<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 ---------------

                                   FORM 10-KSB

(Mark One)
  [X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EX-CHANGE ACT
        OF 1934.
For the fiscal year ended               December 31, 1997
                          -------------------------------------------------
                                       OR
  [ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _________  to _______

                         Commission file number 0-22375

                         American Stone Industries, Inc.
-------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

            Delaware                                      13-3704099
--------------------------------                     --------------------
 (State or Other Jurisdiction of                       (I.R.S. Employer
 Incorporation or Organization)                      (Identification No.)


      8705 Quarry Road, Amherst, Ohio                                   44001
-----------------------------------------                    ------------------
(Address of Principal Executive Offices)                             (Zip Code)

                                 (440) 986-4501
------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

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

                                                      Name of Each Exchange
             Title of Each Class                       on Which Registered
             -------------------                       -------------------

                     N/A                                       N/A



         Securities registered under Section 12(g) of the Exchange Act:
                     Common Stock, $.001 par value per share
-------------------------------------------------------------------------------
                                (Title of Class)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes X No


<PAGE>   2


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

         Issuer's revenues for its most recent fiscal year:   $2,178,800.
                                                           ----------------

         The aggregate market value of the Common Stock held by non-affiliates
of the Registrant as of March 16, 1998 was approximately $1,705,037, computed on
the basis of the last reported sale price per share ($2.25) of such stock on the
Nasdaq Bulletin Board. For purposes of this information, shares of Common Stock
which were owned beneficially by executive officers, Directors and persons who
may be deemed to own 10% or more of the outstanding Common Stock were deemed to
be held by affiliates. This determination of affiliate status is not necessarily
a conclusive determination for other purposes.

         The number of shares of the Registrant's Common Stock outstanding as of
March 16, 1998 was 1,631,364.

                       DOCUMENTS INCORPORATED BY REFERENCE

Form 10-KSB Reference                            Documents
---------------------                            ---------

Part III (Items 10, 11, 12 and 13)      Portions of the Registrant's
                                        Definitive Proxy Statement to be
                                        used in connection with its Annual
                                        Meeting of Stockholders to be held
                                        on May 20, 1998.

         Except as otherwise stated, the information contained in this Form
10-KSB is as of December 31, 1997.


<PAGE>   3
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

General.

                  American Stone Industries, Inc. ("ASI" or the "Company") is a
holding company that conducts its business through its two wholly-owned
subsidiaries American Stone Corporation ("ASC") and Tyrrell Stone Design, Ltd.
("Tyrrell"). ASC quarries, purchases and sells stone for use in the building
construction industry. Tyrrell provides design services to architects and stone
processing centers. ASC produces two types of natural stone: (1) dimensional
stone, which is natural stone that is cut to size as specified in architectural
designs and is primarily used as architectural accents to buildings, although
dimensional stone is also used for funeral monuments, landscape and ornamental
objects; and (2) construction stone, which is natural stone primarily used for
road base, back fill and erosion control.

                  The Company was incorporated in the State of Delaware on
November 11, 1992 as Viva Designs U.S.A., Inc. The Company at that time was a
distributor of a line of jewelry and fragrances. Beginning in 1994 and until a
business combination in August 1995, ASI was a distributor of medical equipment
in the United States. In conjunction with the 1995 business combination, the
medical equipment distributorship business was transferred to a related party.
On August 9, 1995, the Company changed its name to American Stone Industries,
Inc. Concurrent with the 1995 business combination, ASI became a holding company
that conducts business through ASC and Tyrrell.

American Stone Corporation.

                  ASC is a Delaware corporation, which was incorporated in 1992.
ASC accounts for about 74% of the Company's revenue, and about 84% of its
assets. The balance of the assets are cash and other liquid assets owned by ASI
and Tyrrell. ASC acquired the operating assets of Cleveland Quarries, L.P. in
February 1996, and thereafter began operating the 145-year old quarry situated
near Amherst, Ohio known as the "Cleveland Sandstone Quarries" (the "Cleveland
Quarries"). Consisting of an estimated 300,000,000 cubic feet of reserve
deposits located on over 1,000 acres of ASC-owned property, management of the
Company ("Management") believes, based upon various industry reports and surveys
since the initial discovery in 1853, that the Cleveland Quarries are among the
World's largest sandstone quarries.

The Business of ASC.

                  ASC quarries, purchases and markets sandstone and manages the
operation of the Cleveland Quarries. The Cleveland Quarries produce sandstone,
which is known in the industry as "Berea Sandstone." For more than 100 years,
sandstone from the Cleveland Quarries has been utilized throughout Ohio, the
United States and Canada in such products as the following:
<PAGE>   4

<TABLE>
<CAPTION>
         Facility/
         Building                        Location                      Date
         -----------                    -----------                   ------
<S>                                 <C>                          <C>
The John Hancock Building           Boston, Mass.  (U.S.A.)            1948

U.S.  Post Office                   Cleveland, Ohio (U.S.A.)           1934

Parliament Building                 Ottawa, Ontario (Canada)           1865
                                                                 (rebuilt 1917)

City Hall                           Buffalo, New York (U.S.A.)         1930

U.S.  Bankruptcy Court              Little Rock, Ark. (U.S.A.)         1918

Oberlin College Campus              Oberlin, Ohio (U.S.A.)             1885-1943

Osgood Hall -- Law courts of        Toronto, Ontario (Canada)          1857
Upper Canada

NHL Hockey Hall of Fame             Toronto, Ontario (Canada)          1885

County Courthouse                   Savannah, Ga. (U.S.A.)             1889

St. James Cathedral                 Toronto, Ontario (Canada)          1853

University of Pennsylvania          Philadelphia, Penn. (U.S.A.)       1874-1910
</TABLE>

                  Berea Sandstone has been used in the construction of numerous
additional facilities over the past 100 years, including government buildings,
banks, churches and prestigious private residential dwellings throughout the
United States and Canada. One of the most current personal residences of note is
that of Mr. William Gates in Seattle, Washington.

Industry Structure.

                  All natural stone products go through several stages prior to
final consumption. The various stages can be defined as follows: (1) Quarrying,
which is the extraction of large blocks of stone; (2) Primary Processing, which
involves sawing the large blocks into smaller blocks or large slabs; (3)
Secondary Processing, which is the conversion of smaller blocks or slabs into
finished product; and (4) Installation, which involves assembling and installing
finished product. ASC owns and operates its own quarries. ASC is also a primary
processor, as the Company owns and operates its own slabbing mills. In addition,
the Company has its own secondary processing mill. All three processes are
performed at the Company's South Amherst location in Ohio.

                                       2
<PAGE>   5

                    BLOCKS ARE TURNED               BLOCKS ARE TURNED INTO
                    INTO SLABS TO MAKE              SMALLER BLOCKS TO MAKE
                    ------------------              ----------------------

                        Table Tops                          Coping
                           Tile                           Cut Stone
                       Patio Stone                       Grindstones
                       Garden Stone                        Curbing
                          Sills                         Building Stone
                       Step Treads                        Breakwater
                       House Ashlar                   Laboratory Samples
                                                       Landscape Pieces


                  Companies operate in diverse ways within the natural stone
industry. They are usually involved in more than one of these disciplines.
Companies operating at the ends of the process, (i.e., the quarrying and
installation) tend to locate geographically. Quarry operations locate where the
raw material is found and installers operate in the area in which the finished
product is to be installed. Primary processors often locate at or near the
quarries. For this reason, the same company is often involved in both the quarry
and primary processing segment. Similarly, secondary processors locate at or
near the installers' premises. Therefore, companies that do installation are
also usually capable of secondary processing. Management believes that few
companies operate in all segments of the industry.

                  The primary and secondary processing segments are the most
mechanized and therefore the most capital intensive. The machinery can be very
sophisticated and very expensive. There have been major advancements in quarry
technology, and these operations are also becoming very capital intensive. These
expenses have been a bar to entry into these segments of the industry for many
and, for those that have failed to keep up, it has been a factor creating
adverse consequences.

                  This change is evidenced by a new phenomenon in the industry.
Raw blocks of stone are being shipped from North America to processing centers
located in Italy, and the final product is returned to North America for
installation. Transportation is strictly limited to water and road, but the
portion of the final product cost attributable to transportation has steadily
fallen as the cost of processing has risen. The rising cost of processing has
only been offset by the efficiencies of modern machinery. Management believes
that the processing centers can compete internationally, if they are as
sophisticated as those in Italy, and benefit from some of the other cost saving
elements available to the industry today.

                  Even though a large portion of the labor component of the
processing has been eliminated, labor continues to be a problem in Italy. The
processing segment can benefit even further in an inexpensive labor pool
location; however, most third-world or underdeveloped countries offering
inexpensive labor pools also lack the sophisticated labor pool that is necessary

                                       3
<PAGE>   6

to maintain and operate the equipment. This is one of the reasons processing
centers still locate in countries like Italy, Germany and Japan.

                  Another important element in the cost of processing with
modern machinery has been access to a continuous source of fresh water. This
element will become increasingly more important as water jet technology emerges.
Through its various on-site wells, Management believes that ASC would be assured
access to a continuous source of fresh water.

Industry Production.

                  Based upon an August 1995 report prepared for the Company by
Industrial Mineral Facts (the "IMF Report"), the annual world production of raw
dimensional stone (Quarry stage) is estimated at 34,000,000 metric tons or about
12,600,000 cubic meters. After primary and secondary processing, the total
quantity of finished dimensional stone products is approximately 20,000,000 tons
(59% yield), representing approximately 370,000,000 equivalent square meters.
The United States' share of worldwide production of dimensional stone is
approximately 4% and is produced by about 160 companies, operating over 250
quarries in 35 states. The United States and the North American continent, in
general, are large importers of finished dimensional stone products. In
addition, 6,000,000 tons of ornamental stone are also produced. It is estimated
that the dimensional stone industry could reach 500,000,000 equivalent square
meters by the year 2000, a rate of growth of 5 to 6% annually. Approximately 80%
of dimensional stone product is used by the building and construction
industries, while the remaining 20% is consumed by the funeral monument,
landscape and ornamental objects industries.

                  Worldwide production and consumption of raw dimensional stone,
as provided in the IMF Report, are illustrated on the following table:

                             PRODUCTION/CONSUMPTION

                                   By Country
                                    000 tons

<TABLE>
<CAPTION>

Country                        Production                   Consumption
----------                  -------------                 ----------------
<S>                         <C>                            <C>
Italy                           7,500                            8,200

Spain                           3,500                            3,350

China                           2,300                            1,400

Greece                          1,750                            1,700

S. Korea                        1,600                            1,500
</TABLE>
                                       4
<PAGE>   7
<TABLE>
<S>                         <C>                            <C>
India                           1,500                              700

U.S.A                           1,500                            1,500

Portugal                        1,300                            1,150

Brazil                          1,250                              700

France                          1,250                            1,400

Benelux                           750                              800

S. Africa                         750                              100

Germany                           700                            1,000

Japan                             500                            1,700

Taiwan                            300                            1,350

Others                          8,600                            8,500

</TABLE>

Marketing Structure.

                  The market for dimensional stone products is served by many
more companies than those involved in production and installation. They include
government agencies, distributors, marketing agencies, architectural and
engineering firms and designers. The company that has the closest contact with
the final consumer is often most responsible for the sale of stone products.
These other companies are often more important to the stone producer than the
stone itself. The illustration below indicates how many layers are potentially
between the end-user and the companies involved in the four levels of the stone
industry. The additional layers between end-user and producer require a
sophisticated marketing department capable of dealing with these companies. The
marketing department may use in-house employees for estimating and drafting
functions or form strategic alliances with outside companies that perform these
functions.

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<PAGE>   8

                               QUARRY TO END-USER

                                     Quarry
                                     -------

    Secondary Processor                                  Primary Processor
    -------------------                                  -----------------
                                    Installer
                                   -----------

                                General Contractor
                                ------------------

       Architect                                            Distributor
       ---------                                            ------------

                                    Designer
                                    --------

                                Purchasing Agent
                                ----------------

                                    End-User
                                    --------

Market Size.

THERE ARE FOUR MAJOR GEOGRAPHICAL
MARKETS FOR FINISHED DIMENSIONAL STONE PRODUCTS:
-----------------------------------------------

*  Europe                                   8,500,000 Tons
*  United States                            1,200,000 Tons
*  Far East                                 3,500,000 Tons
*  Middle East                                450,000 Tons

Source: IMF Report

                  Per the IMF Report, these four regions consume at least 70% of
the world's production of raw and finished dimensional stone products. Outside
of Saudi Arabia, the countries with the greatest consumption per capita of
dimensional stone are Greece, Italy, Spain and Portugal. These four countries,
which account for approximately 2% of the world's population, consume over 30%
of all dimensional stone products. Per capita consumption in these four
countries is four-fold that of Japan and ten-fold that of the United States. In
these


                                       6

<PAGE>   9

countries stone products are used both in commercial construction and in housing
while, in countries such as Japan and the United States, dimensional stone is
primarily used in commercial buildings.

                  According to the IMF Report, total United States dimensional
stone consumption reached $3,200,000,000 in 1989. Major market areas in the
United States include New York, Dallas, Chicago, Southern California and
Florida. In North America, the markets for natural stone are highly dependent on
construction activity. While the commercial market continues to form as
construction start-ups increase in strategic sectors (i.e., finance, technology,
leisure and healthcare) increasing demand in natural stone products in
renovation and restoration work serve to fortify and strengthen burgeoning
market demand.

Sandstone Market.

                  The worldwide market for dimensional sandstone products is
estimated to be approximately 700,000 tons, based upon the IMF Report. The
United States and Canada produce approximately 28% of this total. Specific
figures including conglomerate are available for the state of Ohio as follows.

                  According to the IMF Report, sandstone and conglomerate
production was 2,053,855 tons in 1993. Total sales were 1,933,259 tons, of which
crushed sandstone and conglomerate accounted for 1,894,761 tons and dimensional
stone accounted for 38,498 tons. Ohio ranks seventh nationally in production of
all dimensional stone, but ranks first in the production of sandstone
dimensional stone. Construction stone is used primarily for glass sand, foundry
sand, silica flour, and construction. Dimensional stone is used primarily for
rough construction purposes. Sandstone production in Ohio accounts for 6.7% of
Ohio's total stone production.

                  For the period from 1994 to 1997, the Company's annual
production of natural stone was as follows:

                  Raw dimensional stone:
                  ----------------------    (tons)

                  1994                      2,700
                  1995                      3,970
                  1996                      8,460
                  1997                      9,566

                  Management currently intends to target the following segments
after expanding the sales of its Berea Sandstone:

                                       7
<PAGE>   10

             Building Stone:
             ---------------
              -  Slabs         Curb Strips      Ashlar            Landscaping
              -  Sills         Benchstone       Patio Stone       Tile
              -  Steps         Wallstone        Cutstone

             Specialty Products:
             -------------------
              -  Cores (Oil & Gas Research)     Grindstones
              -  Breakwater Stone               Ornamental

             Construction Materials:
             -----------------------
              -  Crushed Stone         Bank Run / Rip Rap
              -  Sand

Employees.

                  ASC has approximately 50 full-time employees, of which about
45 are hourly. The average hourly wage of the quarry personnel is less than ten
dollars per hour. The quarries are situated in geographic regions that have a
large labor pool, and Management does not believe that securing additional labor
will be difficult or expensive. In Management's opinion, ASC has a positive
relationship with its employees.

Competition.

                  ASC competes in the natural dimensional stone market. More
specifically, ASC competes against limestones and other sandstones. ASC's two
biggest competitors consist of Briar Hill Stone Co. (Glenmont, OH -- about 50
employees) and Indiana Limestone Company (Bedford, IN -- about 50 employees). As
a practical matter, when submitting proposals to provide Berea Sandstone to
larger commercial sites, ASC is in competition with quarries throughout the
United States and abroad.

                  ASC intends to compete within this environment utilizing a
strategy which embodies the following:

                  -       Ownership of what Management believes to be
                          one of the largest sandstone reserves in the
                          world, which assures that ASC has access to
                          the raw material;

                  -       Access to a large supply of fresh water
                          through various on-site wells, which will
                          assist in the conversion to diamond
                          technology;

                                       8

<PAGE>   11

                  -       A strategic geographic location from which
                          the Company can serve about 66% of the
                          domestic United States market within a 500
                          mile radius from the quarries;

                  -       Low cost of raw materials; and

                  -       Low cost provider, which is attributable, in
                          part, to ASC's access to a large labor pool.

Marketing by ASC.

                  The marketing of ASC products from Ohio is primarily done
through an in-house salaried sales staff. In addition, ASC is represented by 22
distributors who deal directly with the end-user by purchasing products from ASC
at discounted rates and selling them to the end-user at a markup.

                  The Company's historical market has been the United States and
Canada. Within the United States, the Midwest and Northeast regions have
traditionally accounted for more than 80% of the sales in the United States.
Sales on the West Coast (especially in Seattle) have been increasing. In Canada,
sales have occurred almost exclusively in the Provinces of Ontario and British
Columbia. The Company's objective is to develop a world-wide market with primary
emphasis upon the warmer weather sections of the United States. Costs of
transportation become more relevant when the construction site is more than 500
miles from the quarries.

Business Strategy of ASC.

                  ASC intends to expand its current market and financial base
through a business strategy that focuses on:

                  -       Dedication to the core business of ASC,
                          i.e., the Cleveland Quarries;

                  -       Development of ancillary assets, i.e., the
                          sale, lease or joint venture of surplus or
                          nonessential lands; and

                  -       Selective acquisition of compatible assets
                          or businesses.

                  In addition, ASC is investigating additional sources of
capital in order to upgrade and modernize its quarry operations as called for
over time and to centralize the marketing, administration and business
facilities, thereby expanding and enhancing these functions as well as the core
operations of estimating, drafting and design.

                                       9

<PAGE>   12

Backlog.

                  As of December 31, 1997, ASC's backlog of orders was $551,942,
as compared to a backlog of $250,000 for the period ending December 31, 1996.
The Company is careful not to generate too large of a backlog of orders to
assure that commitments can be fulfilled and to avoid supply problems.

                  In order to reduce the backlog of orders, the Company has
hired new stone cutters for its finishing shop (Plant 3) and has purchased and
installed a Natale Parma Lathe to turn balusters and columns and a Gaspari
Menotti Gang Saw to increase slab production.

                  In the opinion of Management, the increase in the Company's
backlog is a positive reflection of Management's action to stimulate incremental
marketing efforts, particularly among new distributors of products in Michigan,
Connecticut, Ohio, and Pennsylvania in the United States and Ontario, British
Columbia, and Quebec in Canada.

Seasonality.

                  ASC's sales are cyclical in nature. Historically, the
Company's sales have been highest during the second and third quarters, which
usually account for more than 70% of the fiscal year's sales. The first quarter
typically has the lowest sales due to inclement weather in the Northern Ohio
region and the difficulty of operating a quarry in such an environment. Fourth
quarter sales are typically less than sales for the third quarter, reflecting
the delivery schedules of building contractors.

Intellectual Property/Proprietary Rights.

                  ASC owns intellectual property and does not license any such
rights to others. ASC copyrights its marketing materials, but such copyrights
are not deemed to have any significant value in the marketplace.

                  Except as noted above, ASC does not own or license any
proprietary rights.

Regulation.

                  ASC's operations are subject to a variety of statutes, rules
and regulations, which are applicable to any business operating in the United
States. These statutes, rules and regulations range from record keeping (e.g.,
the duty to maintain tax-related records for specific time periods as required
by the Internal Revenue Code of 1986, as amended) to employment (e.g., the duty
to comply with the Equal Employment Opportunity Act of 1972).

                  Due to its quarry operations, ASC is also subject to certain
more specific statutes, rules and regulations, the most significant of which
include:


                                       10


<PAGE>   13

                -     Mines Safety and Health Act ("MSHA"), which mandates
                      certain safety rules and regulations governing mining
                      operations.

                -     Occupational Safety and Health Act of 1970 ("OSHA"),
                      which requires that the Company provide its employees with
                      a safe workplace.

                -     Resource Conservation and Recovery Act of 1976 ("RCRA"),
                      which prohibits the transportation and/or disposal of
                      "hazardous waste" except pursuant to certain standards.

                -     The Department of Transportation, which adopts
                      regulations governing the safe transportation of goods
                      over interstate highways.

                  In the opinion of Management, ASC is in compliance with all
applicable regulations. Material changes in these regulations or the adoption of
new regulations could materially impact upon the operations of ASC.

Research and Development.

                  In the fiscal years ended December 31, 1997 and 1996, there
were no research and development expenses.

Methods Of Distribution And Costs Of Transportation.

                  All of the stone is shipped via flatbed truck. The current
trucking rate is approximately $0.19/100 miles/cubic foot. This allows the
Company to ship to 2/3 of the population of the United States and Canada at an
average of $.50 per cubic foot. Customers are generally charged for shipping.
Customs duties between Canada and the United States are minimal.


Tyrrell Stone Design.

                  ASI agreed to acquire Tyrrell in February 1996 and closed the
acquisition on May 23, 1996 in exchange for 20,000 shares (200,000 shares prior
to the May 1997 reverse stock split) of Common Stock, $.001 par value per share
(the "Common Stock"), of the Company. In accordance with the share purchase
agreement, the value assigned for the shares was the closing price on the date
of acquisition, or $8.00 ($.80 per share prior to the May 1997 reverse stock
split) per share. Tyrrell, as a wholly-owned subsidiary of ASI, provides sales
in Canada as the Canadian arm of the Company.

                  Tyrrell provides design drawings to architects and stone
processing centers throughout North America. Through this acquisition, ASC has
expanded the scope and magnitude of services that it can offer to customers and
has become more involved in the design

                                       11
<PAGE>   14

phase of projects, thereby being in a position to suggest the use of Berea
Sandstone as part of a project.

                  The revenue of Tyrrell is limited to job bills. Tyrrell has
four full-time employees. All work is performed in Toronto, Canada. For the
twelve months ending December 31, 1997, Tyrrell's revenue was approximately 26%
of the aggregate revenue of ASC.

                  Tyrrell owns no assets (other than desktop computers and other
office equipment), intellectual property or proprietary licenses. Competition in
the design arena is diversified and intense. As a practical matter, it is not
anticipated that Tyrrell will be a significant contributor of revenue for ASC,
but the services available through Tyrrell will assist ASC in marketing its
products and servicing the needs of its customers.

Material Developments.

                  The Company acquired ASC in August 1995. As a result of this
transaction, TMT Masonry, Ltd., the former parent of ASC, received shares
representing approximately fifty-five percent (55%) of the Company's outstanding
Common Stock, thereby effecting a change in control of the Company.

                  In February 1996, ASC purchased all inventories, real estate,
equipment, intangible assets, rights in leases, and all other operational items
of Cleveland Quarries, L.P., in exchange for cash, the assumption of certain
liabilities, and certain other consideration. The total purchase price was
$2,320,259. In negotiating this purchase price, Management took into
consideration, among other things: (1) the benefit to the Company of acquiring
title to the quarries owned by Cleveland Quarries, L.P.; (2) the potential
economic benefits to the Company of securing title to these assets, especially
the land and reserves of stone; and (3) the value of the assets to be acquired.
At the time of the transaction, the General Partner of Cleveland Quarries, L.P.
was Slate and Stone Corporation of America, Ltd., which held a 1.0% interest in
the limited partnership. The two limited partners were Walter Molnar (9.9%) and
ASC (89.1%).

                  In August 1996, the Company issued 400,000 shares of its
Common Stock (4,000,000 prior to the May 1997 reverse stock split), representing
25% of the Company's total voting power, to Roulston Venture Partners, Ltd. The
sale provided the Company with working capital and access to a Board of
Directors of sophisticated business people.

                  In August 1996, the Company entered into an Interim Management
Agreement (the "IM Agreement") with numerous Canadian individuals and entities.
Pursuant to the IM Agreement, the Company was retained as co-manager of
Stoklosar Marble Quarries, Limited, an Ontario Canada corporation. The IM
Agreement was executed in anticipation of the acquisition of Stoklosar by ASI
and was intended to provide ASI with an opportunity to become familiar with the
Stoklosar quarries prior to any acquisition. Subsequent to the execution of the
IM Agreement, the Company advanced $200,000 to defray Stoklosar-related expenses
during the period from September through December 1996. The money was repaid
together with interest computed at 3.75%, which was the bond rate in Canada in
December 1996.

                                       12
<PAGE>   15


                  In September 1996, the Company executed a share purchase
agreement (the "September 1996 Agreement") with various Canadian individuals and
entities. Pursuant to the September 1996 Agreement, the Company was to purchase
100% of the issued and outstanding common shares of two Canadian entities, one
of which owned Stoklosar. Mr. Gasparini's father was an investor/creditor of one
of the selling parties. In October 1996, the Company's Board of Directors
declined to ratify the September 1996 Agreement. Accordingly, that transaction
did not close. Mr. Gasparini requested and received leave of the Board to pursue
this acquisition separately.

                  In December 1996, Mr. Gasparini and others completed their
purchase of the two Canadian entities (including Stoklosar) (hereinafter
referred to as the "Final Stoklosar Transaction"). The parties to the Final
Stoklosar Transaction agreed that the purchaser of the common shares (a newly
formed Ontario corporation identified as "1211769 Ontario, Ltd.") has assumed
all of the Company's obligations under the IM Agreement.

                  The Company has executed a separate agreement to confirm that
it fully complied with the terms of the IM Agreement. In addition, Messrs.
Gasparini and Costantino agreed to indemnify, defend and hold harmless the
Company from all claims arising out of the IM Agreement through the execution of
an Indemnification Agreement, which was ratified by the Company's Board of
Directors in March 1997.

ITEM 2.  DESCRIPTION OF PROPERTY.

                  ASC owns two separate parcels of land in the Counties of
Lorain and Erie, Ohio. The property contains both dimensional and construction
stone. On the basis of the reserve estimates obtained by the previous owner of
Cleveland Quarries, L.P., Management has reached certain conclusions regarding
the Company's reserves.

                  From approximately 1960 to 1992 the reserves of Cleveland
Quarries, L.P. have been estimated by the then owner (Stancorp), which drilled
samples of Berea Sandstone on the Company-owned properties. The volume of Berea
Sandstone has been estimated on the basis of the length, width and depth of
quarry holes. There are currently more than 600,000 square feet of exposed
quarry face. At this time, the quarry is more than 60 feet deep and 120 feet in
length. In 1996, one section (360' x 120') was prepared for finishing and this
section is expected to last about eight years at current projected sales rates.
Based upon the exposed quarry face and the depth of Berea Sandstone as evidenced
by quarry holes, Management estimates that the total reserves are adequate to
meet the needs of the Company for more than 100 years at current projected sales
rates.

                  In summary, Management projects that the property has a total
estimated dimensional stone reserve of 336 million cubic feet. In fiscal 1997,
the Company extracted 133,797 cubic feet of dimensional stone and sold 67,282
cubic feet. In fiscal 1996, the Company extracted 133,062 cubic feet of
dimensional stone and sold 51,160 cubic feet.


                                       13


<PAGE>   16

                The parcel in Erie County is in Birmingham Township, and is
strictly a quarry operation. Dimensional stone reserve estimates were projected
to be 126 million cubic feet based on a deposit of at least 30 acres indicated
by topographic studies. The Birmingham Quarry yields both Gray and Buff
Sandstone with a higher compressive strength than that of the quarries located
in the main parcel. The main parcel is in Amherst Township (Lorain County) and
is the site of numerous quarries, the mills and offices. The main parcel fronts
the Ohio State Turnpike approximately twenty minutes west of downtown Cleveland.
The Company estimates that the property contains 210 million cubic feet of
dimensional stone and 21 million cubic feet of construction stone. Many of the
quarries on this section of land are currently unused and dormant. The same
stone that has been used in thousands of applications around the country is
still available for renovation, restoration and expansion of existing buildings.
All of the properties have permits for use as quarries and all permits are in
good standing. The Birmingham property also contains a supply of natural gas
which is leased to a local utility.

The following is a list of the main buildings on the property:
<TABLE>
<CAPTION>

        MILL #                 SIZE S.F.             YEAR BUILT             CURRENT USE             FUTURE USE
        ------                 ---------             ----------             -----------             ----------

<S>        <C>                  <C>                     <C>                  <C>                    <C>
           3                    18,175                  1946                 Processing             Processing

           6                    45,000                  1923                  Storage               Gang Sawing

           7                     4,490                  1955                  Storage                 Carving

           8                    44,165                  1926                Gang Sawing             Processing

   Office & Showroom            11,305                  1900                Office & Showroom       Office & Showroom
</TABLE>

                  ASC's ownership of the two parcels in Ohio is subject to a
mortgage between ASC and FirstMerit Bank, N.A. in the principal amount of
$1,250,000 to secure borrowings under a line of credit of up to $750,000 and a
promissory note in the amount of $500,000.

Equipment.

                  ASC's equipment consists of saws, cranes, trucks, tow motors,
grinders, stone cutting equipment and haul tools. Older equipment is in the
process of being overhauled, upgraded and replaced with new equipment.

ITEM 3.  LEGAL PROCEEDINGS.

                  None.

                                       14
<PAGE>   17


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

                  The Annual Meeting of Stockholders of the Company was held on
November 26, 1997. At the Annual Meeting, the Company's Stockholders elected the
following persons to serve as Directors of the Company for terms of one year or
until their successors are duly elected and qualified. Votes were cast as
follows:

                                 FOR          AGAINST       ABSTAIN
                                 ---          -------       -------

Enzo Constantino              1,012,903          --           380
Glen Gasparini                1,012,913          --           370
Jacquita K. Hauserman         1,012,803          --           480
Michael J. Meier              1,012,913          --           370
Timothy I. Panzica            1,012,913          --           370
Thomas H. Roulston II         1,012,913          --           370

                  For a description of the bases used in tabulating the
above-referenced votes, see the Company's definitive Proxy Statement used in
connection with the Annual Meeting of Stockholders on November 26, 1997.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.*

                  The executive officers are elected each year and serve at the
pleasure of the Board of Directors. The following is a list of the executive
officers of the Company as of March 16, 1998.
<TABLE>
<CAPTION>

           NAME                AGE                      POSITION
           ----                ---                      --------
<S>                           <C>      <C>
Enzo Constantino                35  Enzo  Constantino  has served as Treasurer  of the Company and as a Director
                                    since 1996. Mr. Constantino has been Secretary and Treasurer of TMT since 1994.
                                    Prior to joining TMT, Mr. Constantino was the controller of Daicon Contractors, a
                                    general contractor located in Toronto, Ontario, from 1989 to 1994, and the cost
                                    accounting manager for Canada Packers, a meat processor located in Toronto,
                                    Ontario, from 1983 to 1989.

Michael J. Meier                43  Michael J. Meier has served as Secretary of the Company and as a Director since
                                    1996. Mr. Meier has been Vice President, Chief Financial Officer, Secretary and
                                    Treasurer of Defiance, Inc. since 1990. Defiance, Inc. is a supplier of tooling
                                    systems, testing services, specialty anti-friction bearings and
                                    precision-machined products to the U.S. transportation industry, with
                                    headquarters in Cleveland, Ohio.

David Tyrrell                   36  David Tyrrell has served as President and Chief Executive
</TABLE>

                                       15
<PAGE>   18
<TABLE>
<S> NAME      AGE                   <C>            POSITION
    ----      ---                                  --------
                                    Officer of the Company since November 21, 1997 and as President of ASC since
                                    February 7, 1996. Mr. Tyrrell was the Owner and Operator of Tyrrell from 1990 to
                                    1996. From 1993 to 1996, Mr. Tyrrell was an Independent Sales Representative for
                                    Owen Sound Ledgerock.
</TABLE>

         * The information under this Item 4A is furnished pursuant to
Instruction 3 to Item 401(b) of Regulation S-K.

                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

                  The Company's Common Stock is currently traded in the
over-the-counter market via the "Bulletin Board" maintained through the National
Association of Securities Dealers, Inc. ("NASD"). At the Annual Meeting of
Stockholders held on November 22, 1996, the stockholders adopted a Resolution
which authorized the Company's Board of Directors to effectuate up to a single
one for ten reverse stock split of any and all issued and outstanding shares of
Common Stock of the Company. A reverse stock split occurred at the ratio of one
new share of Common Stock for each ten shares of Common Stock outstanding. The
reverse stock split was effective May 30, 1997. Prior to the reverse stock
split, the trading symbol was "ASTI." As of May 30, 1997 (the date of the
reverse stock split), the trading symbol was changed to "AMST."

                  The following quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions. The quotations are adjusted to reflect the one-for-ten reverse
stock split on May 30, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, 1996                       High Bid            Low Bid
----------------------------                       --------            -------
<S>                                               <C>                 <C>
First Quarter.............................           $7.20             $3.4375

Second Quarter............................           11.25                5.00

Third Quarter.............................            7.50                3.00

Fourth Quarter............................          7.1875                3.75
</TABLE>



                                       16


<PAGE>   19
<TABLE>
<CAPTION>

Year Ended December 31, 1997                       High Bid            Low Bid
----------------------------                       --------            -------
<S>                                                <C>                 <C>
First Quarter.............................          $8.750             $4.375

Second Quarter............................          16.250              3.750

Third Quarter.............................           5.250              3.125

Fourth Quarter............................            5.50              1.750
</TABLE>


                  As of March 23, 1998, there were approximately 124 holders of
record of the Common Stock of the Company. The Company has paid no dividends on
the Common Stock and it is the Company's present intention to reinvest earnings
internally to finance the expansion of its business. The Company's ability to
pay dividends is directly related to the Company's future profitability and need
for capital to support growth.

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

COMPANY OVERVIEW
----------------

                  Set forth below is a discussion of the principal factors that
affected the Company's results of operations during each of the two most recent
fiscal periods. This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere in
this report.

RESULTS OF OPERATIONS
---------------------

TOTAL REVENUE
-------------
                  Total revenue increased by $475,656, or by 27.9%, from
$1,702,551 in 1996 to $2,178,207 in 1997. The increase is, in most part, a
result of the installation of new equipment, streamlined product processing, and
ongoing development and implementation of a new marketing strategy.

                  Revenues were at levels that would only provide modest profit
in any year. Even with decreased expenses in 1997, sales must also increase to
achieve a healthy profit margin. Sales and marketing efforts have been stepped
up and new agents and distributors have been added. Inventory levels have
increased, employees have been hired and trained, new equipment has been
purchased and is currently being installed to further increase capacity.
Additionally, the quarry crew has doubled and a new section of Quarry 7 has been
cleared, with quarrying having commenced in November 1997.

                                       17
<PAGE>   20


GROSS PROFIT
------------

                  Gross profit increased by $31,441, or almost 4% from $729,014
in 1996 to $760,455 in 1997. The gross margin decreased from 43% in 1996 to 35%
in 1997. This decrease in gross margin is primarily the result of the hiring of
new employees and increased labor expenses associated with activities required
to upgrade antiquated processing facilities. These activities included repairs,
major maintenance, new equipment installation, training and administration.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------

                  Selling, general and administrative expenses ("SG&A")
decreased by $131,666, or 15.5% from $851,163 in 1996 to $719,497 in 1997. As a
percentage of total revenue, SG&A decreased by 18.7%. SG&A as a percentage of
total revenue decreased primarily as a result of the placement of an
infrastructure to facilitate sales and marketing. Management expects SG&A to
remain constant with an additional increase in sales volume.

INTEREST INCOME
---------------

                  Net interest expense for fiscal 1997 was approximately
$46,135, compared with $73,432 for fiscal 1996. The decrease in the interest
expense was attributable primarily to decreased borrowing under the Company's
credit agreement.

NET INCOME

                  Based on the foregoing, net income of the Company for fiscal
1997 was $7,106, compared with a loss of $190,426 for fiscal 1996.

CASH FLOW AND LIQUIDITY
-----------------------

                  The Company's primary source of liquidity is the Company's
line of credit under an agreement between the Company and FirstMerit Bank, N.A.
(the "Credit Agreement"). The Credit Agreement provides for maximum borrowings
of $750,000, with interest payable monthly at a rate equivalent to the prime
lending rate (8.5% and 8.25% at December 31, 1997 and 1996, respectively).
Borrowings under the Credit Agreement are secured by substantially all real
estate, inventory and equipment of the Company. The outstanding balance at
December 31, 1997 and 1996 was $350,000 and $600,000 respectively.

                  Cash flow activity for fiscal 1997 and 1996 is presented in
the Consolidated Statements of Cash Flows. During fiscal 1997, cash in the
amount of $448,000 was used in operating activities primarily to build up
inventory and for working capital purposes.

                  Management believes that the Company does not currently have
and is not expected to have within the next 12 calendar months any cash flow or
liquidity problems. Management believes that the Company is not in default with
respect to any note, loan, lease or

                                       18


<PAGE>   21

other indebtedness or financing agreement. The Company is not subject to any
unsatisfied judgments, liens, or settlement obligations; however, there are
accrued, unpaid and delinquent property taxes which are being brought current
pursuant to a five-year payment plan with the applicable County.

FORWARD-LOOKING STATEMENTS
--------------------------

                  The Company is making this statement in order to satisfy the
"safe harbor" provisions contained in the Private Securities Litigation Reform
Act of 1995. This Annual Report on Form 10-KSB includes forward-looking
statements relating to the business of the Company. Forward-looking statements
contained herein or in other statements made by the Company are made based on
Management's expectations and beliefs concerning future events impacting the
Company and are subject to uncertainties and factors relating to the Company's
operations and business environment, all of which are difficult to predict and
many of which are beyond the control of the Company, that could cause actual
results of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The Company believes that the following
factors, among others, could affect its future performance and cause actual
results of the Company to differ materially from those expressed in or implied
by forward-looking statements made by or on behalf of the Company; (a) general
economic, business and market conditions; (b) competition; (c) the success of
advertising and promotional efforts; (d) trends within the building construction
industry; (e) the existence or absence of adverse publicity; (f) changes in
relationships with the Company's major customers or in the financial condition
of those customers; and (g) the adequacy of the Company's financial resources
and the availability and terms of any additional capital.

YEAR 2000
----------

                  Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Year 2000 issue affects virtually all companies and
organizations. Although the Company believes that it is Year 2000 compliant,
there can be no assurance that coding errors or other defects will not be
discovered in the future. Furthermore, there can be no assurance that the
Company's suppliers, creditors, customers and financial service organizations
may not be adversely affected by the Year 2000 issue and as a result, there can
be no assurance as to the impact of the year 2000 issue on the Company.

ITEM 7.  FINANCIAL STATEMENTS.

                  The following pages contain the Financial Statements and
Supplementary Data as specified by Item 7 of Form 10-KSB.

                                       19
<PAGE>   22








                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
of American Stone Industries, Inc. and Subsidiaries
Amherst, Ohio


    We have audited the consolidated balance sheets of American Stone
Industries, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

    We conducted our audits in accordance with 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 financial statements referred to above present fairly,
in all material respects, the financial position of American Stone Industries,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.







                                                             /s/ Hobe & Lucas
                                                             ------------------
                                                             Hobe & Lucas



Independence, Ohio
January 30, 1998

                                      F-1

<PAGE>   23


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------
                           DECEMBER 31, 1997 AND 1996
                           --------------------------

                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                                                        1997                      1996
                                                                                        ----                      ----
<S>                                                                              <C>                        <C>
Current Assets
    Cash and cash equivalents                                                    $   144,443                $  983,713
    Accounts receivable, net allowance for
     doubtful accounts of $9,967 - 1997 and
     $5,479 - 1996                                                                   462,703                   287,628
    Prepaid expenses                                                                  37,112                    36,713
    Inventory                                                                        797,758                   431,810
                                                                                 -----------                ----------
           Total current assets                                                    1,442,016                 1,739,864
                                                                                 -----------                ----------

Property, Plant and Equipment, Net                                                 2,107,823                 2,015,143
                                                                                 -----------                ----------

Other Assets
    Intangibles, Net of amortization                                                 196,334                   204,492
    Restricted cash                                                                   11,116                    10,900
    Notes receivable                                                                   -                        39,886
    Deposits                                                                           4,000                     1,000
                                                                                 -----------               -----------
                                                                                     211,450                   256,278
                                                                                  ----------                ----------
                                                                                  $3,761,289                $4,011,285
                                                                                  ==========                ==========

                                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
    Bank line of credit                                                          $   350,000                $  600,000
    Current portion of notes payable                                                 126,480                    68,007
    Accounts payable                                                                 441,372                   373,422
    Accrued and withheld payroll
      and payroll taxes                                                               27,388                    75,703
    Accrued liabilities                                                              146,665                   181,140
                                                                                 -----------                ----------

           Total Current Liabilities                                               1,091,905                 1,298,272
                                                                                 -----------                ----------

Long Term Liabilities
    Notes payable                                                                     36,728                   87,463
                                                                                 -----------                ----------

Stockholders' equity
    Common stock, $.01 par value
       20 million shares authorized 1,631,364 - 1997
       and 1,631,364 - 1996 (16,313,628 prior to the May,
       1997 reverse stock split) shares issued and
       outstanding                                                                    16,314                    16,314
    Additional paid-in capital                                                     3,562,860                 3,562,860
    Accumulated deficit                                                             (946,518)                 (953,624)
                                                                                 -----------                ----------
                                                                                   2,632,656                 2,625,550
                                                                                 -----------                ----------
                                                                                  $3,761,289                $4,011,285
                                                                                  ==========                ==========
</TABLE>

                 See notes to consolidated financial statements

                                      F-2
<PAGE>   24


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      -------------------------------------
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                 ----------------------------------------------

<TABLE>
<CAPTION>

                                                        1997            1996
                                                        ----            ----
<S>                                                 <C>             <C>
Sales                                               $ 2,178,207     $ 1,702,551


Cost of goods sold                                    1,417,752         973,537
                                                    -----------     -----------


Gross profit                                            760,455         729,014
                                                    -----------     -----------


Selling and administrative expenses                     719,497         851,163
                                                    -----------     -----------


Income (loss) from operations                            40,958        (122,149)
                                                    -----------     -----------


Other Income (Expense)
  Interest income                                        17,183          11,655
  Interest expense                                      (46,135)        (73,432)
                                                    -----------     -----------
                                                        (28,952)        (61,777)
                                                    -----------     -----------


Income (loss) before provision for income taxes          12,006        (183,926)


Provision for income taxes                                4,900           6,500
                                                    -----------     -----------


Net income (loss)                                   $     7,106     $  (190,426)
                                                    ===========     ===========


Net income (loss) per Common Share                  $       .00     $      (.12)
                                                    ===========     ===========
</TABLE>





                 See notes to consolidated financial statements

                                      F-3
<PAGE>   25



                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 -----------------------------------------------
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                 ----------------------------------------------

<TABLE>
<CAPTION>

                                             Common Stock              Additional                              Total
                                      Issued                           Paid-In        Accumulated          Stockholders'
                                      Shares         Par Value         Capital         Deficit                Equity
                                      ------         ---------         -------         -------                ------

<S>              <C>                   <C>             <C>              <C>             <C>                   <C>
Balance, January 1, 1996               14,591,828      $14,592          $777,249        $(763,198)            $   28,643


Loan reclassified to additional
paid-in-capital                           -              -               748,345            -                    748,345


Additional issue of common
stock during 1996                       1,721,800        1,722         2,037,266            -                  2,038,988


Net Loss                                  -              -                  -            (190,426)              (190,426)
                                   --------------    ---------      ------------        ---------             ----------


Balance,
December 31, 1996                      16,313,628       16,314         3,562,860         (953,624)             2,625,550


Shares retired in ten to one
reverse stock split effective
May 30, 1997                          (14,682,265)       -             -                    -                      -


Net Income                                 -             -                  -               7,106                  7,106
                                   --------------    ---------      ------------      -----------           ------------


Balance, December 31, 1997              1,631,363      $16,314        $3,562,860        $(946,518)            $2,632,656
                                   ==============   ==========        ==========       ==========             ==========
</TABLE>



                 See notes to consolidated financial statements

                                      F-4
<PAGE>   26


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                 ----------------------------------------------

<TABLE>
<CAPTION>

                                                                  1997           1996
                                                                  ----           ----

<S>                                                            <C>           <C>
Net Income (Loss)                                              $   7,106     $  (190,426)
                                                               ---------     -----------

Adjustments to reconcile net loss to net cash
  used in operating activities:
    Depreciation, amortization and depletion                     118,659          74,655
    Gain on sale of equipment                                    (14,145)           --
    Changes in assets and liabilities:
    Increase in accounts receivable                             (175,075)       (189,644)
    Increase in inventory                                       (365,948)       (301,254)
    Increase in prepaid expenses                                    (399)        (36,713)
    (Decrease) Increase in payables and accrued liabilities      (14,840)        313,372
           Other, net                                             (3,216)        (10,900)
                                                               ---------     -----------
           Total Adjustments                                    (454,964)       (150,484)
                                                               ---------     -----------

       Net Cash Used in Operating Activities                    (447,858)       (340,910)
                                                               ---------     -----------

Cash Flows from Investing Activities:
    Proceeds from notes receivable                                39,886          77,174
    Proceeds from sale of equipment                               99,939            --
    Purchase of property, plant and equipment                   (288,975)       (550,484)
                                                               ---------     -----------

       Net Cash Used in Investing Activities                    (149,150)       (473,310)
                                                               ---------     -----------

Cash Flows from Financing Activities:
    Net borrowings (repayment) under line of credit
    arrangements                                                (250,000)       (143,466)
    Proceeds from long term debt                                  72,460         994,763
    Repayment of long term debt                                  (64,722)       (567,525)
    Proceeds from issuance of common stock                          --         1,500,000
                                                               ---------     -----------

       Net Cash (Used In) Provided by Financing Activities      (242,262)      1,783,772
                                                               ---------     -----------

Net (Decrease) Increase in Cash and Cash Equivalents            (839,270)        969,552

Cash and Cash Equivalents at Beginning of Year                   983,713          14,161
                                                               ---------     -----------

Cash and Cash Equivalents at End of Year                       $ 144,443     $   983,713
                                                               =========     ===========

Supplemental Disclosure of Cash Flows
Information:
    Interest paid                                              $  43,000     $    70,000
    Taxes paid                                                 $    --       $      --
</TABLE>

                 See notes to consolidated financial statements

                                      F-5
<PAGE>   27


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                -------------------------------------------------
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                 ----------------------------------------------

Supplemental disclosures of non-cash investing and financing activities:

During the year ended December 31, 1996 the Company issued 20,000 shares
(200,000 shares prior to the May, 1997 reverse stock split) of common stock
valued at $160,000 for 100% of the outstanding stock of Tyrrell Stone Design,
Ltd.

In 1996 the Company issued 152,200 shares (1,522,000 shares prior to the May,
1997 reverse stock split) of common stock as payment of $1,127,333 of
outstanding debt of the Company.

Additionally, in 1996 the Company entered into a capital lease for equipment
valued at $145,250.



























                 See notes to consolidated financial statements

                                      F-6

<PAGE>   28


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                           DECEMBER 31, 1997 AND 1996
                           --------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

       This summary of significant accounting policies of American Stone
Industries, Inc., (hereinafter "ASI" or the "Company") is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's Management, which is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.

USE OF ESTIMATES
----------------

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

HISTORY AND BUSINESS ACTIVITY
-----------------------------

       American Stone Industries, Inc. (a Delaware corporation) is a
publicly-held company whose stock is traded on the OTC Bulletin Board. ASI is a
holding company which conducts business through its wholly owned subsidiaries,
American Stone Corporation ("ASC") and Tyrrell Stone Design, Ltd. ("Tyrrell").
ASC purchases and sells stone for use in the building construction industry.
Tyrrell, a Canadian company, acts as the Company's Canadian sales office and
provides design drawings to architects.

       Prior to February 1, 1996, ASC was a holding company with an 89.1%
ownership interest in Cleveland Quarries, L.P. ("CQ") of Amherst, Ohio.
Cleveland Quarries, L.P. was the owner and operator of the Berea Sandstone
Quarries which mines stone predominantly for the building stone market with
several specialty areas making up the balance.

       On February 1, 1996 ASC merged all inventories, real estate, equipment,
intangible assets, and all rights in leases, contracts, and all other
operational items of Cleveland Quarries L.P. and began operating the Berea
Sandstone Quarries. At that point, Cleveland Quarries, L.P. ceased operations
and liquidated.

       On May 23, 1996, the Company acquired all of the outstanding shares of
Tyrrell Stone Design, Ltd. in exchange for 20,000 shares (200,000 shares prior
to the May, 1997 reverse stock split) of common stock.


                                      F-7
<PAGE>   29


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             ------------------------------------------------------
                           DECEMBER 31, 1997 AND 1996
                           --------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------------

PROPERTY, PLANT AND EQUIPMENT - AT COST
---------------------------------------

       Property, plant and equipment at December 31, 1997 and 1996 consisted of:

<TABLE>
<CAPTION>
                                                        1997              1996
                                                       ----               ----
<S>                                                 <C>               <C>
Land                                                $  449,493        $  450,544
Buildings and improvements                             806,594           793,778
Equipment                                              856,814           811,356
Computers                                               21,942            14,100
Vehicle                                                  2,500             2,500
Construction in progress                               129,542              --
                                                    ----------        ----------
                                                     2,266,885         2,072,278
Less:  Accumulated depreciation                        159,062            57,135
                                                    ----------        ----------
Net property, plant and equipment                   $2,107,823        $2,015,143
                                                    ==========        ==========
</TABLE>

       Depletion is being calculated based on management's estimate of sandstone
reserves. There is no engineer's estimate available for such reserves. Depletion
amounted to $1,051 and $700 for the year ended December 31, 1997 and 1996,
respectively.

       The cost of depreciable property is being depreciated over the estimated
useful lives of the assets using the straight-line method for financial
reporting. Depreciation expense was $109,455 and $67,878 for the year ended
December 31, 1997 and 1996, respectively.

       Construction in progress represents costs incurred to date for the
purchase and installation of a gang saw with a estimated cost of $500,000.

       Routine maintenance and repairs are charged to operations when incurred.
Expenditures which materially increase value or extend lives are capitalized.

PRINCIPLES OF CONSOLIDATION
---------------------------

    The accompanying financial statements include the accounts of American Stone
Industries, Inc. and its wholly-owned subsidiary American Stone Corporation
(including the merged and consolidated financial statements of CQ) for the year
ended December 31, 1997 and 1996, and of Tyrrell Stone Design, Ltd. for the year
ended December 31, 1997 and for the period from the date of acquisition, May 23,
1996, through December 31, 1996.


                                      F-8
<PAGE>   30


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             ------------------------------------------------------
                           DECEMBER 31, 1997 AND 1996
                           --------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------------

CASH AND CASH EQUIVALENTS
-------------------------

       For purposes of financial reporting, the Company considers all
highly-liquid debt instruments purchased with an original maturity date of three
months or less to be cash equivalents.

INTANGIBLES
-----------

       Goodwill is being amortized on the straight-line method over a twenty and
thirty year period. Other intangible assets, including trademarks are amortized
over their economic lives. Amortization expense for the year ended December 31,
1997 and 1996 is $8,158 and $6,025, respectively. At December 31, 1997 and 1996,
intangibles are net of accumulated amortization of $15,219 and $7,061,
respectively.

CONCENTRATION OF CREDIT RISK
----------------------------

       Financial instruments, which potentially subject the Company to
concentration of credit risk, principally consist of accounts receivable. The
Company's policies do not require collateral to support customer accounts
receivables.

INCOME PER COMMON SHARE
-----------------------

       Income per common share is based on the weighted average number of shares
outstanding which was 1,631,363 and 1,570,921 (15,709,213 prior to the May, 1997
reverse stock split) for the years ended December 31, 1997 and 1996,
respectively.

       The exercise of stock options do not result in material dilution.

INVENTORY
---------

       The inventories which consist of sandstone are stated at the lower of
first-in, first-out (FIFO) cost or market.

RESTRICTED CASH
---------------

       The Company's certificates of deposit are assigned to the Ohio Department
of Natural Resources Division of Reclamation.

RECLASSIFICATIONS
-----------------

       Certain accounts related to the prior year have been reclassified to
conform to the current year presentation.


                                      F-9

<PAGE>   31


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             ------------------------------------------------------
                           DECEMBER 31, 1997 AND 1996
                           --------------------------

NOTE 2 - BUSINESS COMBINATION AND ACQUISITIONS
----------------------------------------------

       On May 23, 1996, the Company acquired all of the outstanding shares of
Tyrrell Stone Design, Ltd. in exchange for 20,000 shares (200,000 shares prior
to the May, 1997 reverse stock split) of common stock. This acquisition was
accounted for as a purchase, and as a result, excess cost over fair market value
of $156,729 is being amortized over thirty years. Under purchase method
accounting, balances and results of operations of the Company have been included
in the accompanying consolidated financial statements from the date of the
transaction, May 23, 1996. Proforma results of operations (assuming the business
combination had been effected at the beginning of the year ended December 31,
1996) are not presented since Tyrrell was incorporated in 1996 and the impact is
not material.
<TABLE>
<CAPTION>

NOTE 3 - NOTES RECEIVABLE - EMPLOYEES
---------------------------------------                   1997                1996
                                                          ----                ----
<S>              <C>                                   <C>                 <C>
       7%, secured by real estate mortgage,
       due in monthly installments of $310
       including interest, final payment due
       August, 2000; the note was
       repaid in 1997.                                 $  -                $38,716

       Non-interest bearing, unsecured, due in
       weekly installments of $25, final payment
       due August, 1997                                   -                  1,170
                                                       -------             -------

       Total notes receivable                           $  -               $39,886
                                                       =======             =======
</TABLE>

NOTE 4 - STOCKHOLDERS' EQUITY
-----------------------------

       Effective May 30, 1997, all stockholders of record received one share of
stock for every ten shares of stock held.

       During April and May, 1996, the Company issued 134,600 shares (1,346,000
shares prior to the May, 1997 reverse stock split) of unrestricted common stock
to Georgia Capital Corporation in satisfaction of $334,951 of indebtedness
including cash advances made to the Company during 1996 and 1995.

       During February 1996, the Company issued 6,000 shares (60,000 shares
prior to the May, 1997 reverse stock split) of unrestricted common stock to
consultants in satisfaction of $15,000 payable for consulting services rendered.

       In May, 1996, the Company issued 11,600 shares (116,000 shares prior to
the May, 1997 reverse stock split) of unrestricted common stock to Terrazzo
Mosaic & Tile Ltd. in satisfaction of $29,037 of indebtedness of the Company.

       In May, 1996, the Company acquired all of the outstanding shares of
Tyrrell Stone Design Ltd. in exchange for 20,000 shares (200,000 shares prior to
the May, 1997 reverse stock split) of the Company.

                                      F-10
<PAGE>   32


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             ------------------------------------------------------
                           DECEMBER 31, 1997 AND 1996
                           --------------------------

NOTE 4 - STOCKHOLDERS' EQUITY (Continued)
-----------------------------------------

       In August, 1996, TMT Masonry, Ltd. returned 400,000 shares (4,000,000
shares prior to the May, 1997 reverse stock split) which were immediately
reissued to Roulston Ventures Limited Partnership for $1,500,000.

       Suncrest Management Services, S.A. ("Suncrest") has an option to purchase
25,000 shares of the Company's common stock at $2.50 per share (250,000 at .25
per shares prior to the May, 1997 reverse stock split). The option expires
August 8, 1998. The options were issued in 1995 as part of a debt cancellation
agreement.

       At December 31, 1997, the Company has outstanding stock options to an
officer totaling 25,000 shares at $5.00 per share (250,000 shares at $0.50 per
share prior to the May, 1997 reverse stock split) which were awarded in
February, 1997 at the then fair market value of the shares. These options expire
in February, 2000. No options were exercised during 1997 and 1996.

NOTE 5 - LINE OF CREDIT
-----------------------

       The Company has a line of credit with maximum borrowings of $750,000. The
note provides for borrowing with interest payable monthly at a rate equivalent
to the bank's prime lending rate (8.5% and 8.25% at December 31, 1997 and 1996,
respectively). The debt agreement contains certain restrictive terms and
covenants. The Company was in compliance with its covenants at December 31, 1997
and 1996. The debt is secured by substantially all real estate, inventory, and
equipment of the Company. The outstanding balance at December 31, 1997 and 1996
was $350,000 and $600,000, respectively.

<TABLE>
<CAPTION>
NOTE 6 - LONG TERM DEBT
------------------------                                                                      1997                1996
                                                                                              ----                ----
<S>                                                                                       <C>              <C>
       9%, note payable to bank with maximum borrowings of $500,000 advances to
       date of $72,460, interest only until March, 1998 then payable in monthly
       installments of $10,407 including interest, final payment due February,
       2003, secured by substantially all real estate inventory and equipment of
       the Company.                                                                       $ 72,460            $    -

       9.4%, secured by equipment, payable in
       monthly installments of $378 including
       interest, final payment due June, 1998                                                2,388               6,330

       9.9%, secured by equipment, payable in
       monthly installments of $356 including
       interest, final payment due January, 1998                                               897               4,390

</TABLE>


                                      F-11
<PAGE>   33


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             ------------------------------------------------------
                                DECEMBER 31 1997
                                ----------------

NOTE 6 - LONG TERM DEBT (CONTINUED)
-----------------------------------
<TABLE>
<CAPTION>
                                                             1997                1996
                                                             ----                ----
<S>                                                      <C>                 <C>
       12.13%, secured by equipment, payable in
       monthly installments of $1,567 including
       interest, final payments due July, 1997                -                10,584

       8.31%, secured by equipment, payable in
       monthly installments of $4,675 including
       interest, final payment due September, 1999         87,463             134,166
                                                         --------            --------
                                                          163,208             155,470
       Less:  Current Portion                             126,480              68,007
                                                         --------            --------
                                                         $ 36,728            $ 87,463
                                                         ========            ========
</TABLE>


       Following is a summary of future maturities of long term debt as of
December 31, 1997:

           1998                                                    $126,480
           1999                                                      36,728
           2000 and thereafter                                         -
                                                                   --------
                                                                   $163,208
                                                                   ========

NOTE 7- FAIR VALUE OF FINANCIAL STATEMENTS
------------------------------------------

       The carrying amounts of cash, accounts receivable, accounts payable, and
long-term debt approximate the fair value reported in the balance sheet. The
fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities.

NOTE 8 - FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY
--------------------------------------------------------

       The Company and its subsidiaries operated predominantly in one industry,
the design, quarrying and cutting of sandstone primarily used in the
construction industry.

       Following is the information regarding the Company's continuing
operations by geographic location. Transfers between geographic areas are
accounted for on a cost plus profit margin basis.

<TABLE>
<CAPTION>

                                                          1997                1996
                                                          ----                ----
<S>                                                 <C>                 <C>
    Net sales, including geographic transfers
       United States                                $1,847,268          $1,591,550
       Canada                                          574,804             153,583
       Geographic transfers                           (243,865)            (42,582)
                                                   -----------         -----------
                                                    $2,178,207          $1,702,551
                                                    ==========          ==========
</TABLE>

                                     F-12

<PAGE>   34


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             ------------------------------------------------------
                           DECEMBER 31, 1997 AND 1996
                           --------------------------


NOTE 8 - FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY (CONTINUED)
--------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                          1997                1996
                                                                          ----                ----
<S>                                                                    <C>             <C>
    Income (Loss) from operations:
       United States                                                   $    31,801     $    14,359
       Canada                                                                9,157        (136,508)
                                                                       -----------     -----------

    Income (Loss) from operations                                           40,958        (122,149)
    Interest expense                                                       (46,135)        (73,432)
    Interest income                                                         17,183          11,655
                                                                       -----------     -----------
    Income (Loss) from operations before income taxes                  $    12,006     $  (183,926)
                                                                       ===========     ===========

    Identifiable assets:
       United States                                                   $ 3,632,246     $ 3,763,844
       Canada                                                              129,043         247,411
                                                                       -----------     -----------

                                                                       $ 3,761,289     $ 4,011,285
                                                                       ===========     ===========

NOTE 9- INCOME TAXES
--------------------

       Income taxes on continuing operations include the following:

                                                                              1997            1996
                                                                       -----------     -----------
       Canadian:
           Currently payable                                           $     4,900     $     6,500
           Deferred                                                           --              --
                                                                       -----------     -----------

               Total                                                   $     4,900     $     6,500
                                                                       ===========     ===========
</TABLE>






                                      F-13

<PAGE>   35


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             ------------------------------------------------------
                           DECEMBER 31, 1997 AND 1996
                           --------------------------

NOTE 9 - INCOME TAXES (CONTINUED)
---------------------------------

           A reconciliation of the effective tax rate with the statutory U.S.
income tax rate is as follows:
<TABLE>
<CAPTION>
                                                                 1997                                      1996
                                                              ---------                                  --------
                                                                                  % of                                      % of
                                                                                  Pretax                                    Pretax
                                                               Income             Income                  Income            Amount
                                                               ------             ------                  ------            -------
<S>                                                            <C>                 <C>                    <C>                 <C>
Income
------
       Income taxes per
           statement of income                                 $4,900              76%                    6,500               4%
       Tax rate differences resulting from:
           Income taxes applicable to
              Canadian income at rate
              different from U.S. rate                         (4,900)            (76)%                  (6,500)             (4)%
           Income (loss) for financial reporting
              purpose without tax expense or
              benefit. Utilization of loss carry-
              forward (unavailable for carryback
              against prior income taxes paid)                  4,082              34%                  (62,535)            (34)%
                                                              -------              --                  --------             ---

       Income taxes at statutory rate                         $ 4,082              34%                 $(62,535)            (34)%
                                                              =======              ==                  ========             ===
</TABLE>

       For United States tax purposes, the Company has available at December 31,
1997, unused operating loss carryforwards that may be applied against future
taxable income and that expire as follows:
                 Amount of Unused Operating      Expiration During Year Ended
                      Loss Carryforwards                   December 31,

                         $    48,000                        2007
                           1,553,000                        2008
                             480,000                        2009
                             773,000                        2010
                             190,000                        2012
                          ----------
                          $3,044,000
                          ==========
  Future United States taxes may also be reduced by a capital loss carryforwards
of approximately $59,000 which expire in 2000. Utilization of the net operating
loss and capital loss carryforwards is contingent upon the Company having
sufficient taxable income and capital gains, in the future.



                                      F-14
<PAGE>   36


                AMERICAN STONE INDUSTRIES, INC. AND SUBSIDIARIES
                ------------------------------------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
             ------------------------------------------------------
                           DECEMBER 31, 1997 AND 1996
                           --------------------------

NOTE 9 - INCOME TAXES (CONTINUED)
---------------------------------

       The Company's deferred tax assets and liabilities at December 31, 1997
and 1996 consist of:

<TABLE>
<CAPTION>
                                                          1997         1996
                                                          ----         ----
<S>                                                 <C>              <C>
              Deferred tax asset                    $1,035,000       $427,000
              Valuation allowance                     (958,000)      (427,000)
              Deferred tax liability                   (77,000)          -
                                                   -----------       ---------
                                                   $      -          $   -
                                                   ===========       ==========
</TABLE>

       Deferred taxes are provided for temporary differences in deducting
expenses for financial statement and tax purposes. The principal source for
deferred tax assets are different methods for recovering depreciation and net
operating loss and capital loss carryforwards. No deferred taxes are reflected
in the balance sheet at December 31, 1997 and 1996 due to a valuation allowance.
As of December 31, 1997 and 1996, the Company recognized an $531,000 and
$332,000 increase in the valuation allowance.

NOTE 10 - RELATED PARTY TRANSACTIONS
------------------------------------

       During the year ended December 31, 1996 the Company paid a total of
$22,233 for expenses such as stationery and business supplies through TMT
Masonry, Ltd., an affiliated company. At December 31, 1996, accounts payable to
TMT Masonry, Ltd. totaled $9,735, and were satisfied in the ordinary course of
business.

       In February 1996, the Company began utilizing office space of TMT
Masonry, Ltd., an affiliated company, for $700 per month on a month to month
basis.

       In November 1997, the Company entered into an agreement with a company,
of which a board member is the executive vice president, to construct a
foundation for a new gang saw. The total contract is for $62,142 of which
$35,000 was completed and invoiced as of December 31, 1997. The contract was
completed in 1998.


                                      F-15
<PAGE>   37


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE.

                  On September 26, 1996, the Board of Directors appointed,
subject to stockholder approval, Hobe & Lucas to replace Horton & Company as the
Company's independent accountants. The stockholders approved the change in
independent auditors at the November 22, 1996 Annual Meeting of Stockholders.
There were no disagreements with the former accountants on any matter of
accounting principals or practices, or auditing scope or procedure, nor did the
former accountant's report contain any adverse opinion or disclaimer of opinion.
The decision to change accountants was made as a matter of convenience because
the Company relocated its principal place of business from Toronto to Amherst,
Ohio, and the former accountants are located in New Jersey.

                                    PART III

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

                  The information required by this Item 9 as to the Directors of
the Company is incorporated herein by reference to the information set forth
under the caption "Election of Directors" in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 20, 1998,
since such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the Company's fiscal year
pursuant to Regulation 14A. Information required by this Item 9 as to the
executive officers of the Company is included as Item 4A of Part I of this
Annual Report on Form 10-KSB as permitted by Instruction 3 to Item 401(b) of
Regulation S-K. Information required by Item 405 of Regulation S-K is
incorporated by reference to the information set forth under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 20, 1998.

ITEM 10. EXECUTIVE COMPENSATION.

                  The information required by this Item 10 is incorporated by
reference to the information set forth under the caption "Executive
Compensation" in the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on May 20, 1998, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.

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

                  The information required by this Item 11 is incorporated by
reference to the information set forth under the caption "Common Stock
Ownership" in the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1998, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.

                                       20


<PAGE>   38

  ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                   The information required by this Item 12 is incorporated by
reference to the information set forth under the caption "Certain Relationships
and Related Party Transactions" in the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on May 20, 1998, since such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Company's fiscal year pursuant to Regulation
14A.

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

                  (a)      Exhibits

                           Reference is made to the Exhibit Index set forth
                           herein beginning at page E-1.

                  (b)      Reports on Form 8-K.

                           None.

                                       21
<PAGE>   39


                                   SIGNATURES

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

AMERICAN STONE INDUSTRIES, INC.

By: /s/ David Tyrrell
    -------------------------------------------------
         David Tyrrell, President and
         Chief Executive Officer
Date: March 30, 1998

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

                        By:     /s/ David Tyrrell
                             -------------------------------------------------
                                David Tyrrell, President and
                                Chief Executive Officer (Principal Executive
                                Officer)
                        Date: March 30, 1998

                        By:     /s/ Enzo Constantino
                             -------------------------------------------------
                                Enzo Constantino, Treasurer and Director
                                (Principal Accounting Officer and Principal
                                 Financial Officer)
                        Date: March 30, 1998

                        By:  /s/ Thomas H. Roulston II
                             -------------------------------------------------
                                 Thomas H. Roulston II, Chairman
                                 of the Board
                        Date: March 30, 1998

                        By:  /s/ Glen Gasparini
                             -------------------------------------------------
                                Glen Gasparini, Director
                        Date: March 30, 1998

                        By:  /s/ Jacquita K. Hauserman
                             -------------------------------------------------
                                Jacquita K. Hauserman, Director
                        Date: March 30, 1998

                        By:  /s/ Michael J. Meier
                             -------------------------------------------------
                                Michael J. Meier, Secretary and Director

                        Date: March 30, 1998

                        By:  /s/ Timothy I. Panzica
                             -------------------------------------------------
                                Timothy I. Panzica, Director
                        Date: March 30, 1998

<PAGE>   40
<TABLE>
<CAPTION>
                                                     EXHIBIT INDEX

                                                                                                        Sequential
   Exhibit Number                                 Description of Document                                  Page
   --------------                                 -----------------------                                  ----
<S>                    <C>                                                                              <C>
         3.1           Certificate of Incorporation of the Company, dated November 13, 1992
                                                                                                           (A)
         3.2           Certificate of Amendment of the Certificate of  Incorporation of the Company,
                       dated March 9, 1993                                                                 (A)

         3.3           Certificate of Amendment of the Certificate of  Incorporation of the Company,
                       dated December 14, 1993                                                             (A)

         3.4           Certificate for Renewal and Revival of Charter, dated May 31, 1994
                                                                                                           (A)
         3.5           Certificate of Amendment of the Certificate of  Incorporation of the Company,
                       dated August, 1995                                                                  (A)

         3.6           By-laws of the Company                                                              (A)

        10.1           Business  Loan  Agreement   between  American  Stone  Corporation  and  First
                       National Bank of Ohio, dated September 13, 1996                                     (A)

        10.2           Amendment to Loan  Agreement  between  American Stone  Corporation  and First
                       National Bank of Ohio, dated February 26, 1997
                                                                                                           (A)
        10.3           Employment  Agreement  between American Stone  Corporation and David Tyrrell,
                       dated February 7, 1996*                                                             (A)

        10.4           Asset Purchase  Agreement  between  American Stone  Corporation and Cleveland
                       Quarries L.P., dated February 1, 1996
                                                                                                           (A)
        10.5           Amendment to and Restatement of Asset Purchase Agreement,  dated December 10,
                       1996                                                                                (A)

        10.6           Indemnification  Agreement between Cleveland Quarries,  L.P., Slate and Stone
                       Corporation of America,  and American Stone  Corporation,  dated December 20,
                       1996                                                                                (A)

        10.7           Share  Purchase  Agreement  between David Tyrrell and the Company,  dated May
                       22, 1996*                                                                           (A)

        10.8           Stock Purchase  Agreement  between the Company and Roulston  Ventures Limited
                       Partnership, dated August 27, 1996
</TABLE>


                                      E-1


<PAGE>   41
<TABLE>
<CAPTION>
                                                                                                        Sequential
   Exhibit Number                                 Description of Document                                  Page
   --------------                                 -----------------------                                  ----
<S>                    <C>                                                                              <C>
                                                                                                           (A)
        10.9           Share Purchase Option Agreement between TMT Masonry,  Ltd., Roulston Ventures
                       Limited Partnership, and the Company
                                                                                                           (A)
        10.10          Interim  Management  Agreement  between  Robert Graham Nash,  William  Purvis
                       Houston, E. Victor Artuso, Nicholls Investments, Inc.
                                                                                                           (A)
        10.11          Indemnification  Agreement between Cleveland Quarries,  L.P., Slate and Stone
                       Corporation of America and American Stone  Corporation,  adopted by the Board
                       of Directors of American Stone Corporation in March, 1997
                                                                                                           (B)
        10.12          No Default  Confirmation  Certificate  between the  Company,  112769  Ontario
                       Limited,   Nicholls   Investments,   Inc.,  Grenville  Aggregate  Specialties
                       Limited, 237894 Ontario Limited, and Stoklosar Marble Quarries Limited
                                                                                                           (B)
        10.13          Share Purchase Option Agreement between TMT Masonry,  Ltd., Roulston Ventures
                       Limited Partnership, and the Company, dated November 22, 1996
                                                                                                           (B)
        10.14          Business Loan Agreement  between  American Stone  Corporation  and FirstMerit
                       Bank, N.A. dated November 10, 1997

        10.15          Modification of Mortgage  between American Stone  Corporation  and FirstMerit
                       Bank, N.A., dated November 10, 1997

        10.16          Modification of Mortgage  between American Stone  Corporation  and FirstMerit
                       Bank, N.A., dated November 10, 1997

        10.17          Commercial   Security   Agreement  between  American  Stone  Corporation  and
                       FirstMerit Bank, N.A., dated November 10, 1997

        21.2           Subsidiaries of Registrant

        27.1           Financial Data Schedule


<FN>

----------------------
* Management contract or compensatory plan or arrangement.

(A)      Incorporated herein by reference to the appropriate exhibit to the
         Company's registration statement on Form 10-SB filed on April 11, 1997.

(B)      Incorporated herein by reference to the appropriate exhibit to the
         Company's quarterly report on Form 10-QSB for the period ended March
         31, 1997.

</TABLE>

                                      E-2