          of the CMD common  stock and  Series B  preferred  stock  issued to an
          escrow  for OMNI's  shareholders  will be  canceled  as  necessary  to
          reflect  the final  ownership  ratio,  thus  decreasing  the  relative
          percentage  ownership  of  OMNI's  shareholders.  In no case will this
          adjustment result in OMNI's shareholders owning less than 64.3% of the
          total outstanding shares.

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

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

                                                                     (Continued)
13

                     OMNI INTERNATIONAL RAIL PRODUCTS, INC.

                             Notes to Balance Sheet

     (b) Sale-leaseback
         --------------

          On May 21, 1997,  under a sale and  leaseback  agreement,  the Company
          sold its manufacturing  facility in Portland,  Oregon for $560,000 and
          leased it back under a  five-year  lease  agreement.  The  transaction
          produced a gain of  approximately  $83,000  which will be deferred and
          amortized  ratably  over  the  life of the  lease.  A  portion  of the
          proceeds  from the  sale  were  used to  retire  $423,773  in debt and
          accrued interest.

          The lease is an operating  lease with future minimum lease payments as
          follows:

           Year ended April 30:
                1998                                        $   86,496
                1999                                            86,496
                2000                                            86,496
                2001                                            86,496
                2002                                            86,496
                                                            ----------

                      Total minimum lease payments          $  432,480
                                                            ==========

     (c) Put Agreement
         -------------

          The Company has a stock put agreement with four individuals,  three of
          whom are board members. Under the agreement,  holders of the put could
          require the Company to purchase  111,741  shares valued at $134,285 in
          June 1997. In June 1997,  the Company  repurchased  23,774 shares at a
          value of $28,571,  while the holders of the  remaining  87,967  shares
          required the Company to repurchase  such shares at a value of $120,962
          on October 3, 1997.

     (d) Legal Settlement
         ----------------

          On July 24, 1997,  the Company  entered  into a  settlement  agreement
          arising from disputed  royalty  payments.  The terms of the settlement
          agreement  require the Company  pay $50,000  within  sixty days of the
          agreement  date and $20,000  per  quarter  for five years  thereafter.
          Management has reserved the discounted present value of the settlement
          at April 30, 1997.
(b) Pro forma financial information.

                       Creative Medical Development, Inc.
                         Pro Forma Financial Information
                                   (Unaudited)

The following unaudited pro forma information  reflects the business combination
between  Omni  International  Rail  Products,  Inc (OMNI) and  Creative  Medical
Development,  Inc (CMD) under the purchase  method of accounting.  The pro forma
information is based on the companies'  historical  financial statements and the
notes  thereto,  which are  included  elsewhere  in this Form 8K.  The pro forma
information combines OMNI's historical  consolidated statement of operations for
the year  ended  April 30,  1997 and CMD's  historical  unaudited  statement  of
operations  for  the  year  ended  April  30,  1997  as if the  transaction  was
consummated at the beginning of the period presented.

The pro forma information is presented for illustrative purposes only and is not
necessarily  indicative of the operating results that would have occurred if the
combination had been consummated at the beginning of the period  presented,  nor
is it  necessarily  indicative  of  future  operating  results.  This pro  forma
information  should  be read in  conjunction  with  the  consolidated  financial
statements and notes thereto of CMD and subsidiary included elsewhere herein.

Pursuant to Article 11, Rule 11.02 (c)(1) pro forma balance sheet information is
not presented  because the transaction is already  reflected in the consolidated
balance sheet presented elsewhere in this Form 8K. Because of the limited number
of pro  forma  adjustments  and  the  ease  with  which  those  adjustments  are
understood,  a narrative description of the pro forma effects of the transaction
is being furnished in lieu of the statements described by Article 11.

In compliance  with the reporting  requirement of this item,  financial  results
from  discontinued  operations are excluded for purposes of presenting pro forma
information.  Thus, the statements of operations  presented in the  consolidated
financial  statements  of CMD  and  subsidiary  included  elsewhere  herein  are
essentially the same as the required pro forma information.

CMD's  net loss on  leasing  activities  during  fiscal  1997  totaling  $29,263
represents CMD's only results included in the pro forma statement of operations.
Accordingly,  pro forma loss for the year ended  April 30,  1997 is  $1,324,328.
Given the pro forma weighted  average number of shares  outstanding of 5,234,439
for the year ended April 30, 1997, net loss per share is $.25.
Exhibit 10.7     Letter from Perry-Smith & Co. (former accountant dated
                 July 24, 1997, pursuant to Item 304(a)(3) of Regulation S-K.
Item 8.  Change in Fiscal Year.

     On July 22, 1997, the Registrant's  board of directors adopted a resolution
to change the Registrant's fiscal year end to April 30, beginning with April 30,
1997. Registrant will file a Form 10-KSB covering the transition period.

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                             Creative Medical Development, Inc.

Date:  July 24, 1997                           By: /S/  JEFF EDWARDS
                                                --------------------------------
                                                Jeff Edwards, CFO