<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

(Mark One) 

          (X)  Annual report pursuant to Section 13 or 15(d) of the Securities
               Exchange Act of 1934 for the fiscal year ended March 31, 1998 or

          ()   Transition report pursuant to Section 13 or 15(d) of the
               Securities Exchange Act of 1934 for the transition period from
               ______ to ________.

                             STELAX INDUSTRIES LTD.
             (Exact name of registrant as specified in its charter)
                         COMMISSION FILE NUMBER 0-18052

BRITISH COLUMBIA, CANADA                                     NONE
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)
 
4004 BELTLINE ROAD, SUITE 107, DALLAS, TEXAS                75244
(Address of principal executive offices)                     (Zip Code)
                                                          
Registrant's telephone number, 
including area code:                             (972) 233-6041  

Securities registered pursuant to 
Section 12(b) of the Act:                               None    
               
Securities registered pursuant to 
Section 12(g) of the Act:



                           COMMON STOCK, NO PAR VALUE
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months and (2) has been subject to such filing
requirements for the past ninety (90) days. Yes X  No
                                               ---   ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 30, 1998 was approximately $18,947,000. At June 30, 1998
there were 31,869,285 shares of common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                 NOT APPLICABLE


<PAGE>   2




                                     PART I

ITEM 1.           BUSINESS

INTRODUCTION

Stelax Industries Ltd. (the "Registrant") was incorporated under the laws of
British Columbia, Canada in May 1987. The Registrant's principal activities are
conducted through its wholly-owned subsidiary, Stelax (U.K.) Limited, a
corporation organized under the laws of the United Kingdom ["Stelax (U.K.)"].
The Company owns certain real and personal property in Wales, United Kingdom
comprising the Aberneath steel mill facilities (the "Aberneath Facility").
Stelax (U.K.) produces two separate product lines through the Aberneath
Facility: (i) a variety of solid stainless steel products in numerous sizes
utilizing traditional hot-rolled, solid stainless steel production techniques
and (ii) Nuovinox(TM), a stainless steel cladded product with a carbon steel
core utilizing the Company's unique patented manufacturing process. See "---
Products", below.

During the fiscal year ended March 31, 1998 most of the Company's efforts were
dedicated to producing stainless steel products and developing a market for the
Company's Nuovinox products for which the Company anticipates greater margins
and profitability as compared to the traditional stainless steel products.
During the 1998 fiscal year management decided to discontinue the production of
stainless steel products due to deteriorating world markets for such products
and a significant decrease in stainless steel prices.

The Registrant's principal executive offices are located at 4004 Beltline Rd.,
Suite 107, Dallas, Texas 75244, and its telephone number is (972) 233-6041.
Unless otherwise required by the context, the term "Company" as used herein
shall mean the Registrant and Stelax (U.K.). The Registrant changed its name
from ZFAX Image Corp. to its present name in May 1996.

THE ABERNEATH FACILITY

The Aberneath Facility is located at Briton Ferry, Neath in South Wales, United
Kingdom. The facility is located on the banks of the River Neath beside a deep
water wharf and close to highway and national rail links. The facility includes
approximately five (5) acres of land. The steel mill plant is divided into three
bays, each approximately 650 feet long, for a total of approximately 130,000
square feet of production space. There is a separate building on the premises
with approximately 8,000 square feet of office and administrative space.

The facility has an open air storage and preparation area covering approximately
two acres of land for the purpose of storing billets and preparing scrap metal
for use in the Company's Nuovinox product. The interior of the plant contains a
modern walking beam furnace, a rolling mill, a cooling and finishing area and a
quality control process area. All production areas in the plant are serviced by
overhead gantries or pedestal mounted or mobile cranes.

During the year ended March 31, 1998, the steel mill had been recommissioned and
was producing various stainless steel products for sale. Additionally, during
the year ended March 31, 1998, the Company produced limited quantities of
Nuovinox for use by potential customers in their testing and evaluation of the
product.

In May 1997 the Company acquired a planetary rolling mill from a company located
in Germany. The acquisition of this rolling mill will significantly increase the
rolling capability of the Aberneath Facility. The planetary rolling mill was
installed and operating as of May 30, 1998.


                                       -2-

<PAGE>   3




PRODUCTS

The Aberneath facility is capable of producing two distinct product lines: (i)
traditional hot-rolled, solid stainless steel bar and (ii) the Company's
patented Nuovinox product, a stainless steel cladded product with a carbon steel
core. Both of the Company's product lines can be manufactured in flat bar, round
bar and pipe of various sizes and dimensions.

Stainless steel products produced by the Company are hot rolled from stainless
steel billets purchased from foundries. While periodic shortages exist from time
to time on a worldwide basis, the Company believes that raw material for the
Company's stainless steel products is generally available. The Company does not
depend on specific suppliers of stainless steel as billets are widely available.

Nuovinox is a carbon steel product cladded with stainless steel. The Company
manufactures a stainless steel pipe from purchased sheet stainless steel and,
through a patented process, fills the stainless steel pipe with treated scrap
metal meeting the Company's technical requirements. The resultant product, which
generally consists of up to 25% of stainless steel by weight, has created a
molecular bond between the carbon steel core and the stainless steel exterior,
has corrosion resistant properties comparable to stainless steel and achieves
superior level of mechanical strength when compared with coated steels
manufactured by other parties. The Company believes scrap metal meeting the
Company's technical requirements is generally available.

The properties of the stainless steel cladding enable Nuovinox to be used for
many applications which require an upgrading of carbon steel, in particular
where corrosion resistance, hygiene and aesthetics are determining factors.
Although it has not been extensively marketed, the Company believes there is
considerable interest in Nuovinox from customers around the world who have
expressed their intention of using the product in a variety of applications.

The Company believes Nuovinox will compete with carbon and stainless steel based
on the following properties and characteristics of Nuovinox:

          o    High level of corrosion resistance;

          o    Stronger than pure stainless steel (when incorporating a high
               tensile carbon steel core);

          o    Strength and ductility superior to mild steel;

          o    Minimal maintenance when incorporated in structures; and

          o    Can be formed (that is bent) through 180 degrees without the
               integrity of the cladding being broken.

CUSTOMER AND DISTRIBUTION

During the 1998 fiscal year the Company distributed its stainless steel products
through third-party steel distributors. The Company anticipates that its
Nuovinox products will also be distributed through third-party steel
distributors, although no such relationships were established as of March 31,
1998. Other potential sources of distribution for the Nuovinox products may
include the formation of joint ventures with, or licensing arrangements to,
larger steel manufacturers, although no such ventures or arrangements were in
place as of March 31, 1998.

INDUSTRY CONDITIONS AND COMPETITION

The steel industry is generally considered to be highly competitive and cyclical
with a great number of large and sophisticated producers, all of whom have
greater financial and technical resources than the Company. Additionally, the
cycles for steel products vary from one specialty steel to another. During the
Registrant's 1998 fiscal year,

                                       -3-

<PAGE>   4




stainless steel has been in a situation where prices have been comparatively low
causing the Registrant to cease production in late 1997.

Economic conditions among end-users of steel products may result in cyclical
downturns in business, even in markets expected to expand over the long term.
Until a wide range of different products used in varying sections is produced by
the Company, such down-turns may have a significant impact on the Company's
revenues. The Company made a decision in its last fiscal quarter to discontinue
the production of solid stainless steel. The Company expects that, until
production of Nuovinox reaches capacity, it will continue to roll stainless
under special rolling arrangements which are customized to meet a specific
customer requirement.

Nuovinox is a new product that has been extensively tested. During the 1998
fiscal year, the Company has received various commitments for the use of the
product. Further product acceptance may be affected by pricing and the other
variables beyond the Company's control.

CURRENCY FLUCTUATIONS

It is anticipated that the Company's expenses and sales will be denominated in
several currencies, including major European currencies, the US dollar and the
Yen. As a result the Company's operating income and cash flow will be
significantly exposed to currency fluctuations. Management intends to monitor
the Company's exposure to currency risks, and, as appropriate, use financial
forward or other instruments to minimize the effect of these fluctuations. No
such instruments were held as of March 31, 1998 and there can be no assurance
that the Company would be able to obtain such instruments. However, there can be
no assurance that exchange rate fluctuations will not have an adverse effect on
the Company's results of operations or financial condition.

RESEARCH AND DEVELOPMENT

The Company has not spent any significant funds on research and development
during the prior three years. However, amounts may be incurred in the future as
specific customer requirements may arise in connection with the sale of
customized Nuovinox products.

PATENTS AND TRADEMARKS

The Company holds approximately 70 worldwide patents for Nuovinox. The Company
considers its patents important for the success of such product.

EMPLOYEES

As of June 15, 1998, the Company had 24 employees or independent contractors
working for the Company. The Company anticipates increasing the number of
employees in the 1999 fiscal year as the Company expands production at the
Aberneath Facility.

ITEM 2.  PROPERTIES

The Company's principal executive offices in the United States are located at
4004 Belt Line Road, Suite 107, Dallas, Texas and are occupied pursuant to a
three year lease requiring monthly payments of $2,649, which payments increase
slightly during the term of the lease. The Company owns the land and buildings
comprising the Aberneath Facility in Wales, United Kingdom. See Item 1. Business
- The Aberneath Facility.

                                       -4-

<PAGE>   5


ITEM 3.   LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings.

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

Not applicable.

                                       -5-

<PAGE>   6




                                     PART II


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


MARKET PRICES

The Registrant's Common Stock is quoted on the NASDAQ Bulletin Board System. The
Registrant's Common Stock in the United States trades under the symbol "STAX".
The range of the high and low bid prices as quoted on the NASDAQ Bulletin Board
from April 1, 1996 through March 31, 1998 is as follows:

<TABLE>
<CAPTION>
FISCAL 1997           HIGH     LOW
-----------           ----     ---
<S>                   <C>      <C>
First Quarter         1.40     .70
Second Quarter        1.35     .65
Third Quarter         1.00     .62
Fourth Quarter        1.05     .60

FISCAL 1998           HIGH     LOW
-----------           ----     ---

First Quarter          .81     .59
Second Quarter        1.81     .65
Third Quarter         1.66    1.00
Fourth Quarter        1.16    1.04
</TABLE>

The Registrant's Common Stock is also quoted on the Le Nouveau Marche of the
Paris Stock Exchange. Trading on the Le Nouveau Marche commenced July 11, 1996.

HOLDERS

As of May 31, 1998, there were approximately 193 holders of record of the
Registrant's Common Stock.

DIVIDENDS

The future payment by the Registrant of dividends, if any, rests within the
discretion of its Board of Directors and will depend upon the Registrant's
earnings, if any, capital requirements and the Registrant's financial condition,
as well as other relevant factors. The Registrant has not declared dividends
since its inception, and has no present intention of paying cash dividends on
its Common Stock in the foreseeable future, as it intends to use earnings, if
any, to generate growth.

FOREIGN REGULATION

The Investment Canada Act ("ICA"), which became effective on June 30, 1985,
regulates the acquisition by non- Canadians of control of a Canadian business
enterprise. In effect, the ICA required review by Investment Canada, the agency
which administers the ICA, and approval by the Canadian government in the case
of an acquisition of control of a Canadian business by a non-Canadian where: (i)
in the case of a direct acquisition (for example, through a share purchase or
asset purchase), the assets of the business are $5 million or more in value; or
(ii) in the case of an indirect acquisition (for example, the acquisition of the
foreign parent of the Canadian business) where the Canadian 


                                      -6-
<PAGE>   7

business has assets of $50 million or more in value or if the Canadian business
represents more than 50% of the assets of the original group and the Canadian
business has assets of $5 million or more in value. Review and approval are also
required for the acquisition or establishment of a new business in areas
concerning Canada's cultural heritage or national identity such as book
publishing, film production and distribution, television and radio, production
and distribution of music, and the oil and natural gas industry, regardless of
the size of the investment.

In the context of the Company, in essence, three methods of acquiring control of
a Canadian business are regulated by the ICA: (i) the acquisition of all or
substantially all of the assets used in carrying on the Canadian business; (ii)
the acquisition, directly and indirectly, of voting shares of a Canadian
corporation carrying on the Canadian business; (iii) the acquisition of voting
control of an entity which controls, directly or indirectly, another entity
carrying on a Canadian business. An acquisition of a majority of the voting
interests of an entity, including a corporation, is deemed to be an acquisition
of control under the ICA. An acquisition of less than one-third of the voting
shares of a corporation is deemed not to be an acquisition of control. An
acquisition of less than a majority, but one-third or more, of the voting shares
of a corporation is presumed to be an acquisition of control unless it can be
established that on the acquisition the corporation is not, in fact, controlled
by the acquirer through the ownership of voting shares. For partnerships,
trusts, joint ventures or other unincorporated entities, an acquisition of less
than a majority of the voting interests is deemed not to be an acquisition of
control.

In 1988, the ICA was amended pursuant to the Free Trade Agreement dated January
2, 1988 between Canada and the United States to relax the restrictions of the
ICA. As a result of these amendments, except where the Canadian business is in
the cultural, oil and gas, uranium, financial services or transportation
sectors, the threshold for direct acquisition of control by U.S. investors and
other foreign investors acquiring control of a Canadian business from U.S.
investors has been raised from $5 million to $150 million of gross assets, and
indirect acquisitions are not reviewable.

In addition to the foregoing, the ICA requires that all other acquisitions of
control of Canadian businesses by non- Canadians are subject to formal
notification to the Canadian government. These provisions require a foreign
investor to give notice in the required form, which notices are for information,
as opposed to review, purposes.

The Company does not believe that it is subject to the provisions of ICA because
it does not have a place of business or employees in Canada nor assets in Canada
used to carry on the Company's business, all of which are definitional
requirements to be considered a Canadian business subject to such act. The
Company does not plan to alter its contacts with Canada and, therefore, believes
that ICA will continue not to be applicable to the Common Stock of the Company
and the acquisition thereof by a non-resident or non-citizen of Canada. However,
in the event that management of the Company should for whatever reason decide
that it would be in the best interests of the Company to hire employees in
Canada, lease office space in Canada or acquire properties in Canada, the
Company would probably be deemed to be a Canadian based enterprise and ICA would
be applicable.

CERTAIN TAX MATTERS

Following is a brief summary of the United States and Canadian federal income
tax provisions which the Company believes are material to an understanding of
the federal income tax matters relating to the ownership of the Company's Common
Stock. The discussion is for general information only and is not a complete
description of all potential consequences which may arise or of all the rules
that may be relevant to certain stockholders. The discussion is not intended to
be, nor should it be construed to be, legal or tax advice to any particular
stockholder. It is the responsibility of each stockholder of the Company to
consult with his own tax advisors with respect to these and other provisions
which may affect his individual tax position.

The presently existing tax treaty between the United States and Canada
essentially calls for taxation of stockholders by the stockholder's country of
residence. In those instances in which a tax may be assessed by the other
country, a 


                                      -7-
<PAGE>   8

corresponding credit against the tax owed in the country of residence is
normally available. Stockholders of the Registrant should consult with their own
tax advisors, however, for full details.

         A.       UNITED STATES TAXES.

         In general, a stockholder that is a non resident alien will not be
         taxed by the United States on dividends paid by the Registrant.
         However, a non resident alien stockholder who engages in a U.S.
         business under certain circumstances may be subject to United States
         federal income tax. Also, a non resident alien may be subject to United
         States withholding tax on dividends paid by the Registrant, though a
         tax treaty may alter this treatment. Please consult your tax advisor
         regarding the impact of applicable tax treaties.

         The gross amount of dividends received by a United States individual or
         United States resident will be subject to United States federal income
         tax generally in the same manner as dividends received from United
         States corporations. However, the stockholder generally may claim a
         credit against his United States federal income tax liability for the
         Canadian tax withheld from the dividend payment. The amount of the
         foreign tax credit is subject to various limitations. Stockholders
         should consult their own tax advisors with respect to such limitations.
         Dividends from foreign corporations such as the Registrant do not
         qualify for the dividends received deduction for corporate stockholders
         under Code Section 243, but may qualify for the dividends received
         deduction for dividends paid by certain foreign corporations under Code
         Section 245 if the holder owns at least 10% of the stock of the
         Registrant by vote and value.

         Except in the case of shares beneficially owned by a person who is or
         is deemed to be a resident of the United States or has or is deemed to
         have a "permanent establishment" in the United States, United States
         federal income tax consequences generally will not arise upon a
         disposition of the Registrant's Common Stock by a resident of Canada.
         The United States federal income tax consequences arising for a United
         States resident upon a disposition of the Registrant's Common Stock
         will depend upon whether such shares are capital assets. Generally, if
         the disposed stock is a capital asset, the entire gain or loss realized
         upon the disposition would be treated as capital gain or loss. Such
         capital gain or loss will be long-term if the Common Stock is held for
         more than one year. However, even if the shares are considered capital
         assets, under certain circumstances a portion of the gain may be
         recharacterized as ordinary income under Code Section 1248. If the
         disposed stock is not a capital asset, the entire gain or loss would be
         treated as ordinary income or loss.

         Capital gains income generally is taxed at a maximum tax rate of 28%.
         An individual's capital losses are still allowed in full against
         capital gain. In addition, capital losses are allowed against up to
         $3,000 of ordinary income, and the excess of net long-term capital loss
         over net short-term capital gain is allowed in full for this purpose.

         B.       CANADIAN TAXES.

         The following is a summary of the principal Canadian federal income tax
         considerations generally applicable in respect of the Common Shares.
         The tax consequences to any particular holder of Common Shares will
         vary according to the status of that holder as an individual, trust,
         corporation, or member of a partnership, the jurisdiction in which that
         holder is subject to taxation, the place where that holder is resident
         and, generally, according to that holder's particular circumstances.
         This summary is applicable only to holders who are resident in the
         United States, have never been resident in Canada, hold their Common
         Shares as capital property, and will not use or hold the Common Shares
         in carrying on business in Canada.

         This summary is based upon current provisions of the Income Tax Act of
         Canada and the regulations thereunder (collectively, the "ITA"),
         publicly-announced current proposals to amend the ITA and the current
         administrative practices of Revenue Canada. This summary does not take
         into account provincial income tax 

                                      -8-

<PAGE>   9

         consequences. The summary assumes that the publicly announced current
         proposals will be enacted as proposed with effective dates set out
         therein; otherwise, the summary assumes that there will be no other
         changes in law whether by judicial or legislative action.

         This summary is of a general nature only and is not exhaustive of all
         possible income tax consequences. It is not intended as legal or tax
         advice to any particular holder of common shares and should not be so
         construed. Each holder should consult his own tax advisor with respect
         to the income tax consequences applicable to him in his own particular
         circumstances.

DISPOSITION OF COMMON SHARES

Under the ITA, a gain from the sale of Common Shares by a non-resident will not
be subject to Canadian tax, provided the shareholder (and/or persons who do not
deal at arm's length with the shareholder) has not held a "substantial interest"
in the Registrant (25% or more of the shares of any class of the Registrant's
stock) at any time in the five years preceding the disposition. Generally, the
Canadian-United States Tax Convention (the "Tax Convention") will exempt from
Canadian taxation any capital gain realized by a resident of the United States,
provided that the value of the common stock is not derived principally from real
property situated in Canada.

If a non-resident was to dispose of Common Shares to another Canadian
corporation which deals or is deemed to deal on a non-arm's length basis with
the non-resident and which, immediately after the disposition, is connected with
the Registrant (i.e., controls the Registrant or holds shares representing more
than 10% of the voting power and more than 10% of the market value of all issued
and outstanding Common Shares of the Registrant), the excess of the proceeds
over the paid-up capital of the Common Shares sold will be deemed to be taxable
as a dividend either immediately or eventually by means of a deduction in
computing the paid-up capital of the purchasing corporation.

DIVIDENDS

In the case of any dividends paid to non-residents, the Canadian tax is withheld
by the Registrant, which remits only the net amount to the shareholder. By
virtue of Article X of the Tax Convention, the rate of tax on dividends paid to
beneficial owners who are residents of the United States is generally limited to
15% of the gross dividend (or 10%, reducing to 6% in 1996 and 5% in 1997 and
thereafter, in the case of certain corporate shareholders owning at least 10% of
the Registrant's voting shares). In the absence of the treaty provisions, the
rate of Canadian withholding tax imposed on non-residents is 25% of the gross
dividend. Stock dividends received by non-residents from the Registrant are
treated by Canada as ordinary dividends.

                                      -9-

<PAGE>   10




ITEM 6.  SELECTED FINANCIAL DATA

The table below sets forth certain financial data for the Company for its fiscal
years ended March 31, 1998, 1997, 1996, 1995, and 1994. The data for 1995 and
1994 has been restated to conform to the financial statement presentation of the
subsidiary being an unconsolidated subsidiary in those years.

<TABLE>
<CAPTION>
                                               YEARS ENDED MARCH 31,

========================================================================================================
                            1998             1997             1996             1995             1994
                        ------------     ------------     ------------     ------------     ------------
--------------------------------------------------------------------------------------------------------
<S>                     <C>              <C>              <C>              <C>              <C>         
SALES                   $  1,728,657     $    733,600     $         --     $         --     $         --
--------------------------------------------------------------------------------------------------------
GROSS LOSS               (2,725,973)      (1,070,225)               --               --               --
--------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME        (4,691,161)      (2,108,789)      (2,009,273)        (172,497)          241,365
--------------------------------------------------------------------------------------------------------
TOTAL ASSETS              12,636,869       16,756,767        8,449,341          212,567            2,477
--------------------------------------------------------------------------------------------------------
LONG-TERM                        ___              ___              ___              ___              ___
OBLIGATIONS
--------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES          2,110,615        1,631,793        1,893,039          356,280          196,193
--------------------------------------------------------------------------------------------------------
COMMON STOCK              31,869,285       31,869,285       18,733,906       14,166,550       13,236,550
OUTSTANDING AT                Shares           Shares           Shares           Shares           Shares
YEAR-END
--------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME              (.15)            (.07)            (.12)            (.01)             0.03
PER SHARE
========================================================================================================
</TABLE>

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

FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS

This Annual Report contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Specifically, all statements other than statements
of historical facts included in this report regarding the Company's financial
position, business strategy and plans and objectives of management of the
Company for future operations are forward-looking statements. These
forward-looking statements are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," and "intend" and words or phrases of similar
import, as they relate to the Company or Company management, are intended to
identify forward-looking statements. Such statements reflect the current view of
the Company with respect to future events and are subject to risks,
uncertainties and assumptions related to various factors including, without
limitation, competitive factors, general economic conditions, customer
relations, increases in raw material prices, governmental regulation and
supervision, seasonality, acceptance of the Company's Nuovinox products in the
marketplace, technological changes and changes in industry practices
("cautionary statements"). Although the Company believes that its expectations
are reasonable, it can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements.

                                      -10-
<PAGE>   11





1998 VERSUS 1997

During the fiscal year ended March 31, 1998 the Company produced and sold
various stainless steel products resulting in an increase in revenues in fiscal
1998 to $1,728,857 from $733,600 in 1997. However, due to deteriorating world
markets for stainless steel and the Company's inability to compete efficiently
and earn an appropriate gross margin, the Company ceased production of stainless
steel products in fiscal 1998. The Company suffered a gross loss on revenues of
$2,725,973.

The Company's selling, general and administrative expenses increased
significantly in fiscal year 1998 as compared to fiscal 1997 as a result of (i)
increased overhead arising from the Company's 1998 production activities and
(ii) increased expenses associated with the Company's continuing marketing and
promotion of the Nuovinox products.

The increase in selling, general and administrative expenses along with the
increase in gross loss on sales resulted in an increase in loss from operations
in fiscal 1998 to $4,836,221 from $2,341,678 in fiscal 1997.

1997 VERSUS 1996

The Company expended most of its efforts in fiscal 1997 raising approximately
$11 million in funds on the Le Nouveau Marche, recommissioning the Aberneath
Facility which was acquired in November 1995, commencing sales of the Company's
stainless steel products and marketing the Company's Nuovinox products.

The Company enjoyed its initial revenues in fiscal 1997 (principally comprised
of sales of stainless steel products) as the Aberneath Facility was brought on
line. These revenues, however, carried a high cost of sales resulting in a loss
from operations of $1,070,225.

The Company's selling, general and administrative expenses (excluding a one-time
compensation charge to expenses of $1,561,175 in fiscal 1996) increased from
$399,694 in fiscal 1996 to $1,271,453 in fiscal 1997. This increase is a result
of an increased number of employees as the Aberneath Facility has been
recommissioned and continued expenses incurred in the marketing of the Company's
products.

LIQUIDITY & CAPITAL RESOURCES

The Company's liquidity position during fiscal year 1998 deteriorated
significantly as a result of the net loss experienced by the Company and the
purchase of the planetary mill equipment. The Company has significantly reduced
its operating expenses in an effort to conserve cash pending the sale of its
Nuovinox products. Also, as noted earlier in this Annual Report, the Company has
ceased production of stainless steel except for special rolling arrangements.
This will allow the Company to collect trailing accounts receivable and
liquidate inventory, thereby generating additional cash in the short term.

While management of the Company believes it has sufficient cash and current
assets to continue operations for the near term, the Company believes it will be
required to raise external financing prior to the end of the 1999 fiscal year
through the sale of debt, equity or a combination thereof. There can be no
assurance, however, that the Company will be successful in raising external
financing in which case the Company may be required to sell assets or seek a
joint venture relationship with a third party.

INFLATION

The Company's operations may be impacted by the effects of inflation and
changing prices as increased prices may reduce the demand for steel products.
Additionally, the price of nickel has direct impact on the Company as nickel is
an integral component to the price of the stainless steel utilized in Nuovinox.

                                      -11-

<PAGE>   12
INFORMATION SYSTEMS AND THE YEAR 2000

The Company has made a brief evaluation of the Year 2000 problem and, based on
its current operations, does not believe the Company will be required to expend
any significant amounts to become Year 2000 compliant. The cost of any Year
2000 expenses can be funded through internally generated funds.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the consolidated financial statements beginning at page F-2 of this Form
10-K Annual Report.

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

On March 20, 1997, the Company's prior accountant for the 1996 fiscal year,
Ernst & Young LLP, (the "1996 Accountant") was dismissed as a result of the
engagement on that date of Deloitte & Touche located in the United Kingdom. The
1996 Accountant's report on the financial statements for the prior year did not
contain an adverse opinion nor a disclaimer of opinion nor was such report
qualified or modified as to uncertainty, audit scope or accounting principles
except as follows: the 1996 Accountant's report on the financial statements for
the year ended March 31, 1996 contained an emphasis paragraph as to the
Company's ability to continue as a going concern due to recurring losses from
operations and a working capital deficiency as of such date. The decision to
change accountants from the 1996 Accountant to Deloitte & Touche was approved by
the Board of Directors of the Company.

During the Company's 1996 fiscal year and any subsequent interim reporting
period preceding the date of dismissal of the 1996 Accountant, there were no
disagreements with the 1996 Accountant on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of the 1996 Accountant, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND OFFICERS

         The directors and executive officers of the Company as of May 30, 1998
are as follows:

<TABLE>
<CAPTION>
Name and Age                        Position                       Served In Office Since
------------                        --------                       ----------------------
<S>                                 <C>                                     <C>  
Harmon S. Hardy, 69                 Chairman of the                         1987 
                                    Board, President
                                    and Chief Financial Officer

Ruben Grubner, 42                   Director                                1995

William D. Alexander, 49            Director                                1996
</TABLE>


Harmon S. Hardy has been the President of the Company since its inception in
May, 1987. Additionally, Mr. Hardy is Chairman of Austin Friars Securities
Limited, a London based investment banking firm, and is Chairman and President
of various other entities. Mr. Hardy devotes a substantial portion of his time
to the matters and business of the Company.

Ruben Grubner has been President of Altec Travel, a travel service firm in
Vancouver, B.C., Canada since 1978.

                                      -12-

<PAGE>   13




William D. Alexander is a Senior Vice-President with Bank of Nova Scotia in
Toronto, Canada and has been employed by the bank since 1987.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and 10% stockholders are required by regulations promulgated
by the Securities and Exchange Commission to furnish the Company copies of all
Section 16(a) reports they file.

         The Company believes all Section 16(a) filing requirements applicable
to its officers, directors and 10% beneficial owners were complied with through
March 31, 1998.

ITEM 11.          EXECUTIVE COMPENSATION

         The following table sets forth information with respect to the
compensation to the Company's chief executive officer at March 31, 1998 for
services rendered during the fiscal years ended March 31, 1998, 1997, and 1996.
No officer of the Company received compensation during the fiscal year ended
March 31, 1998 in excess of $100,000.



<TABLE>
<CAPTION>
                                             Annual Compensation(1)
                                             ----------------------

     Name               Year        Salary       Bonus           Other      Stock Options          All Other
     ----               ----        ------     ---------         -----        (Shares)           Compensation
                                                                              --------           ------------
<S>                     <C>         <C>              <C>           <C>           <C>             <C>               
HARMON S. HARDY,        1998        $72,000           --            --           --              $ 9,000(2)
Chairman of the         1997        $72,000           --            --           --                  --
Board of Directors,     1996(3)          --           --            --           --                  --
President and Chief
Financial Officer
</TABLE>

(1)  The compensation described in the table does not include the cost to the
     Company of benefits furnished to certain officers, including premiums for
     health insurance, and other personal benefits provided to such individuals
     that are extended in connection with the conduct of the Company's business.
     No executive officer names above received other compensation in excess of
     the lesser of $50,000 or 10% of such officer's salary and bonus
     compensation.

(2)  Includes a monthly car allowance which has been accrued but not paid.

(3)  Does not include consulting fees paid to affiliates of Mr. Hardy during
     these years.

1998 OPTION GRANTS

     There were no options granted to Mr. Hardy during the fiscal year ended
     March 31, 1998.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of June 15, 1998, the number and
percentage of outstanding shares of Common Stock beneficially owned by (i) each
person known by the Company to be a beneficial owner of more than

                                      -13-

<PAGE>   14




five percent (5%) of the Company's Common Stock; (ii) each of the executive
officers of the Company; (iii) each director of the Company; and (iv) all
officers and directors as a group:


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
     NAME AND ADDRESS OF BENEFICIAL                SHARES OF COMMON STOCK                  PERCENTAGE OF CLASS
                 OWNERS(1)                           BENEFICIALLY OWNED
--------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                                      <C>
Harmon S. Hardy, Jr  
4004 Belt Line Road, #107
Dallas, Texas 75244                                      4,652,700(2)                              13.77%

--------------------------------------------------------------------------------------------------------------
Ruben Grubner                                               50,000(3)                                 *
--------------------------------------------------------------------------------------------------------------
William D. Alexander                                       100,000(4)                                 *
--------------------------------------------------------------------------------------------------------------
All Officers and Directors as a Group
(3 persons)                                              4,802,700(2)                              14.15%
--------------------------------------------------------------------------------------------------------------
</TABLE>

 *    Represents less than one percent

(1)   The persons named in the table have sole voting and investment power with
      respect to all shares of Common Stock showing as beneficially owned by
      them, subject to community property laws, where applicable, and the
      information contained in the footnotes to the table.

(2)   Includes options to purchase 1,572,000 shares of common stock.

(3)   Includes options to purchase 50,000 shares of common stock.

(4)   Includes options to purchase 100,000 shares of common stock.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As of March 31, 1998, the Company owed to the President of the Company and to
High Speed Technologies, Inc., an affiliate of the President, an aggregate of
$81,352. The amounts owed are non-interest bearing and are payable in demand.

                                      -14-

<PAGE>   15




                                     PART IV

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

(a) See "Index to Consolidated Financial Statements" included at F-1 of this
Form 10-K Annual Report for a listing of financial statements and schedules
filed as a part of this Form 10-K Annual Report.

(b) The following exhibits are filed as a part of this Annual Report on Form
10-K:

<TABLE>
<CAPTION>
Exhibit
Number            Description of Exhibit                                                         Location of Exhibit
------            ----------------------                                                         -------------------

<S>               <C>                                                                                    <C>        
3(a)              Certificate of Incorporation of the Company
                                                                                                          a

3(b)              Memorandum of Association of the Company                                                a

3(c)              Articles of the Company                                                                 a

3(d)              Amendment to Articles of the Company                                                    a

3(e)              Amendment to Articles of the Company
                           changing the name to "Stelax Industries Ltd."                                  c

4(a)              Form of Stock Certificate                                                               a

4(b)              Form of 7% Convertible Note due August 31, 1997                                         c

4(c)              Form of Common Stock Purchase Warrant                                                   b

10(a)             Sale and Purchase Agreement dated August 4, 1995 by
                           and between Shipyard Limited and ZX(UK) Limited
                           (c/k/a Stelax (U.K.) Limited)                                                  b

10(b)             Agreement for Sale and Purchase of Assets by and between
                           Camborne Industries PLC (in receivership) and ZX(UK) Limited
                           (c/k/a Stelax (U.K.) Limited)                                                  b

10(c)             Agreement relating to the land and buildings at Wern Works,
                           Britain Ferry Neath by and between Maritime Transport
                           Services Limited and ZX(UK) Limited (c/k/a Stelax (U.K.)
                           Limited)                                                                       b

10(d)             Variation Agreement dated November 13, 1995 by and between
                           Camborne Industries PLC and ZX(UK) Limited (c/k/a Stelax (U.K.)
                           Limited)                                                                       b
</TABLE>


                                      -15-

<PAGE>   16

<TABLE>


<S>               <C>                                                                                    <C>        
10(e)             Agreement dated November 13, 1995 by and between
                           Maritime Transport Services Limited and ZX(UK)
                           Limited
                           (c/k/a Stelax (U.K.) Limited)                                                  b

10(f)             Chattel Mortgage dated November 13, 1995 by and
                           between ZX(UK) Limited and Camborne Industries PLC
                           (c/k/a Stelax
                           (U.K.) Limited)                                                                b

10(g)             Patent Mortgage dated November 13, 1995 by and
                           between ZX(UK) Limited and Camborne Industries PLC
                           (c/k/a
                           Stelax (U.K.) Limited)                                                         b

10(h)             Trademarks Mortgage dated November 13, 1995 by and
                           between ZX(UK) Limited and Camborne Industries PLC
                           (c/k/a Stelax
                           (U.K.) Limited)                                                                b

22(a)             Subsidiaries of the Company

                           Stelax (U.K.) Limited, a United Kingdom subsidiary

27                Financial Data Schedule                                                                 *

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

</TABLE>

     *Filed herewith

     a.   Incorporated by reference from the Form S-18 Registration Statement,
          as amended (No. 33-27667- FW), for the Company.

     b.   Incorporated by reference from the Form 8-K dated November 7, 1995.

     c.   Incorporated by reference from the Form 10-K for the fiscal year ended
          March 31, 1996.

(c)      Reports on Form 8-K.
                  No reports on Form 8-K were filed during the last fiscal
                  quarter of 1998.


                                      -16-

<PAGE>   17



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

July 13, 1998                             STELAX INDUSTRIES, LTD.



                                               /s/ Harmon S. Hardy, Jr.
                                          -------------------------------------
                                          By:      Harmon S. Hardy, Jr.
                                                   President and 
                                                   Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on July 13, 1998.



<TABLE>
<CAPTION>
                NAME                                                        OFFICE
                ----                                                        ------


<S>                                                            <C>
 /s/ Harmon S. Hardy, Jr.
-------------------------------------------
Harmon S. Hardy, Jr.                                           President and Chief Financial Officer
(Principal Executive and Financial Officer)



 /s/ Ruben Grubner
-------------------------------------------
Ruben Grubner                                                  Director



 /s/ William D. Alexander
-------------------------------------------
William D. Alexander                                           Director
</TABLE>


<PAGE>   18
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
Reports of Independent Certified Public Accountants                       F-2

Consolidated Balance Sheets, March 31, 1998 and 1997                      F-5

Consolidated Statements of Operations for the years ended 
   March 31, 1998, 1997, and 1996                                         F-6

Consolidated Statements of Changes in Stockholders' Equity
   (Deficit) for the years ended March 31, 1998, 1997, and 1996           F-7

Consolidated Statements of Cash Flows for the years ended 
   March 31, 1998, 1997, and 1996                                         F-8

Notes to Consolidated Financial Statements                                F-9

Schedule IV - Indebtedness to Related Parties - Not Current               F-19
</TABLE>


                                      F-1
<PAGE>   19
INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Stelax Industries Ltd
British Columbia, Canada


We have audited the accompanying consolidated balance sheet of Stelax
Industries Ltd and subsidiary as of March 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. (Our audit also included the financial statement schedule
listed in the Index at Item 14). These financial statements and financial
statement schedule are the responsibility of the Corporation's Management. Our
responsibility is to express an opinion on the financial statements and
financial schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Stelax Industries Limited and
subsidiary at March 31, 1998, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles. (Also, in our opinion, the financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.)

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note H to the
financial statements the Company's recurring losses from operations and
stockholders' capital deficiency raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in the Capital and Liquid Resources section of Item 7. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

DELOITTE & TOUCHE

Chartered Accountants
Date: .........
Cardiff, UK




                                     F-2
<PAGE>   20
                      [THIS PAGE INTENTIONALLY LEFT BLANK]



                                      F-3
<PAGE>   21
                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Stelax Industries Ltd. (formerly Zfax Image Corp.)

We have audited the accompanying statements of income, stockholder's equity, and
cash flow of Stelax Industries Ltd. (formerly Zfax Image Corp.) for the year
ended March 31, 1996. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flow of
Stelax Industries Ltd. (formerly Zfax Image Corp.) for the year ended March 31,
1996, in conformity with generally accepted accounting principles.

As discussed in Note H to financial statements, the Company's recurring losses
from operations and working capital deficiency raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note H. The 1996 financial statements do
not include any adjustments that may result from the outcome of this
uncertainty.



Dallas, Texas
May 21, 1996




                                      F-4
<PAGE>   22
                              STELAX INDUSTRIES LTD


                           CONSOLIDATED BALANCE SHEETS
                      (Presented in United States dollars)


                ASSETS
<TABLE>
<CAPTION>

                                                                 March 31,                 March 31,
                                                                  1998                      1997
                                                       -----------------------     ---------------------
CURRENT ASSETS:
<S>                                                    <C>                        <C>                   
  Cash                                                 $               852,892    $            6,186,712
  Inventory-Raw materials                                              124,664                   302,513
   Work in process                                                     700,930                   366,847
   Finished goods                                                      247,163                   213,522
  Accounts Receivable-Trade, net (allowance for
   doubtful accounts at March 31, 1998 and 1997
   $93,593 and $24,600, respectively)                                  597,426                   293,001
  Prepaids and other current assets                                     87,380                    37,623
                                                       -----------------------     ---------------------
  Total Current Assets                                               2,610,455                 7,400,218

PROPERTY & EQUIPMENT-AT COST:
  Plant & Machinery                                                  9,155,297                 8,060,727
  Building                                                             840,240                   810,792
  Land                                                                 270,136                   270,136
                                                       -----------------------     ---------------------
                                                                    10,265,673                 9,141,655
  Accumulated Depreciation                                            (825,263)                 (398,541)
                                                       -----------------------     ---------------------
  Total Property & Equipment                                         9,440,410                 8,743,114

INTANGIBLE ASSETS (accumulated amortization of
  $101,924 and $47,749 at March 31, 1998 and
  1997, respectively)                                                  548,509                   538,991

OTHER ASSETS                                                            37,495                    74,444
                                                       -----------------------     ---------------------

TOTAL ASSETS                                           $            12,636,869     $          16,756,767
                                                       =======================     =====================



                      LIABILITIES AND STOCKHOLDERS' EQUITY


CURRENT LIABILITIES:
  Accounts payable                                     $             1,833,281     $           1,415,583
  Convertible notes payable (Note G)                                   195,982                   195,982
  Payable to related parties (Note C)                                   81,352                    20,228
                                                       -----------------------     ---------------------
  Total Current Liabilities                                          2,110,615                 1,631,793

COMMITMENTS (Note E)


STOCKHOLDERS' EQUITY (Notes B,D,&G):
  Common stock - 50,000,000 shares
   authorized, no stated par value;
   issued and outstanding 31,869,285 shares
   at March 31, 1998 and 1997, respectively                         21,821,087                21,821,087
  Cumulative translation adjustments                                   240,501                   148,060
  Accumulated deficit                                              (11,535,334)               (6,844,173)
                                                       -----------------------     ---------------------
  Total Stockholders' Equity                           $            10,526,254                15,124,974 
                                                       -----------------------     ---------------------
TOTAL LIABILITIES AND
  STOCKHOLDERS' EQUITY                                 $            12,636,869     $          16,756,767
                                                       =======================     =====================
</TABLE>




                       See notes to financial statements.

                                      F-5

<PAGE>   23


                              STELAX INDUSTRIES LTD


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (Presented in United States dollars)


<TABLE>
<CAPTION>

                                                                     Year Ended
                                                  ------------------------------------------------
                                                    March 31,         March 31,         March 31,
                                                      1998              1997              1996
                                                  ------------   ---------------     -------------
<S>                                                  <C>             <C>              <C>          
Sales                                                1,728,657           733,600              ----
Cost of sales                                        4,454,630         1,803,825              ----
                                                  ------------   ---------------     -------------
Gross loss                                          (2,725,973)       (1,070,225)             ----

Selling, general and administrative expenses
  (including depreciation and amortization of
  $481,254 and $446,290 for the years ended
  March 31, 1998 and 1997, respectively)             2,110,248         1,271,453         1,960,869
                                                  ------------   ---------------     -------------

Loss from operations                                (4,836,221)       (2,341,678)       (1,960,869)

Other income (expense):
  Interest income                                      154,844           257,226              ----
  Interest expense                                      (9,784)          (24,337)          (52,899)
  Other                                                   ----              ----             4,495
                                                  ------------   ---------------     -------------

Net loss                                          $ (4,691,161)  $    (2,108,789)    $  (2,009,273)
                                                  ============   ===============     ============= 


Weighted average shares of common stock             31,869,285        28,225,792        17,122,376
                                                  ============   ===============     ============= 


Net loss per share                                $      (0.15)  $         (0.07)    $       (0.12)
                                                  ============   ===============     ============= 
Weighted average shares for fully
   diluted calculation                            $ 33,359,264   $    33,994,489     $  18,633,734
                                                  ============   ===============     ============= 
</TABLE>


                       See notes to financial statements.


                                      F-6

<PAGE>   24

                              STELAX INDUSTRIES LTD


           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                      (Presented in United States dollars)


<TABLE>
<CAPTION>

                                                             Common Stock
                                                      --------------------------  Accumulated      Translation
                                                        Shares         Amount       Deficit        Adjustments      Total
                                                      ----------  -------------- --------------    ----------  --------------
<S>                                                   <C>              <C>           <C>                 <C>         <C>      
BALANCE at April 1, 1995                              14,166,550  $    2,582,398 $   (2,726,111)   $     ----  $    (143,713)

Common stock issued during the period:
  $1.00 to $1.50 per share (Note G)                    2,256,399       2,023,113           ----          ----      2,023,113
  $1.00 to $1.75 per share for services (Note B)       2,160,957       4,862,500           ----          ----      4,862,500
  $1.75 per share for acquisition (Note B)               150,000         262,500           ----          ----        262,500
Renewal of options (Note D)                                 ----       1,561,175           ----          ----      1,561,175
Net loss                                                    ----            ----     (2,009,273)         ----     (2,009,273)
                                                      ----------  -------------- --------------    ----------  -------------
BALANCE at March 31, 1996                             18,733,906  $   11,291,686 $   (4,735,384)   $     ----  $   6,556,302 

Common stock issued during the period:
  $1.75 per share for acquisition (Note B)                74,880         131,040           ----          ----        131,040
  $.67 to $1.00 per share for services (Note G)          931,274         261,700           ----          ----        261,700
  $.69 to $1.00 per share (Note G)                    12,129,225      10,136,661           ----          ----     10,136,661
Foreign currency translation adjustment                     ----            ----           ----       148,060        148,060
Net loss                                                    ----            ----     (2,108,789)         ----     (2,108,789)
                                                      ----------  -------------- --------------    ----------  -------------
BALANCE at March 31, 1997                             31,869,285  $   21,821,087 $   (6,844,173)   $  148,060  $  15,124,974

Foreign currency translation adjustment                     ----            ----           ----        92,441         92,441
Net loss                                                    ----            ----     (4,691,161)         ----     (4,691,161)
                                                      ----------  -------------- --------------    ----------  -------------
BALANCE at March 31, 1998                             31,869,285  $   21,821,087 $  (11,535,334)   $  240,501  $  10,526,254
                                                      ==========  ============== ==============    ==========  =============
</TABLE>

                       See notes to financial statements.

                                       F-7


<PAGE>   25


                              STELAX INDUSTRIES LTD




                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (Presented in United States dollars)


<TABLE>
<CAPTION>

                                                                              Year Ended
                                                             ---------------------------------------------
                                                                March 31,        March 31,       March 31,
                                                                  1998            1997             1996
                                                             -----------     ------------      -----------
OPERATING ACTIVITIES
<S>                                                          <C>             <C>               <C>         
  Net loss                                                   $(4,691,161)    $ (2,108,789)     $(2,009,273)
  Adjustments to reconcile net loss
  to net cash provided by operating
  activities:
      Compensation upon option renewal                              ----             ----        1,561,175
      Depreciation & amortization                                481,254          446,290             ---- 
      Allowance for doubtful accounts                             68,993           24,600             ---- 
      Foreign currency transaction gain                           92,441           48,440             ---- 
      Changes in operating assets and liabilities:
         Decrease (increase) in receivables                     (373,418)        (317,601)            ---- 
         Decrease (increase) in inventory & other assets        (202,683)        (976,284)         (18,665)
         Increase (decrease) in accounts
             payable & accrued interest                          478,822          576,333          303,221
         Increase in other liabilities                              ----             ----          199,977
                                                             -----------     ------------      -----------
Net cash (used) provided by operating activities              (4,145,752)      (2,307,011)          36,435


INVESTING ACTIVITIES
  Purchase of property, equipment & intangibles               (1,188,068)      (1,207,826)      (3,052,029)
                                                             -----------     ------------      -----------
Net cash used by investing activities                         (1,188,068)      (1,207,826)      (3,052,029)


FINANCING ACTIVITIES:
  Convertible note payable issue                                    ----          195,982             ---- 
  Payable (payment) to Maritime                                     ----       (1,033,561)       1,033,561
  Net proceeds from common stock                                    ----       10,398,361        2,023,113
                                                             -----------     ------------      -----------
Net cash provided by financing activities                           ----        9,560,782        3,056,674
                                                             -----------     ------------      -----------

Effect of exchange rate changes on cash                             ----           99,620             ---- 
                                                             -----------     ------------      -----------

Increase (decrease) in cash and cash
  equivalents                                                 (5,333,820)       6,145,565           41,080

Cash & cash equivalents at beginning
  of year                                                      6,186,712           41,147               67
                                                             -----------     ------------      -----------
Cash & cash equivalents at end of year                       $   852,892     $  6,186,712      $    41,147
                                                             ===========     ============      ===========
  Interest paid                                              $     9,784     $     77,236      $      ---- 
                                                             ===========     ============      ===========
  Income taxes paid                                          $      ----     $       ----      $      ----
                                                             ===========     ============      ===========

Non Cash Transactions:

  Investment acquired by equity issue                        $      ----     $    131,040      $ 5,125,000
                                                             ===========     ============      ===========
</TABLE>

                       See notes to financial statements.


                                      F-8

<PAGE>   26
                             STELAX INDUSTRIES LTD.
                        NOTES TO CONSOLIDATED STATEMENTS
                      (Presented in United States Dollars)


A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Stelax Industries, Ltd. (a Canadian corporation) formerly Zfax Image Corp., (the
"Company") was incorporated on May 5, 1987, primarily to develop and produce
portable facsimile machines. These operations were conducted through the
Company's formerly owned subsidiary, Zfax, Inc.

On July 11, 1995, the Company incorporated Stelax (U.K.) Limited ("Stelax") as a
wholly owned subsidiary in the United Kingdom to acquire certain assets of a
steel mill in West Glamorgan, Wales and establish operations in the stainless
steel manufacturing business. The financial statements for the years ended March
31, 1996, 1997 and 1998 include the accounts of the Company and its U.K.
subsidiary. The operating loss of this subsidiary was $4,596,968, $2,068,731 and
$200,986 for the years ended March 31, 1998, 1997 and 1996 and it had
identifiable assets of $11,601,282 and $11,439,873 at March 31, 1998 and 1997.
All significant intercompany balances and transactions have been eliminated.

The Company's consolidated financial statements are presented in accordance with
accounting principles generally accepted in the United States.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

LOSS PER SHARE

The computation of loss per share is based upon the weighted average shares of
common stock outstanding during the period.


                                      F-9
<PAGE>   27
                              STELAX INDUSTRIES LTD.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (Presented in United States Dollars)


DEPRECIATION AND AMORTIZATION

Depreciation is provided using the straight-line method over the estimated
useful lives of their assets as follows:

         Buildings                 20 years
         Plant and equipment       4 to 20 years
         Intangible assets         12 years


No depreciation or amortization expense was recorded for the 1996 fiscal year as
operations of the steel mill had not commenced until post March 31, 1996.

INVENTORY

The Company records raw material purchases at the lower of cost or market and
records the disposition of inventory on a first-in, first out basis. Inventory
is evaluated periodically for obsolete items.

START UP EXPENSES

All expenses incurred in connection with the start up of the steel mill have
been expensed as incurred. Expenses incurred in relation to the commissioning of
the planetary mill are capitalized as assets.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain reclassifications have been made to 1997 amounts to conform to the
current year presentation.


                                      F-10
<PAGE>   28
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)


B.   ACQUISITION

In August of 1995, the Company entered into an agreement with Shipyard Limited
("Shipyard") whereby the Company acquired the right, title and interest in two
Exclusivity Letters Shipyard had entered into with Aberneath Industries Limited
("Aberneath") and Maritime Transport Services Limited ("Maritime") to acquire
certain assets of these companies (see Note C). As consideration for the right,
title and interest in these letters, the Company issued a total of 2,900,000
shares of common stock (850,000 of which were issued in fiscal year 1996 and
recorded as a deposit) to Shipyard with a value of $1.75 per share, the fair
value of the stock at the closing date.

Effective November 13, 1995, the Company completed the purchase of the operating
equipment and the patents and trademarks from Aberneath. Total consideration
given for the assets was approximately $1,526,000 of which $1,395,000 was paid
in cash and the remaining $131,000 was given in fiscal year 1997 as common stock
of the Company representing 75,000 shares. The common stock was valued at $1.75
per share.

Effective November 13, 1995 the Company also acquired the land and buildings for
the steel mill from Maritime. The total consideration to be given was
approximately $1,310,000 in cash and $131,000 in common stock of the Company,
representing 75,000 shares valued at $1.75 per share. In fiscal 1996, $277,000
was paid, and the remainder was paid in fiscal 1997.

The acquisition and allocation to property and equipment and intangible assets
is comprised of:

         Stock issued                                     $ 5,337,500
         Cash paid                                          1,671,729
         Liability recorded                                 1,033,561
         Commissioning costs capitalized                      346,739
                                                          -----------
                                                          $ 8,389,529
                                                          ===========

         Plant and machinery *                            $ 6,785,493
         Building *                                           810,410
         Land *                                               270,136
         Intangible assets *                                  523,490
                                                          -----------
                                                          $ 8,389,529
                                                          ===========

*    Allocation is based on the assets' relative fair value
Both transactions were recorded using the purchase method of accounting.


                                      F-11
<PAGE>   29
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)


C.   RELATED PARTY TRANSACTIONS

Through June 30, 1996, the Company's general and administrative functions were
handled by another company, High Speed Technologies, Inc. which is owned 100% by
the President of the Company. In addition, the Company is accruing consulting
fees to the President of the Company for services performed.

As of March 31, 1998 and 1997, funds were due to the President and High Speed
Technology totaling $81,352 and $20,228, respectively. These amounts are payable
on demand and are non-interest bearing. Total expenses associated with services
provided by High Speed Technologies, Inc. were $0, $4,500, and $18,000, for the
years ended March 31, 1998, 1997, and 1996, respectively.

The President of Stelax Industries Ltd. was a former director of Shipyard, the
company which held the original right, title and interest in the two Exclusivity
Letters with Aberneath and Maritime at the time of the acquisition by the
Company of the Exclusivity Letters (Note B).

In connection with its private placement of common stock (Note G) and secondary
offering (Note G), the Company paid $113,653 in fiscal 1996 and owes an
additional $55,000 in fiscal 1997 to Austin Friars Securities Limited as
commission expense. The President of the Company is a director of Austin Friars
Securities Limited.

D.   OPTIONS

The Company has granted stock options to certain directors, officers, and
consultants to purchase shares of the Company's common stock under a
non-qualified plan. The options were originally granted on March 31, 1993 at
$.10 a share which was equal to the current market price at grant date. On March
31, 1996, the options expired but were renewed for an additional three years
with the same terms. The option price of $.10 per share was below market price
on the renewal date which resulted in a charge to compensation expense of
approximately $1,560,000 for the year ended March 31, 1996.

The options were fully vested at the renewal date and are currently exercisable.
Additional options were issued to directors, officers and consultants in fiscal
1997 at prices ranging from $1.00 to $5.00 per share, which either approximates
or exceeds fair market value. The options are valid for two to five years. A
summary of the stock option transactions follows:


                                      F-12
<PAGE>   30
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)


<TABLE>
<CAPTION>
                                                                             WEIGHTED
                                                                             AVERAGE
                                             NUMBER        EXERCISE PRICE    EXERCISE PRICE
                                             OF SHARES     PER SHARE         PER SHARE
                                             ---------     --------------    --------------
<S>                                          <C>              <C>            <C>  
Options outstanding March 31, 1996           1,622,000
Issued                                       2,097,500     $1.00 - $5.00     $1.32 - $0.79
                                             ---------
Options outstanding March 31, 1997           3,719,500
Expired                                       (150,000)
Options outstanding March 31, 1998           3,569,500
                                             =========
</TABLE>

                                      F-13
<PAGE>   31
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)


Stock options are exercisable from date of grant until expiry date which range
from April 1998 to January 20, 2002.

The Company accounts for its share options in accordance with Accounting
Principles Board Opinion No. 25.

Statement of financial Accounting Standards No. 123 "Accounting for Stock based
Compensation" (SFAS 123) requires disclosure of pro forma information regarding
net income and earnings per share had compensation cost been determined using
the fair value method. The fair value of the Company's stock based awards was
estimated as of the date of grant using the Black-Scholes option pricing model.
Limitations on the effectiveness of the Black-Scholes option valuation model are
that it was developed for use in estimating the fair value of trade options
which have no vesting restriction and are fully transferable and that the model
requires the use of highly subjective assumptions including expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
based awards. The fair value of options granted was estimated assuming no
dividends and using the following weighted average assumptions.

<TABLE>
<CAPTION>
                                                           1998               1997
<S>                                                        <C>             <C>  
Risk free interest rate                                        6.14%            6.14%

Expected term                                              2-5 years        2-5 years

Volatility                                                      123%             123%

Weighted average fair value per share
for options granted during the year                         --             $     0.64
</TABLE>


                                      F-14
<PAGE>   32
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)



Had compensation costs for the company's plan been recorded, the company's net
income and earnings per share would have been as indicated below:


<TABLE>
<CAPTION>
                                                  1998                 1997
<S>                      <C>                   <C>                <C>
Net loss                 as reported           $4,691,161          $2.108,789
                         pro forma             $5,157,736          $2,630,864
Loss per share           as reported                $0.15               $0.07
                         pro forma                  $0.16               $0.09
</TABLE>

E. COMMITMENTS

The Company, in February 1997, executed a three-year lease starting at $2,484
per month for corporate office space in Dallas, Texas. The lease increases in
year 2 to $2,649 per month and in year 3 to $2,815 per month.



                                      F-15
<PAGE>   33
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)



Minimum future rental payments under operating leases are as follows:


<TABLE>
<CAPTION>
Year ended March 31
<S>                                <C>
1999                               $32,120
2000                                28,150
                                   -------
                                   $60,270
                                   =======
</TABLE>

F. INCOME TAXES

The Company, as a Canadian corporation, does not file United States income tax
returns. The UK subsidiary will file tax returns in the United Kingdom.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The only component of
deferred taxes for the Company is its net operating loss carryforwards of
approximately $420,000 in Canada which began to expire in 1997 and approximately
$6,200,000 in the U.K. which may be carried forward indefinitely subject to the
agreement of the UK Inland Revenue against profits of the same trade. Deferred
tax assets at March 31, are:

<TABLE>
<CAPTION>
                                           1998                    1997
                                           ----                    ----
<S>                                <C>                           <C>
Deferred tax assets                 $    1,520,000               $   536,800
Valuation allowance                     <1,520,000>                 (536,800)
                                    --------------               -----------
Net deferred-tax asset              $          ---               $       ---
                                    ==============               ===========
</TABLE>


The valuation allowance was increased by $983,200 and $330,670 during the fiscal
years ended March 31, 1998 and 1997, respectively. Given the loss making
position of the Company, it is uncertain losses could be utilized in the
foreseeable future and therefore no benefit for deferred tax has been taken.

G. STOCKHOLDERS' EQUITY

Shares reserved for future issuance include 3,569,500 shares for stock options.
From time to time, the directors may declare and authorize payments of dividends
to the stockholders of record. To date, no dividends have been declared or paid.




                                      F-16
<PAGE>   34
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)



On March 31, 1995, in connection with the agreement with Shipyard, the Company
issued 850,000 shares of common stock as a deposit for the right to acquire the
title and interest in the Exclusivity Letters. During fiscal year 1996, the
Company issued 4,567,356 shares of its common stock in connection with the
acquisition of the steel mill.

Included in the shares issued were 2,050,000 shares issued to Shipyard (see Note
B). In addition, 2,256,339 shares were issued in a series of private placements
by the Company, ranging in price from $1.00 to $1.50 per share for net proceeds
of $2,023,113. Further, 110,957 shares were issued at $1.00 per share for
services provided in connection with the private placement.

In connection with the private placement, the purchasers of the common stock
received warrants to acquire one share of common stock for each warrant
presented. These warrants were deemed to have negligible value at date of issue,
and all such warrants expired unused at December 31, 1996.

The Company received a net $10,136,661 from the completion of a public stock
offering on the Le Nouveau Marche in July 1996, a subordinate trading board of
France's Bourse stock exchange. Additionally, the Company sold convertible notes
payable, of which an unconverted balance of $195,982 remains at March 31, 1998.
The notes bear interest at seven percent per annum and are due and payable in
full on April 30, 1998. An additional 931,274 shares were issued for services in
connection with the public offering.

The Company issued the final common stock required per the terms of the asset
acquisition agreement from fiscal year 1996 - 74,880 shares valued at $131,040.

In April, 1996, the Company granted 375,000 in common stock options at prices
ranging from $2.00 to $5.00 for corporate relation support and consideration for
the Company financing that occurred in the prior year. In January 1997, an
additional 1,722,500 in common stock options were issued to officers, directors
and consultants of the Company at $1.00 a share.




                                      F-17
<PAGE>   35
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)




H. LOSSES FROM OPERATIONS AND CASH FLOW REQUIREMENTS

The Company incurred a loss from operations for the 1996 fiscal year. In
addition, the steel mill owned by the U.K. subsidiary was still in the
commissioning process at March 31, 1996. Further, the Company's ability to
generate sufficient cash flow to meet its current obligations was uncertain.
These conditions raised substantial doubt about the Company's ability to
continue as a going concern. Additional funds of $582,542 were received by the
Company to commence operations.

On July 11, 1996, the Company sold 10,936,355 shares in a listing on Le Nouveau
Marche (a French domiciled emerging company stock exchange) with gross proceeds
of $10,831,720 for financing for capital expenditures, elimination of debt and
establishment of working capital.

The Company meets its day to day working capital requirements through its cash
reserves and management of working capital. The nature of the Company's business
is such that there can be unpredictable variation in the timing of cash inflows.
Management of the Company is concerned that, at the time of approval of the
financial statements, there is insufficient cash reserves to meet the
requirements of the Company for the next year. They are therefore looking to
raise additional funding from external sources.

The financial statements have been prepared on the going concern basis which
assumes that the Company and its subsidiaries will continue in operational
existence for the foreseeable future. The validity of this assumption depends on
the successful conclusion of negotiations with outside sources of funds. The
financial statements do not include any adjustments that might result if
negotiations were not conducted successfully.

Management of the Company is confident that the Company will ultimately be
successful in raising additional funds.

I. NET LOSS PER SHARE

Fully diluted earnings per share in accordance with FASB 128 does not have to
be calculated as the Company is losing money.


                                      F-18
<PAGE>   36
                             STELAX INDUSTRIES LTD.
          SCHEDULE IV -- INDEBTEDNESS TO RELATED PARTIES -- NOT CURRENT
                      (Presented in United States Dollars)


<TABLE>
<CAPTION>
                                Balance at                                                        Balance at
Debtor                       Beginning of Year       Additions           Deductions               End of Year
-------------------------------------------------------------------------------------------------------------
<S>                                   <C>                  <C>                <C>                          <C>
Registrant

March 31, 1998
----------------------------

Harmon Hardy, Jr.                            0                 ____                 ____                    0
High Speed Tech.                             0                 ____                 ____                    0
Hmanco, Inc.                                 0                 ____                 ____                    0

March 31, 1997
----------------------------

Harmon Hardy, Jr.                     $467,006              214,070           $(681,076)                    0
High Speed Tech                         75,532                4,700             (80,232)                    0
Hmanco, Inc.                                 0                  ---                  ---                    0

March 31, 1996
----------------------------

Harmon Hardy, Jr.                     $285,318             $181,688                  ---             $467,006
High Speed Tech                         58,031               17,501                  ---               75,532
Hmanco, Inc.                             (788)                  788                  ---                    0
</TABLE>


Note     1.   At March 31, 1997 and forward the balance payable to related 
              parties is included in current liabilities.



                                      F-19
<PAGE>   37
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
  NO.               DESCRIPTION
-------             -----------
<S>                <C>
  27                Financial Data Schedule
</TABLE>