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

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q

X     QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 1998

_     TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
      EXCHANGE ACT OF 1934

                        Commission File Number 333-41939

                            STELLEX INDUSTRIES, INC.

             (Exact name of registrant as specified in its charter)


                   Delaware                            13-3971931
           (State of Incorporation)       (I.R.S. Employer Identification No.)


           1430 Broadway, 13th Floor
           New York, New York 10018                       10018
    (Address of principal executive office)            (Zip code)


      Registrant's telephone number, including area code: (212) 391-1392


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 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes ___ No X

As of May 1, 1998, the number of shares  outstanding of the registrant's  Common
Stock, no par value, was 1,000 shares. There is no trading market for the Common
Stock.  Accordingly,  the  aggregate  market  value of the Common  Stock held by
non-affiliates of the registrant is not determinable.

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




                                       1
<PAGE>




                  STELLEX INDUSTRIES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                                 (Unaudited)


                                                         March 31,  December 31,
                           ASSETS                          1998         1997
                                                           ----         ----
                                                        (Unaudited)
     Current assets:
       Cash and cash equivalents                     $ 3,193,100    $ 3,304,200
       Account receivables - net of allowances        17,767,300     15,232,200
       Inventories                                    26,996,100     27,884,200
       Prepaid and other assets                          787,800      3,753,000
       Deferred income taxes                           3,155,400      2,172,400
                                                       ---------      ---------
     Total current assets                             51,899,700     52,346,000
     Property, plant and equipment, net               31,498,600     31,506,000
     Goodwill, net                                    42,487,600     42,919,700
     Other intangible assets, net                     12,004,600     12,594,800
     Deferred financing costs, net                     5,220,700      5,356,800
     Other assets                                      1,597,500      1,059,100
                                                       ---------      ---------
       Total assets                                 $144,708,700   $145,782,400
                                                    ============   ============
                                                                
             LIABILITIES & SHAREHOLDERS' EQUITY                 
                                                                
     Current liabilities:                                       
       Current portion of notes and capital lease                  
         obligations                                $    137,200        139,700
       Accounts payable                                5,467,300      4,637,900
       Accrued liabilities                            12,348,000     12,031,100
       Advance billings and customer deposits          1,751,400      2,678,900
                                                       ---------      ---------
       Total current liabilities                      19,703,900     19,487,600
     9 1/2% senior subordinated notes                100,000,000    100,000,000
     Long-term obligations, less current portion      12,166,600     12,181,800
     Deferred employee benefits                        1,737,800      1,704,000
     Deferred income taxes                             2,499,500      2,446,700
     Minority interest in KII Holding Corp.            1,793,500      1,078,100
                                                       ---------      ---------
       Total liabilities and minority interest       137,901,300    136,898,200
                                                     -----------    -----------
     Stockholders' equity:                                      
       Common stock, no par value, 1,000 shares                 
         authorized and outstanding                       50,000         50,000
       Preferred stock, no par value: 500 shares                
         authorized, 229 shares issued and
         outstanding                                  11,450,000     11,450,000
       Additional paid-in capital                              -              -
       Retained earnings (accumulated deficit)        (4,692,600)    (2,615,800)
                                                      ----------     ---------- 
       Total stockholders' equity                      6,807,400      8,884,200
                                                       ---------      ---------
       Total liabilities and stockholders' equity   $144,708,700   $145,782,400
                                                    

    See accompanying notes to unaudited consolidated financial statements




                                       2
<PAGE>




ITEM 1:  Financial Statements



                  STELLEX INDUSTRIES, INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)



                                                       Three Months Ended
                                                             March 31,
                                                         1998        1997
                                                      ------------------------
                                                                  (Predecessor)
Sales .........................................   $ 27,899,100    $  6,441,600
Cost of sales .................................     21,951,500       4,647,700
                                                    ----------       ---------
Gross Profit ..................................      5,947,600       1,793,900
                                                     ---------       ---------
Operating expenses:
Selling, general and administrative ...........      4,127,700         880,900
Research and development ......................        940,000               -
Amortization of non compete covenants,
  goodwill and other intangible costs .........        642,000           7,800
                                                       -------           -----
  Total operating costs .......................      5,709,700         888,700
                                                     ---------         -------
Income from operations                                 237,900         905,200
                                                       -------         -------
Other income (expense):
   Interest income ............................         32,500           2,300
   Interest expense ...........................     (2,769,600)       (181,600)
   Other ......................................        (63,200)        (13,200)
                                                       -------         ------- 
   Total other expense .......................      (2,800,300)       (192,500)
                                                    ----------        -------- 
Income (loss) before provision for income taxes     (2,562,400)        712,700
Provision (benefit) for income taxes ..........       (771,900)        285,100
                                                      --------         -------
Net income (loss) .............................     (1,790,500)        427,600
Preferred stock dividends .....................       (286,300)              -
                                                      --------         -------
Income (loss) applicable to common stockholders   $ (2,076,800)   $    427,600
                                                  ============    ============
                                                            




    See accompanying notes to unaudited consolidated financial statements.






                                       3
<PAGE>




                  STELLEX INDUSTRIES, INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (Unaudited)
                                                          Three Months Ended
                                                               March 31,
                                                        ------------------------
                                                           1998        1997
                                                                   (Predecessor)
Cash Flows from Operating Activities:
Net income (loss) ...............................   $(1,790,500)   $   427,600
Reconciliation to net cash provided
  by operating activities:
  Depreciation and amortization .................     2,327,000        433,500
  Amortization of step-up in inventory ..........     1,057,400              -
  Gain on sale of property ......................        (2,600)        (1,900)
  Deferred income taxes .........................      (930,200)        81,300
  Stock compensation ............................       715,400              -
Changes in assets and liabilities:
  Accounts receivable ...........................    (2,535,100)      (459,100)
  Inventories ...................................      (169,300)      (771,200)
  Prepaid and other assets ......................     2,965,200        (88,900)
  Due from parent ...............................          --           (2,200)
  Other assets ..................................      (538,400)       (33,200)
  Accounts payable ..............................       829,400        191,300
  Accrued and other liabilities .................        64,400        236,600
  Customer deposits .............................      (927,500)           100
                                                       --------            ---
   Net cash provided by operating activities ....     1,065,200         13,900
                                                      ---------         ------
Cash Flows from Investing Activities:
Additions to fixed assets .......................    (1,183,100)      (478,600)
Proceeds from sale of fixed assets ..............        24,500         33,500
   Net cash used in investing activities ........    (1,158,600)      (445,100)
                                                     ----------       -------- 
Cash Flows From Financing Activities:
Net borrowings on line of credit ................             -        350,000
Repayments under capital lease obligations ......        (2,500)             -
Repayment of debt and notes payable .............       (15,200)       (14,000)
                                                        -------        ------- 
   Net cash provided by (used in) financing
    activities ..................................       (17,700)       336,000
                                                    -----------    -----------
   Net decrease in cash and cash equivalents ....      (111,100)       (95,200)

Cash and cash equivalents, beginning of period ..     3,304,200        406,000

Cash and cash equivalents, end of period ........     3,193,100        310,800
                                                      =========        =======
Supplemental disclosure of cash flow information:
   Cash paid  during the period for:
   Interest .....................................   $    52,929    $   183,098
                                                    ===========    ===========
   Income taxes, net ............................   $         -         55,300
                                                    ===========    ===========

           See accompanying notes to unaudited financial statements




                                       4
<PAGE>




                  STELLEX INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  Organization and Description of Business

Formation of Stellex  Industries,  Inc. - On September 5, 1997, Stellex Holdings
Corp.  was  incorporated  as a Delaware  corporation,  which on October 23, 1997
amended its articles of incorporation to change its name to Stellex  Industries,
Inc.  ("Stellex").  On September  12, 1997,  Stellex  issued 1,000 shares of its
common stock to  Greystoke  Capital  Management  Limited LDC in exchange for (i)
8,010 shares of common and 84 shares of Series A preferred  stock of KII Holding
Corp.  ("KII  Holdings"),  (ii)  $50,000  cash and  (iii)  the  assumption  of a
$4,000,000  promissory  note. KII Holdings had previously  been formed to effect
the acquisition of Kleinert Industries and subsidiaries  ("Kleinert") on July 1,
1997,  as described  more fully  below.  As a result of the  September  12, 1997
transaction,  Stellex acquired an 80.1% interest in KII Holdings;  the remaining
equity  interests  are held by  certain  members  of  Kleinert  management.  The
transaction  has  been  accounted  for as a  reincorporation  of  KII  Holdings;
accordingly,  the  financial  statements  of Stellex  reflect the results of its
operations commencing with the acquisition of Kleinert in July 1, 1997. Kleinert
is the predecessor of Stellex,  and all references to the "Company" include both
Stellex and its predecessor, Kleinert.

Kleinert  Acquisition  - On July 1, 1997,  KII Holdings  through a  wholly-owned
subsidiary  (KII  Acquisition  Corp., a Delaware  company),  acquired all of the
outstanding  capital stock of Kleinert from Kleinert  Industries Holding AG. The
acquisition  was accounted  for using the purchase  method of  accounting,  and,
accordingly,  the net purchase price of approximately  $26.5 million  (including
the assumption of $2.6 million of indebtedness and the issuance to the seller of
a note for  approximately  $1.75 million) was allocated to the assets  purchased
and  the  liabilities  assumed  based  upon  the  fair  values  at the  date  of
acquisition.  There was no excess purchase price over the fair values of the net
assets acquired in connection with the  acquisition.  Kleinert's  corporate name
was subsequently changed to Stellex Aerospace.  Kleinert commenced operations in
1988,  and provided  management  services for its  wholly-owned  subsidiaries  -
Paragon Precision Products ("Paragon"),  General Inspection  Laboratories,  Inc.
("GIL"),  Scanning  Electron Analysis  Laboratories,  Inc.  ("SEAL"),  and Bandy
Machining International ("Bandy").

Paragon  specializes in the manufacture of precision aerospace  components.  GIL
provides  non-destructive  testing  services for  inspecting  critical parts and
manufactured   components.   SEAL   specializes   in   materials   analysis  and
problem-solving  for  government  and  industry.  Bandy  manufactures  precision
hinges,  door panels and hinge  assemblies  for both  aerospace  and  industrial
applications.

TSMD  Acquisition  - On  October  31,  1997,  Stellex,  through  a  wholly-owned
subsidiary,  TSMD Acquisition  Corp.,  purchased 100% of the outstanding  common
stock of Stellex Microwave Systems, Inc. ("Stellex Microwave"),  which comprised
the operations of the Tactical Subsystems and Microwave Devices Sectors ("TSMD")
of the Watkins-Johnson Company ("Watkins-Johnson"),  for a net purchase price of
approximately  $82.1  million.  The  acquisition  was  accounted  for  using the
purchase  method of accounting  with  estimated fair value being assigned to the
assets acquired and  liabilities  assumed.  The purchase was financed  primarily
with the net proceeds from offering of senior  subordinated notes totaling $92.3
million.  Stellex Microwave  designs,  markets and manufactures a broad range of
microwave devices,  modular subsystems and electronic  equipment  operating over
the RF and  microwave  frequency  bands  for sale  primarily  for  military  and
aerospace  applications.  Stellex's  consolidated  financial  statements  herein
include the results of operations of Stellex  Microwave  during the three months
ended March 31, 1998 only.




                                       5
<PAGE>



2.  Basis of Presentation

Stellex is a holding company which has no operations or assets separate from its
investments in its  subsidiaries.  The  consolidated  balance sheet at March 31,
1998 and the consolidated  statements of income and  consolidated  statements of
cash flows for the period  ended March 31, 1998  include the accounts of Stellex
Microwave  and KII Holdings and its 80%  subsidiary,  Stellex  Aerospace and its
wholly-owned subsidiaries (collectively,  "Stellex Aerospace").  All significant
intercompany transactions have been eliminated in consolidation. The comparative
financial  statements  for the period ended March 31, 1997 are of Kleinert  (the
predecessor  of Stellex) and include the accounts of Kleinert  Industries,  Inc.
and its wholly-owned  subsidiaries.  All significant  intercompany  transactions
have been eliminated in consolidation.

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  the  instructions  to Form  10-Q  and do not  include  the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
considered  necessary  for a  fair  presentation  which  were  of a  normal  and
recurring  nature have been included.  The results of operations for any interim
period  are not  necessarily  indicative  of the  results  for the  year.  These
unaudited  consolidated  financial statements should be read in conjunction with
the  consolidated  financial  statements  and  related  notes  included  in  the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.


3.   Inventories

      Inventories consisted of the following:

                                                 March 31,   December 31,
                                                   1998          1997
        Raw materials                          $  9,485,700  $  8,088,400
        Work-in-process                           11,538,300    12,957,300
        Finished goods                            5,972,100     6,838,500
                                               ------------  ------------
        Total                                  $  26,996,100 $  27,884,200
                                               ============= =============


4.   Long-Term Debt

      Long-term debt consisted of the following:

                                                  March 31,  December 31,
                                                     1998           1997
        Revolving  line of credit              $  7,500,000  $ 7,500,000
        7.785% Mortgage note payable              2,608,800    2,624,000
        8% Note payable to seller of the          1,750,000    1,750,000
        predecessor
        Obligations under capital leases            445,000       447,500
                                               ------------  ------------
                                                  12,303,800   12,321,500
        Less current portion                        137,200       139,700
                                               ------------  ------------
                    Total                      $  12,166,600 $12,181,800
                                               ============= ===========



                                       6
<PAGE>



5.   Commitments and Contingencies

The Company is involved  from time to time in lawsuits  that arise in the normal
course of business.  The Company  actively and vigorously  defends all lawsuits.
Management  believes that there are no lawsuits that will have a material affect
on the Company's financial position.


6.    Subsequent Events

Stellex  Industries  , Inc.  signed a definitive  agreement  to acquire  Monitor
Aerospace  Corporation  on April 28,  1998 for total  consideration  of $95.0mm.
Monitor, which has sales of $86.3 million, is an aerospace subcontractor that is
engaged  in  the  manufacture  and  assembly  of  precision-machined  structural
aircraft components and assemblies. The acquisition will be financed with credit
facilities underwritten by a bank syndication. The acquisition of Monitor, which
is subject to regulatory approval and the satisfaction of closing conditions, is
expected to close by the end of May 1998.

7.    Condensed Financial Information of Stellex and its Subsidiaries

The  $100  million  principal  amount  9  1/2%  senior  subordinated  notes  are
guaranteed  by all  subsidiaries  of  Stellex  including  Stellex  Microwave,  a
wholly-owned  subsidiary and KII Holding an 80.1% owned  subsidiary,  which owns
100% of Stellex Aerospace.  Condensed  consolidating financial information as of
March 31, 1998 and the three-month period then ended follows:


                             Condensed Consolidating Balance Sheet
<TABLE>
                                                                                   
<S>                              <C>            <C>             <C>            <C>              <C> 
                                    Stellex        Stellex                                         Stellex    
                                 (Parent only)    Microwave      KII Holdings   Eliminations    Consolidated
                                 ------------   ------------    ------------    ------------    ------------
Cash .........................   $    475,600      1,757,500         960,000               -       3,193,100
Accounts receivable ..........              -     11,834,900       5,932,400               -      17,767,300
Inventories ..................              -     13,625,200      13,370,900               -      26,996,100
Other current assets .........      4,336,700      2,984,600         952,700      (4,330,800)      3,943,200
                                 ------------   ------------    ------------    ------------    ------------
Total current assets .........      4,812,300     30,202,200     21,216,000       (4,330,800)     51,899,700
Property, plant and
   equipment .................              -     16,713,600     14,785,000                -      31,498,600
Goodwill and intangibles .....              -     54,492,200              -                -      54,492,200

Investment in and
advances to subsidiaries .....    118,625,000              -              -     (118,625,000)              -
Other assets
                                            -      4,747,700       2,070,500               -       6,818,200
                                 ------------   ------------    ------------    ------------    ------------
Total assets .................   $123,437,300   $106,155,700    $ 38,071,500   $(122,955,800)   $144,708,700
                                 ============   ============    ============    ------------    ============
Current liabilities ..........   $  4,716,200   $ 14,957,400    $  4,425,600   $  (4,395,300)   $  9,703,900
9 1/2% senior subordinated 
  notes ......................    100,000,000              -               -               -     100,000,000
Intercompany notes ...........              -     93,709,100      20,943,000    (114,652,100)              -
Other long-term liabilities ..      7,500,000        753,400       8,150,500       1,793,500      18,197,400
   Stockholders' equity ......     11,221,100     (3,264,200)      4,552,400      (5,701,900)      6,807,400
                                 ------------   ------------    ------------    ------------    ------------
Total liabilities
and stockholders' equity .....   $123,437,300   $106,155,700   $  38,071,500   $(122,955,800)   $144,708,700
                                 ============   ============   =============   =============    ============
</TABLE>



                                       7
<PAGE>





7.           Condensed Financial Information of Stellex and Its Subsidiaries -
                                   (Continued)

                  Condensed Consolidation Statement of Operations
<TABLE>

<S>                              <C>            <C>             <C>             <C>             <C>
                                   Stellex         Stellex                                         Stellex    
                                 (Parent only)    Microwave     KII Holdings    Eliminations    Consolidated
                                 ------------   ------------    ------------    ------------    ------------ 
Sales .....................   $          -    $ 19,628,000    $  8,271,100    $          -    $ 27,899,100
Cost of sales .............              -      16,075,100       5,876,400               -      21,951,500
Operating expenses ........         22,100       3,132,600       1,197,600         715,400       5,067,700
Amortization of intangibles              -         642,000               -               -         642,000
                              ------------    ------------    ------------    ------------    ------------
Operating income (loss) ...        (22,100)       (221,700)      1,197,100        (715,400)        237,900
Interest expense ..........     (2,545,000)     (2,329,900)       (610,800)      2,716,100      (2,769,600)
Other income (expense) ....      2,722,200          21,600         (58,400)     (2,716,100)        (30,700)
                              ------------    ------------    ------------    ------------    ------------
Income (loss) before
   income taxes ...........        155,100      (2,530,000)        527,900        (715,400)     (2,562,400)
Provision (benefit) for
   income taxes ...........              -        (983,000)        211,100               -        (771,900)
                              ------------    ------------    ------------    ------------    ------------
Net income (loss) .........        155,100      (1,547,000)        316,800        (715,400)     (1,790,500)
Preferred stock dividend ..       (286,300)              -               -               -        (286,300)
                              ------------    ------------    ------------    ------------    ------------
Loss applicable to
   common shareholders .      $   (131,200)    $(1,547,000)   $    316,800     $  (715,400)   $ (2,076,800)
                                                

                                Condensed Consolidation Statement of Cash Flows
                 


Net income (loss)             $    155,100     $(1,547,000)   $    316,800     $  (715,400)   $ (1,790,500)
Depreciation and               
amortization                             -       2,936,000         448,400               -       3,384,400
Deferred taxes and other                 -               -          50,200         715,400         765,600
Change in operating assets                                             
   and liabilities                 103,900      (1,155,500)        242,700)              -      (1,294,300)
                                   -------      ----------         -------          -------     ---------- 
Net cash provided by
operations                         259,000         233,500         572,700               -       1,065,200
                                   -------         -------         -------          -------      ---------
                            
Fixed asset additions                    -        (411,500)       (771,600)              -      (1,183,100)
Proceeds from sale of
  fixed assets                           -               -          24,500               -          24,500
                                    ------         ------           ------          ------          ------
Cash used for investing                             
  activities                             -        (411,500)       (747,100)              -      (1,158,600)

Repayment of debt                        -               -          (2,500)              -          (2,500)
Intercompany loans                (740,000)        740,000               -               -               -
Repayments under capital
  lease obligation                      -                -         (15,200)              -         (15,200)
                                   -------         -------          -------        -------         ------- 
Cash provided by  (used
  in) financing activities        (740,000)        740,000         (17,700)              -         (17,700)
                                  --------         -------         -------          -------         ------- 
                                         
                          
Net increase (decrease)in cash    (481,000)        562,000        (192,100)              -        (111,100)
                                  ========         =======        ========        ========        ======== 
                                
</TABLE>
                          







                                       8
<PAGE>





Item 2.     Management Discussion and Analysis of Financial Condition and
Results of Operations

The following  table  segregates  the operating data of the Company into its two
operating  segments,  Stellex  Microwave  and Stellex  Aerospace,  for the three
months ended March 31, 1998.  Comparative figures for the period ended March 31,
1997 are of Kleinert (the  predecessor of Stellex).  All figures set forth below
are a percentage of net sales:

                                         Stellex Aerospace  Stellex Microwave
                                         Three Months Ended   Three Months
                                             March 31,            Ended
                                                                March 31,
                                          1998     1997           1998
                                          ----     ----           ----
                                              (Predecessor)

Net sales                                100.0%    100.0%        100.0%
Cost of sales                            71.0      72.2           81.9
                                         ----      ----           ----
Gross Profit                             29.0      27.8           18.1
Selling, general and administrative      14.5      13.7           11.2
Research and development                  0.0       0.0            4.8
Amortization of intangible assets                   0.0            3.2
                                         --       -----     --     ---
                                          0.0
Operating income                         14.5      14.1           (1.1)
Other expense (income):
  Interest expense                        7.4       2.8            11.9
  Other                                             0.2           (0.1)
                                         --       -----     -     -----
                                          0.7
(Loss) income before income taxes         6.4      11.1          (12.9)
(Benefit) provision for income taxes                4.6           (4.9)
                                         --       -----     -     -----
                                          2.6
Net (loss) income                                   6.5           (8.0)
                                         ==       =====     =     =====
                                          3.8


Results of Operations

Three Months Ended March 31, 1998 compared to Three months Ended March 31, 1997.

Net Sales

Sales for the quarter were $27.9 million and included both Stellex Aerospace and
Stellex Microwave. Sales at Stellex Aerospace were $8.3 million or 28.4% greater
than the first  quarter of 1997 and  continue  to grow as a result of the strong
demand in the commercial aviation market for new aircraft production,  primarily
at Boeing, and increases in manufacturing requirements for military aircraft.

Stellex  Microwave's  sales of  $19.6  million  decreased  by $4.1  million  due
primarily  to the  results  of efforts  made to reduce  the level of  delinquent
shipments  arising from production  planning  problems  associated with the poor
implementation  of a  new  production  planning  software  system  in  1996.  In
addition,  the  tactical  subsystems  business  was  completing a major order of
AMRAAM  subsystems  resulting in an unusually  high shipping  level in the first
quarter of 1997.

Gross Margins

Gross margins at Stellex Aerospace increased from 27.8% in 1997 to 29.0% in 1998
as a result of increased volume and improved manufacturing efficiencies. Stellex
Microwave's gross profit for the quarter totaled  approximately  18.1% which was
negatively  impacted by production  inefficiencies  resulting  from new programs
within its tactical  subsystems  business and certain supplier delays which have
improved significantly since the first quarter.




                                       9
<PAGE>




Selling, general and administrative and research and development expenses

Selling,  general  and  administrative  expenses  at Stellex  Aerospace,  net of
non-cash compensation expense totaling approximately  $700,000,  increased 33.3%
from $0.9  million  in 1997 to $1.2  million  in 1998 as a result of  additional
staff employed.  Stellex Microwave's selling general and administrative expenses
totaled  $3.1  million,  or  16.0%  of net  sales,  reflecting  continuing  cost
reduction  efforts in  administrative  costs offset by  increasing  research and
development costs to support new product introduction efforts.

Earnings before Interest, Taxes, Depreciation and Amortization and non-cash
charges ("EBITDA")

EBITDA for the three months ended March 31, 1998 totaled $4.2 million.

Liquidity and Capital Resources

The  Company  provided  cash flows from  operations  totaling  $1.1  million and
$13,900 during the three months ended March 31, 1998 and 1997, respectively. The
increase in cash flows from operations  resulted  primarily from additional cash
flows provided from Stellex  Microwave,  which was acquired in October 1997, and
improvements in managing inventory levels.

The Company used cash flows from investing  activities totaling $1.2 million and
$0.4   million   during  the  three  months  ended  March  31,  1998  and  1997,
respectively.  The  increase  in cash flows  used  resulted  from the  increased
capital expenditure requirements due to the Stellex Microwave acquisition.

The  Company  provided  (used)  cash flows from  financing  activities  totaling
($17,700)  and  $336,000  during the three months ended March 31, 1998 and 1997,
respectively.  The results reflect no borrowings  against the Company's revolver
facility and repayments against outstanding capital lease and a mortgage note.

The Company has signed a purchase  agreement to acquire all of the capital stock
of  Monitor  Aerospace  Corporation  for  approximately  $95.0  million,  and is
anticipating  the  consumation of this  transaction by the end of May 1998. This
transaction will be financed primarily through a refinancing transaction whereby
the existing  $25.0  million  Revolving  Credit  Facility  will be replaced with
Tranche A and Tranche B term debt and a revolving  line of credit.  The terms of
the refinancing have not yet been finalized.

The  Company's  remaining  liquidity  demands for the near term will  consist of
normal levels of capital  expenditure  requirements  sufficient  to  accommodate
growth in backlog,  working capital needs and debt service  funding.  Management
believes that based on its current level of operations and  anticipated  growth,
its cash flows from operations and  availability on its revolving line of credit
will be adequate to satisfy its near term liquidity demands.

The Year 2000 Issue

The Company has made an  assessment  of the impact of the Year 2000 issue on its
internal  operations  and has  developed  a plan to  bring  all of its  computer
systems into compliance  before the end of 1998.  Based on the assessment of the
Company's computer systems software,  it has been determined that certain of the
Company's hardware and software systems are either currently Year 2000 compliant
or have an existing upgrade available from the software vendor that is Year 2000
compliant.  It is management's intention that all systems that are not currently
Year 2000  compliant  will  either be  upgraded  to be Year  2000  compliant  or
replaced with alternative systems that are Year 2000 compliant by the end of the
third quarter in 1998.

While  achieving Year 2000  compliance is a major task, the costs to be incurred
in addressing the Year 2000 issues are not expected to have a material impact on
the Company's future financial results.






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Recent Accounting Standards

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("FASB") No. 130,  "Reporting  Comprehensive
Income".  The standard  establishes  guidelines for the reporting and display of
comprehensive income and its components in financial  statements.  Disclosure of
comprehensive  income and its  components  will be required  beginning  with the
Company's fiscal year ending 1998.

Also in June 1997, the FASB issued SFAS No. 131,  "Disclosures About Segments of
an Enterprise  and Related  Information".  The standard  requires that companies
disclose  "operating  segments"  based on the way management  disaggregates  the
company for making internal operating decisions. The new rules will be effective
for the Company's 1998 fiscal year end.

In February 1998, the FASB issued SFAS No. 132,  "Employers"  Disclosures  about
Pensions and Other  Postretirement  Benefits," which standardizes the disclosure
requirement for pensions and other postretirement  benefits.  The implementation
of SFAS No. 132 is not  expected  to have an impact on the  Company's  financial
statements.  The standard  will be effective  for the Company for the year ended
December 31, 1998.

Cautionary Statement on Forward-Looking Statements

This  Report  contains  forward-looking  statements  within  the  meaning of the
Private Securities  Litigation Reform Act of 1995.  Investors are cautioned that
any  forward-looking  statements,  including  statements  regarding  the intent,
belief,  or  current  expectations  of the  Company or its  management,  are not
guarantees of future performance and involve risks and  uncertainties,  and that
actual  results  may  differ  materially  from  those  in  the   forward-looking
statements as a result of various factors including, but not limited to (i) loss
of certain  significant  military programs and (ii) a downturn in the commercial
aircraft industry.


Part II - Other Information

Item 6.  Exhibit and Reports on Form 8-K

      (a)    Exhibit 27: Financial Data Schedule

      (b)    Reports on Form 8-K:  None






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                                  Signatures

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the  Registrant has duly caused the Report to
be signed on its behalf by the undersigned,  thereunto duly  authorized,  in the
City of New York, State of New York, as of May 15, 1998.

                                       STELLEX INDUSTRIES, INC



                                       By:/s/ William L. Remley
                                       ------------------------
                                              William L. Remley
                                              President and
                                              Chief Executive Officer

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934, as
amended,  this Report has been signed by the following persons in the capacities
and as of dates indicated.

         Signature                      Title                      Date

/s/ Richard L. Kramer       Chairman of the Board of           May 15,1998
---------------------       Directors and
    Richard L. Kramer       Director of Stellex
                            Industries, Inc.

/s/ William L. Remley       Vice Chairman, President,          May 15,1998
---------------------       Chief Executive Officer,
    William L. Remley       Treasurer and
                            Director of Stellex
                            Industries, Inc.

/s/ P. Roger Byer           Chief Financial Officer of         May 15,1998
---------------------       Stellex Industries, Inc.
    P. Roger Byer           (principal financial and
                            accounting officer)





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