<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, 1997 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, 1997 was approximately $19,500,000.  At June 30, 1997
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, 1997 most of the Company's efforts were
dedicated to recommissioning the Aberneath Facility which had been acquired by
the Company in November 1995, commencing production of the Company's 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.

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.

OFFERING OF STOCK

On July 11, 1996, the Registrant completed the sale of 10,800,000 shares its
common stock, no par value (the "Common Stock"), through the facilities of the
Le Nouveau Marche of the Paris Stock Exchange in Paris, France.  As a part of
such sale the Registrant listed such shares of Common Stock on the Le Nouveau
Marche.  The Registrant raised an aggregate of $10,831,000 from the sale of
such shares.  The Registrant used $1,110,797 to repay the then outstanding
principal and interest balance on a mortgage on the Aberneath Facility.  The
balance of the proceeds have been used for general working capital purposes of
the Company including the purchase of raw materials and financing of the
Company's accounts receivable.

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.

As of the year ended March 31, 1997, the steel mill had been recommissioned and
was producing various stainless steel products for sale.  Additionally, as of
March 31, 1997, the Company has produced limited quantities of Nuovinox for use
by potential customers in their testing and evaluation of the product.





                                      -2-
<PAGE>   3
In May 1997 the Company acquired a planetary rolling mill from a company
located in Germany.  The acquisition of this rolling mill will increase the
rolling capability of the Aberneath Facility by fifty percent.

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

The Company principally distributes 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, 1997.  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, 1997.





                                      -3-
<PAGE>   4
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 1997 fiscal year, stainless steel has been in a situation
where prices have been comparatively low.  A significant evolution of nickel
price could however modify prices for the reason that stainless steel prices
are to a large extent indexed on nickel prices.

The Company is a very small producer of stainless steel products in the world
market.  However, the Company believes it has one of the most automated hot
rolling steel mill facilities which should enable the Company to effectively
compete in its markets on the basis of price.

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.  In addition, a significant reduction in stainless steel prices could
have adverse competitive effects on Nuovinox (which would lose part of its
price competitiveness compared to stainless steel) and therefore the Company's
revenues.

Nuovinox is a new product and, although the product has been extensively
tested, only a limited amount of objective information is available to indicate
the speed of product acceptance in the marketplace.  Product acceptance may
also be affected by pricing; however, it is unknown whether lower pricing
strategies for Nuovinox will be successful.

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, 1997.   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
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 March 31, 1997, the Company had 58 employees or independent contractors
working for the Company.  The Company anticipates increasing the number of
employees in the 1998 fiscal year as the Company continues to expand 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 initial monthly payments of $2,484, which payments





                                      -4-
<PAGE>   5
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.

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, 1995 through March 31, 1997 is as follows:

<TABLE>
<CAPTION>
                 FISCAL 1996             HIGH             LOW
                 -----------             ----             ---
                 <S>                     <C>             <C>
                 First Quarter            .62             .18
                 Second Quarter          1.12             .62
                 Third Quarter           2.06            1.82
                 Fourth Quarter          1.56            1.03
</TABLE>

<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
</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, 1997, 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
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





                                      -6-
<PAGE>   7
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 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.





                                      -7-
<PAGE>   8
         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 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





                                      -8-
<PAGE>   9
         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.

ITEM 6.  SELECTED FINANCIAL DATA

The table below sets forth certain financial data for the Company for its
fiscal years ended March 31, 1997, 1996, 1995, 1994, and 1993.  The data for
1995, 1994, and 1993 has been restated to conform to the financial statement
presentation of the subsidiary being an unconsolidated subsidiary in those
years.





                                      -9-
<PAGE>   10
                             YEARS ENDED MARCH 31,


<TABLE>
<CAPTION>
============================================================================================================
                                   1997               1996              1995           1994             1993
                                   ----               ----              ----           ----             ----
  <S>                 <C>                 <C>                <C>               <C>            <C>
  SALES               $        733,600    $           ----   $          ----   $       ----   $         ----
------------------------------------------------------------------------------------------------------------

  GROSS LOSS                (1,070,225)               ----              ----           ----             ----
------------------------------------------------------------------------------------------------------------

  NET INCOME                (2,108,789)        (2,009,273)         (172,497)        241,365        (517,013)
  (LOSS)
------------------------------------------------------------------------------------------------------------

  TOTAL ASSETS              16,756,767           8,449,341           212,567          2,477              ___
------------------------------------------------------------------------------------------------------------

  LONG-TERM                       ___                  ___               ___            ___              ___
  OBLIGATIONS
------------------------------------------------------------------------------------------------------------

  TOTAL                      1,631,793           1,893,039           356,280        196,193          444,531
  LIABILITIES
------------------------------------------------------------------------------------------------------------

  COMMON STOCK              31,869,285          18,733,906        14,166,550     13,236,550        3,787,250
  OUTSTANDING AT              Shares              Shares            Shares         Shares           Shares
  YEAR-END
------------------------------------------------------------------------------------------------------------

  NET INCOME                      (.07)              (.12)             (.01)            .03            (.14)
  (LOSS) 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.

1997 VERSUS 1996

The Company expended most of its efforts in fiscal 1997 raising funds on the Le
Nouveau Marche (culminating in July, 1996) (see Item 1. Business - Offering of
Stock), 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.





                                      -10-
<PAGE>   11

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 as
discussed below) 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. As sales of the Company's products
continue to increase in fiscal year 1998, management anticipates that selling,
general and administrative expenses will decrease as a percentage of revenues.
The Company continued to experience losses in fiscal 1997 primarily as a result
of small revenues as the Aberneath Facility was brought on line.

Sales of the Company's stainless steel products, on a total tonnage basis, have
increased quarter over quarter for the last two fiscal quarters of fiscal 1997.
Based on orders held by the Company and the continuing increase in the use and
availability of the Aberneath Facility, the Company anticipates continued
quarter by quarter growth in revenue and total tonnage produced in fiscal 1998.
Assuming the Company sells its products with a sufficient gross profit margin,
the Company's operations should be profitable in fiscal 1998. Furthermore
revenues and profitability could be enhanced in the event the Company is able
to sell a sufficient quantity of its Nuovinox product.

1996 VERSUS 1995

The Company changed substantially during the 1996 fiscal year as the Company
completed the acquisition of the Aberneath Facility in November 1995. During
the 1996 fiscal year, the Company was primarily involved in raising the funds
necessary to complete the acquisition and to recommence operations at the
plant.

In fiscal year 1996, the Company had no revenues. Selling, general and
administrative expenses increased substantially in fiscal year 1996 to
$1,960,869 from $171,665 in fiscal year 1995 primarily due to the following:

o        Stock options previously issued by the Company expired on March 31,
         1996. The Company renewed all of the options for the participants
         still involved in the Company's operations at the same terms as the
         expired options. Due to the increase in the Company's stock price
         since the previous options were granted, the Company was required to
         account for the difference in stock prices as compensation expense in
         the year of the option renewal. The charge to compensation expense for
         fiscal year 1996 was $1,561,175. This charge, however, was offset by a
         credit to the common stock account in the equity section of the
         Company's balance sheet.

o        Additional expenses in fiscal year 1996 over fiscal year 1995 were
         consulting fees, legal expenses, and travel expenses incurred in
         connection with completing the acquisition of the Aberneath Facility.

Interest expense increased in fiscal year 1996 to $52,899 over fiscal year 1995
due to interest incurred on the deferred portion of the purchase price for the
Aberneath Facility. The Company had other income of $4,495 in fiscal year 1996
due to receipts received separate from the actual operations of the Aberneath
Facility. Additionally, the Company sold its United States subsidiary in fiscal
year 1995 resulting in a loss from discontinued operations in fiscal year 1995.

Total assets increased in fiscal year 1996 primarily due to completion of the
acquisition of the Aberneath Facility and the infusion of capital through sales
of Common Stock. Total liabilities increased in fiscal year 1996 due to the
debt incurred upon completion of the acquisition of the Aberneath Facility,
accrued interest on the acquisition debt, and payables incurred in general in
connection with completing the acquisition of the Aberneath Facility.

LIQUIDITY & CAPITAL RESOURCES

During fiscal 1997 the Company spent significant sums in recommissioning the
Aberneath Facility, purchasing raw materials to produce steel products,
establishing appropriate credit for the supply of power and other utilities,
and hiring new employees. Additionally, the Company repaid certain acquisition
indebtedness of $1,110,797 in 1996.





                                      -11-
<PAGE>   12
As noted in Item 1. Business - Offering of Stock, the Company raised an
aggregate of $10,831,000 through the sale of Common Stock, the proceeds of
which were utilized, in part, for the foregoing activities. As of March 31,
1997 the Company had available $6,186,712 in cash and cash equivalents to
finance its operations on a prospective basis.

During fiscal 1998 the Company will continue to expend significant amounts of
cash as production increases. These cash expenditures relate primarily to the
purchase of raw materials and the financing of accounts receivable generated as
a result of sales of the Company's products. Greater demand for the Company's
products will result in increasing demands on the Company's available cash.

Although the Company, as of March 31, 1997, had available cash and cash
equivalents of $6,186,712, management of the Company does not believe this
amount is sufficient to bring the Aberneath Facility to full production. In the
event the demand for the Company's products increases significantly, the
Company may not have the current ability to generate sufficient cash to meet
such demand. In such event the Company would be required to seek traditional
working capital financing from a lender, sell additional debt or equity or
modify any increase in demand to fit the Company's cash availability. Since the
Company's Aberneath Facility is owned free and clear without liens or
encumbrances, the Company believes it could establish a working capital
facility with a traditional lender once the Company's operations are profitable
on a current basis. However the Company has no commitments for such financing
and there can be no assurance such financing could be established

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 stainless steel.

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

        A.      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.

        B.      On May 2, 1996, the Company's accountant for the 1995 fiscal
year, Ray, Dahl & Associates, L. L.P., (the "1995 Accountant") was dismissed
as a result of the engagement on that date of Ernst & Young LLP. The 1995
Accountant's report on the financial statements for the prior two years 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 1995 Accountant's report on the financial statements for
the year ended March 31,





                                      -12-
<PAGE>   13
1995 contained a qualification as to the Company's ability to continue as a
going concern due to recurring losses and a net capital deficiency as of such
date. The decision to change accountants from the 1995 Accountant to Ernst &
Young LLP was approved by the Board of Directors of the Company.

During the Company's two most recent fiscal years and any subsequent interim
reporting period preceding the date of dismissal of the 1995 Accountant, there
were no disagreements with the 1995 Accountant on any matter of accounting
principles or practices, financial statements disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of the 1995
Accountant, would have caused it to make reference to the subject matter of the
disagreements in connection with its report.





                                      -13-
<PAGE>   14
                                    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, 1997
are as follows:

<TABLE>
<CAPTION>
Name and Age                     Position                        Served In Office Since
------------                     --------                        ----------------------
<S>                              <C>                                      <C>
Harmon S. Hardy, 68              Chairman of the                          1987
                                 Board, President                
                                 and Chief Financial Officer     
                                                                 
Ruben Grubner, 41                Director                                 1995
                                                                 
William D. Alexander, 48         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.

William D. Alexander has been a Vice-President since 1987 with Bank of Nova
Scotia in Toronto, Canada.

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, 1997.

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, 1997 for
services rendered during the fiscal years ended March 31, 1997, 1996 and 1995.
No officer of the Company received compensation during the fiscal year ended
March 31, 1997 in excess of $100,000.





                                      -14-
<PAGE>   15
<TABLE>
<CAPTION>
                                                   Annual Compensation(1)
                                           ---------------------------------------
                                                                                         Stock Options      All Other
      Name                 Year            Salary           Bonus            Other          (Shares)       Compensation
      ----                 ----            ------           -----            -----          --------       ------------
<S>                       <C>              <C>              <C>              <C>              <C>           <C>
HARMON S. HARDY,          1997             $ 72,000          ----             ----             ----         $   ----
Chairman of the           1996 (2)         $   ----          ----             ----             ----             ----
Board of Director,        1995 (2)         $   ----          ----             ----             ----             ----
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 named above received
         other compensation in excess of the lesser of $50,000 or 10% of such
         officer's salary and bonus compensation.

(2)      Does not include consulting fees paid to affiliates of Mr. Hardy
         during these years. See Item 13. Certain Relationships and Related
         Transactions.

1997 OPTION GRANTS

         The following table sets forth the number, percent of total options
granted to named employees, exercise price and duration of options granted to
the named executive officers, and the hypothetical gain that would result from
assumed annual rates of stock price appreciation over the term of the options.

<TABLE>
<CAPTION>
                                                                                       POTENTIAL REALIZABLE
                              PERCENT OF TOTAL                                           VALUE AT ASSUMED
                                  OPTIONS                                                ANNUAL RATES OF
                                GRANTED TO                                                 APPRECIATION
                               EMPLOYEES IN                                               FOR OPTION TERM
                 OPTIONS        FISCAL YEAR         EXERCISE        EXPIRATION
     NAME        GRANTED           1997              PRICE             DATE              5%              10%
     ----        -------           ----              -----             ----              --              ---
<S>              <C>              <C>                 <C>              <C>              <C>              <C>
Harmon S. Hardy  500,000          50.0%               $1.00            1/31/02          $638,141         $805,255
</TABLE>

ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of May 15, 1997, 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 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:





                                      -15-
<PAGE>   16
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
 NAME AND ADDRESS OF BENEFICIAL       SHARES OF COMMON STOCK                       
         OWNERS(1)                      BENEFICIALLY OWNED      PERCENTAGE OF CLASS
-----------------------------------------------------------------------------------
<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

         Through June 30, 1996 the Company had general administrative functions
handled by another company, High Speed Technologies, Inc., which is one hundred
percent (100%) owned by Harmon S. Hardy, the President of the Company. In
addition, the Company accrued consulting fees to the President of the Company
for services performed. As of March 31, 1997 and 1996, funds were due to the
President and High Speed Technologies, Inc. totaling $20,228 and $542,538,
respectively.





                                      -16-
<PAGE>   17
                                    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

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
</TABLE>





                                      -17-
<PAGE>   18
<TABLE>
<S>                       <C>                                                                 <C>
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 1997.





                                      -18-
<PAGE>   19
                                   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 9, 1997                            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 9, 1997

<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>





                                      -19-
<PAGE>   20

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

 Consolidated Balance Sheets, March 31, 1997 and 1996                                                 F-5

 Consolidated Statements of Operations for the years ended March 31, 1997, 1996, and 1995             F-6

 Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended             F-7
 March 31, 1997, 1996, and 1995

 Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996, and 1995             F-8

 Notes to Consolidated Financial Statements                                                           F-9

 Schedule IV - Indebtedness to Related Parties - Not Current                                         F-17
</TABLE>





                                      F-1
<PAGE>   21
                        [DELOITTE & TOUCHE LETTERHEAD]


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, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended March 31, 1997.  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 provide 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, 1997, and the results of their operations and their
cash flows for the year ended March 31, 1997, in conformity with generally
accepted accounting principles.  Also, in our opinion, the financial statement
schedule, when considered in relation to the basic consolidate financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.



/s/ DELOITTE & TOUCHE

DELOITTE & TOUCHE

Chartered Accountants
July 10, 1997
Cardiff, UK




                                     F-2
<PAGE>   22
                         Report of Independent Auditors


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

We have audited the accompanying consolidated balance sheet of Stelax
Industries Ltd. (formerly Zfax Image Corp.) as of March 31, 1996, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the year then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statements based on our audit.  The financial
statements of Stelax Industries Ltd. for the year ended March 31, 1995, were
audited by other auditors whose report dated July 12, 1995, expressed an
unqualified opinion on those statements and included an explanatory paragraph
that described the uncertainty of the Company to continue as a going concern,
discussed in Note I of these financial statements.

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 1996 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Stelax Industries Ltd. at March 31, 1996, and the consolidated results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.

As discussed in Note I to the 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 as to
these matters are also described in Note I.  The 1996 financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

                                                  ERNST & YOUNG LLP


Dallas, Texas
May 21, 1996



                                     F-3
<PAGE>   23
                 [RAY, DAHL & ASSOCIATES, L.L.P. LETTERHEAD]

                         INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
ZFAX Image Corp.
14901 Quorum Drive, Suite 310
Dallas, Texas

We have audited the accompanying balance sheet of ZFAX Image Corp as of March
31, 1995, and the related statements of operations, stockholders' equity, and
cash flows for the two years then ended. Our audits also included the financial
statement schedules listed in the index at item IV. These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our 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 financial position of ZFAX Image Corp. at March 31,
1995, and the results of its operations and its cash flows for the two years
then ended in conformity with generally accepted accounting principles in the
United States. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

As discussed in Note H to the financial statements, the Company sold its
Subsidiary, ZFAX, Inc. in 1995 and restated its balance sheet and its results
of operations from a consolidated basis to the equity method of accounting to
reflect the change in accounting entity.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note I to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that 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 I. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


/s/ RAY, DAHL & ASSOCIATES, LLP
RAY, DAHL & ASSOCIATES, LLP

July 12, 1995
 
<PAGE>   24
                             STELAX INDUSTRIES LTD.
                          CONSOLIDATED BALANCE SHEETS
                      (Presented in United States Dollars)

<TABLE>
<CAPTION>
                                             ASSETS
                                                                                     March 31,          March 31,
                                                                                       1997               1996
                                                                                   -------------      ------------
<S>                                                                                <C>                <C>            
CURRENT ASSETS:
    Cash                                                                           $   6,186,712      $     41,147
    Inventory - Raw materials                                                            302,513             3,365
      Work in process                                                                    366,847                --
      Finished goods                                                                     213,522                --
    Accounts Receivable - Trade, net (allowance for doubtful accounts                    293,001                --
       at March 31, 1997 $24,600)
    Prepaids and other current assets                                                     37,623                --

                                                                                   -------------      ------------
TOTAL CURRENT ASSETS                                                                   7,400,218            44,512

PROPERTY & EQUIPMENT AT COST:
    Plant & Machinery                                                                  8,060,727         6,785,493
    Building                                                                             810,792           810,410
    Land                                                                                 270,136           270,136

                                                                                   -------------      ------------
                                                                                       9,141,655         7,866,039
    Accumulated Depreciation                                                            (398,541)               -- 
                                                                                   -------------      ------------
TOTAL PROPERTY & EQUIPMENT                                                             8,743,114         7,866,039

INTANGIBLE ASSETS (accumulated amortization of
    $47,749 at March 31, 1997, $0 at March 31, 1996)                                     538,991           523,490

OTHER ASSETS                                                                              74,444            15,300

                                                                                   -------------      ------------
TOTAL ASSETS                                                                       $  16,756,767      $  8,449,341
                                                                                   =============      ============


                              LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable                                                               $   1,415,583      $    264,041
    Convertible notes payable (Note G)                                                   195,982                --
    Payable to related party (Note C)                                                     20,228                --
    Payable to Maritime (Note B)                                                              --         1,033,561
    Accrued interest                                                                          --            52,899

                                                                                   -------------      ------------
TOTAL CURRENT LIABILITIES                                                              1,631,793         1,350,501

OTHER LIABILITIES (Note C)                                                                    --           542,538

                                                                                   -------------      ------------
TOTAL LIABILITIES                                                                      1,631,793         1,893,039

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 and 18,733,906
    shares at March 31, 1997 and March 31, 1996, respectively                         21,821,087        11,291,686
    Cumulative translation adjustments                                                   148,060                --
    Accumulated deficit                                                               (6,844,173)       (4,735,384)

                                                                                   -------------      ------------
TOTAL STOCKHOLDERS' EQUITY                                                            15,124,974         6,556,302

                                                                                   -------------      ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $  16,756,767      $  8,449,341
                                                                                   =============      ============
</TABLE>

    See accompanying notes to financial statements.





                                      F-5
<PAGE>   25
                             STELAX INDUSTRIES LTD.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      (Presented in United States Dollars)

<TABLE>
<CAPTION>
                                                                                   Year Ended
                                                               --------------------------------------------
                                                                 March 31,   Restated March 31,  March 31,
                                                                   1997            1996            1995
                                                               ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>         
Sales                                                          $    733,600    $         --    $         --
Cost of Sales                                                     1,803,825              --              --

                                                               ------------    ------------    ------------
Gross Loss                                                       (1,070,225)             --              --

Selling, general and administrative
  expenses (including depreciation and
  amortization of $446,290 for the year
  ended March 31, 1997)                                           1,271,453       1,960,869         171,665

                                                               ------------    ------------    ------------
Loss from continuing operations                                  (2,341,678)     (1,960,869)       (171,665)

Other income (expenses):
   Interest income                                                  257,226              --              --
   Interest expense                                                 (24,337)        (52,899)             --
   Other                                                                 --           4,495              --
   Net loss from discontinued operations (Notes C & H)                   --              --            (832)

                                                               ------------    ------------    ------------
Net loss                                                       $ (2,108,789)   $ (2,009,273)   $   (172,497)
                                                               ============    ============    ============

Weighted average shares of common stock                          28,225,792      17,122,376      13,331,454
                                                               ============    ============    ============


Net loss per share                                             $      (0.07)   $      (0.12)   $      (0.01)
                                                               ============    ============    ============
</TABLE>


    See accompanying notes to financial statements.





                                      F-6
<PAGE>   26
                             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, 1994                          13,236,550   $  2,359,898   $ (2,553,614)   $         --   $   (193,716)

Common stock issued during the period:
  $.125 per share (Note G)                            80,000         10,000             --              --         10,000
  $.25 per share (Note G)                            850,000        212,500             --              --        212,500
Net loss                                                  --             --       (172,497)             --       (172,497)

                                                ------------   ------------   ------------    ------------   ------------
BALANCE at March 31, 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
                                                ============   ============   ============    ============   ============
</TABLE>



    See accompanying notes to financial statements.





                                      F-7
<PAGE>   27
                             STELAX INDUSTRIES LTD.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (Presented in United States Dollars)
<TABLE>
<CAPTION>
                                                                          Year Ended
                                                          --------------------------------------------
                                                            March 31,       March 31,      March 31,
                                                              1997            1996           1995
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>          
OPERATING ACTIVITIES:                                                                                         
  Net Loss                                                $ (2,108,789)   $ (2,009,273)   $   (172,497)
  Adjustments to reconcile net loss
  to net cash provided by operating
  activities:
    Compensation upon option renewal                                --       1,561,175              --
    Disposal of subsidiary investment                               --              --        (196,193)
    Depreciation & amortization                                446,290              --              --
    Foreign currency transaction gain                           48,440              --              --
    Changes in operating assets and liabilities:
      Decrease (increase) in receivables                      (293,001)             --           2,475
      Decrease (increase) in inventory & other assets         (976,284)        (18,665)             --
      Increase (decrease) in accounts
         payable & accrued interest                            576,333         303,221          13,719
      Increase in other liabilities                                 --         199,977         342,561

                                                          ------------    ------------    ------------
Net cash (used) provided by operating activities            (2,307,011)         36,435          (9,935)

INVESTING ACTIVITIES:
  Purchase of property, equipment & intangibles             (1,207,826)     (3,052,029)             --

                                                          ------------    ------------    ------------
Net cash used by investing activities                       (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          10,000

                                                          ------------    ------------    ------------
Net cash provided by financing activities                    9,560,782       3,056,674          10,000

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

                                                          ------------    ------------    ------------
Increase in cash and cash equivalents                        6,145,565          41,080              65

Cash & cash equivalents at beginning
  of year                                                       41,147              67               2

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

Cash & cash equivalents at end of year                    $  6,186,712    $     41,147    $         67
                                                          ============    ============    ============

Interest paid                                             $     77,236    $         --    $         -- 
                                                          ============    ============    ============

Income taxes paid                                         $         --    $         --    $         -- 
                                                          ============    ============    ============

Non Cash Transactions:

  Option to purchase investment acquired by equity
     issue                                                $         --    $         --    $    212,500
                                                          ============    ============    ============

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

    See accompanying notes to financial statements.





                                      F-8
<PAGE>   28
                             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 wholly owned subsidiary, Zfax, Inc.  Effective March 31, 1995,
Zfax, Inc. was sold to the Company's President.

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 and 1997 include the accounts of the Company and its U.K.
subsidiary.  The operating loss of this subsidiary was $2,068,731 and $200,986
for the years ended March 31, 1997 and 1996 and it had identifiable assets of
$11,439,873 and $8,415,699 at March 31, 1997 and 1996.  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 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.

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





                                      F-9
<PAGE>   29

                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)



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.

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 1996 amounts to conform to the
current year presentation.

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.





                                      F-10
<PAGE>   30

                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)



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:

<TABLE>
         <S>                                                            <C>
         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
                                                                        ===========
</TABLE>

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

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, 1997 and 1996, funds were due to the President and High Speed
Technology totaling $20,228 and $542,538, respectively.  These amounts are
payable on demand and are non-interest bearing.  Total expenses associated with
services provided by High Speed Technologies,





                                      F-11
<PAGE>   31
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)


Inc. were $4,500, $18,000, and $13,500, for the years ended March 31, 1997,
1996, and 1995, 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.

As of March 31, 1995, the President of the Company agreed to purchase Zfax Inc.
for the book value of the subsidiary.  The subsidiary investment was a deficit
of $197,025.  The amount due the President was reflected in the total funds due
the President as of that date.

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>   32
                             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, 1995          1,687,000
         Renewed                            1,622,000          $0.10                 $  0.10
         Expired                           (1,687,000)
                                           ----------                                    
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                              
                                           ==========                                    
</TABLE>

Stock options are exercisable from date of grant until expiry date which range
from September 1, 1997 to January 20, 2002.

The weighted average fair value of stock options granted during fiscal 1997 was
$0.64.  The fair value of each stock option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in fiscal 1997; risk-free rate of 6.14%,
expected dividend yield of 0%, expected life of 3.75 years, and expected
volatility of 123.27%.

The Company accounts for its share options in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock option awards in fiscal 1997.  Had compensation for these
options been determined consistent with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS123), the
Company's pro forma net loss and loss per share for 1995 would have been
$2,630,864 and $0.09, respectively.

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-13
<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>
1998                                               $30,138
1999                                                32,120
2000                                                28,150
                                                   -------
                                                   $90,408
                                                   =======
</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 begin to expire in 1997 and
approximately $1,143,000 in the U.K. which may be carried forward indefinitely.
Deferred tax assets at March 31, are:

<TABLE>
<CAPTION>
                                              1997             1996
                                              ----             ----   
<S>                                        <C>                   <C>
Deferred tax assets                        $  536,800        $ 206,130
Valuation allowance                          (536,800)        (206,130)
                                           ----------        ---------
Net deferred-tax asset                     $       --        $     ---
                                           ==========        =========
</TABLE>


The valuation allowance was increased by $330,670 and $140,517 during the
fiscal years ended March 31, 1997 and 1996, respectively.

G.       STOCKHOLDERS' EQUITY

On January 24, 1994, the Company issued a total of 2,475,000 shares for $2,475
of new common stock to a series of non- affiliated investors in exchange for
personal notes receivable.  The stock was issued at $.001 a share.  The stock
was held as collateral for payment on notes receivable.  In fiscal 1995, the
notes were considered paid via consultant fees owed by the Company and were
released to each shareholder.





                                      F-14
<PAGE>   34
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)



The Company received $10,000 in cash in July 1994 in exchange for 80,000 shares
of newly issued common stock.

Shares reserved for future issuance include 3,719,500 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.

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,
1997.  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-15
<PAGE>   35
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)



H.       SALE OF SUBSIDIARY

The financial statements include the accounts of Stelax Industries Ltd.  Its
wholly owned United States subsidiary, Zfax, Inc. was sold to the President of
the Company on March 31, 1995 for net book value which encompassed the deficit
investment account and the related subsidiary receivable.  As a result, a
change in reporting entity occurred and the previously consolidated subsidiary
is accounted for using the equity method of accounting in the restated
financial statements.

Condensed financial information follows:

                                   Zfax Inc.
                            Condensed Balance Sheet

<TABLE>
<CAPTION>
                                                  MARCH 31,
                                                    1995    
                                                ------------
<S>                                             <C>
Assets                                          $         --
Liabilities                                          197,025
Accumulated deficit                                 (197,025)
</TABLE>





                                      F-16
<PAGE>   36
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)



                                   Zfax Inc.
                       Condensed Statement of Operations

<TABLE>
<CAPTION>
                                                  MARCH 31,
                                                    1995   
                                                ------------
<S>                                             <C>
Net sales                                       $         --
Selling, general and
  administrative expense                                 832
Net gain (loss)                                         (832)
</TABLE>





                                      F-17
<PAGE>   37
                             STELAX INDUSTRIES LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (Presented in United States Dollars)


I.      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 raise 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.





                                      F-18
<PAGE>   38
                             STELAX INDUSTRIES LTD.
         SCHEDULE IV -- INDEBTEDNESS TO RELATED PARTIES -- NOT CURRENT
                     (Presented in United States Dollars)


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

<S>                     <C>             <C>            <C>             <C>
 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 
                        
 March 31, 1995
 -------------------
 Harmon Hardy, Jr                  0         285,318             --         285,318
 Note 1                                                                             
 High Speed Tech                   0          58,031             --          58,031 
 Note 2                            
 Hmanco, Inc.                      0              --           (788)           (788)

 Former Subsidiary -
 Zfax, Inc. 
 March 31, 1995
 -------------------
 Hmanco, Inc.                      0              --             --               0
 Zytec Computer Corp.              0              --             --               0  
 Aftech Leasing                    0              --             --               0  
 Harmon Hardy, Jr              8,331              --             --           8,331  
                               
</TABLE>

Note    1.  Consulting and travel expenses incurred.  Of total increase,
            $197,025 represents amount owed due to sale of subsidiary.  See
            Note C for more information.

        2.  General administrative charges incurred.

        3.  At March 31, 1997 the balance payable to related parties is
            included in current liabilities.





                                      F-19
<PAGE>   39
                               INDEX TO EXHIBITS

Exhibit No.                   Description
-----------                   -----------           
    27                  Financial Data Schedule