<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                             Washington, D.C. 20549
                            ------------------------
 
                                 FORM 10-K/A-1
 
                                 ANNUAL REPORT
                        PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                             ---------------------
 
                          COMMISSION FILE NUMBER 1-228
                            ------------------------
 
                               ZEMEX CORPORATION
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                          <C>
         DELAWARE                 13-5496920
      (State or other          (I.R.S. employer
      jurisdiction of           identification
     incorporation or              number)
       organization)
</TABLE>
 
           CANADA TRUST TOWER, BCE PLACE, 161 BAY STREET, SUITE 3750
                        TORONTO, ONTARIO, CANADA M5J 2S1
                                 (416) 365-8080
 
              (Address, including zip code, and telephone number,
       including area code, of registrant's principal executive offices)
 
           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
 
New York Stock Exchange                            Common Stock, $1.00 par value
                            ------------------------
 
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 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  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. /X/
 
The aggregate market value of the registrant's voting stock (Common Stock, $1.00
par value) held by non-affiliates as of March 23, 1998 (based on the closing
sale price of $9.3125 on the New York Stock Exchange) was $33,622,706.
 
As of March 23, 1998, 8,446,606 shares of the registrant's Common Stock, $1.00
par value, were outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Definitive Proxy Statement filed with the Commission            Part III
    pursuant to Regulation 14A with respect to the
    1998 Annual Meeting of Shareholders
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                 FORM 10-K/A-1
                               TABLE OF CONTENTS
                                      AND
                             CROSS-REFERENCE SHEET
 
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                            -----------
<S>          <C>                                                                                            <C>
                                                        PART I
 
ITEM 1.      BUSINESS.....................................................................................           1
ITEM 2.      PROPERTIES...................................................................................           6
 
                                                        PART II
 
ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................           7
ITEM 6.      SELECTED FINANCIAL DATA......................................................................           8
ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS.........................................................           8
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................................          15
 
                                                       PART III
 
ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.............................          38
</TABLE>
<PAGE>
                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
Zemex Corporation (the "Corporation" or "Zemex"), a Delaware corporation, was
incorporated in 1985 as the successor to Pacific Tin Corporation. Zemex is a
niche producer of industrial minerals and metal products. Its principal
businesses are industrial minerals, metal powders, and aluminum waste recycling.
Its major products include feldspar, feldspathic minerals, kaolin, sand, mica,
talc, ferrous and non ferrous powders, and aluminum dross derivatives.
 
INDUSTRIAL MINERALS
 
The Corporation's industrial minerals segment consists of five wholly-owned
subsidiaries: The Feldspar Corporation ("TFC"), Suzorite Mica Products Inc.
("Suzorite"), Suzorite Mineral Products, Inc. ("SMP"), Zemex Industrial
Minerals, Inc. and Zemex Mica Corporation. The group is collectively referred to
as Zemex Industrial Minerals or "ZIM."
 
TFC has mining and processing facilities in Edgar, Florida; Monticello, Georgia;
and Spruce Pine, North Carolina. Using traditional methods, TFC mines sodium
feldspar from two different ore deposits in the Spruce Pine area; potassium
feldspar is mined from two deposits close to the Monticello plant. TFC's kaolin
and sand products are produced by dredging and wet separation at the Edgar
property.
 
TFC produces numerous products, including sodium and potassium feldspar, silica,
low iron sand, muscovite mica and kaolin clay, at its operating plants.
Feldspathic materials and kaolin are major raw materials for the ceramic
industry, and are incorporated into the production of ceramic floor and wall
tiles, dinnerware, plumbing fixtures, glazes and electrical insulators. TFC
supplies its products primarily to the glass and ceramics industries. Feldspar
and certain grades of industrial sand are also used to manufacture bottles,
jars, and other glass containers, fiberglass, paints and plastics, and
television picture tubes. Industrial sand is used for filter, filler, beach,
blasting and concrete applications. TFC also produces a low iron sand product
for use in specialized glass applications.
 
Suzorite mines phlogopite mica in an open pit mining operation in Suzor
Township, Quebec, Canada, approximately 200 miles north of Montreal, Quebec. The
ore is mined by standard open pit methods and delivered to a siding for
transportation by rail to the processing plant, which is located in
Boucherville, Quebec, a suburb of Montreal. Because of its distinct thermal
stability advantage over competitive materials, phlogopite mica is used in
technological and high temperature plastic applications; Suzorite's phlogopite
mica is used as a partial or complete substitute for asbestos in fire
retardation, friction materials, oil well drilling needs, caulking and molding
compounds, coatings, plasters and plastics. The principal markets served by
Suzorite are the automobile, construction and oil drilling industries. These
products are marketed under the trade names Suzorite Mica and Suzorex.
 
SMP has talc operations in Natural Bridge, New York; Murphy, North Carolina; Van
Horn, Texas; and Benwood, West Virginia. SMP purchases raw materials for
conversion and processing at its plant in Natural Bridge; these products are
directed primarily into the cosmetic and pharmaceutical industries. The
production facility in Van Horn processes ores mined on-site for sale to the
coatings, plastics and ceramics industries. The Benwood operation imports raw
materials, and processes a variety of calcium carbonate as well as a wide range
of talc products for ultimate use in the plastics industry.
 
                                      -1-
<PAGE>
In late 1996, SMP substantially completed the construction of a new mill at its
facility in West Virginia. This new fine grind milling capacity is part of SMP's
strategy to develop a niche in the talc marketplace by offering very finely
divided high purity talc products to industrial markets. SMP believes that it is
one of the few talc producers in North America to produce products of this
purity and fineness. The products, which will see application in performance
plastics, high end coatings and other markets, are currently being tested and
appraised by a select group of customers. With the addition of these new fine
grind products, Benwood has the ability to produce a broad spectrum of high
purity talc products.
 
In January 1998, the Corporation acquired two muscovite plants in the Spruce
Pine, North Carolina area. The new facilities, which are operating under the
name Zemex Mica Corporation, are located within close proximity of TFC's
feldspar plant where by-product muscovite mica is produced. It is the
Corporation's intent to process TFC's excess mica by-product at the newly
acquired facilities. Muscovite mica is marketed to the paint and plastics
industries, the same markets the Corporation currently services with its talc
and barytes products.
 
In February 1998, SMP entered into a joint venture with Industria Mineraria Fabi
S.r.1. ("Fabi"), a leading producer of talc in Europe. Fabi paid $3.4 million to
earn a 40% interest in the new joint venture company, Zemex Fabi-Benwood, LLC,
and SMP contributed its facility in Benwood, West Virginia. This transaction
provides SMP access to Fabi's talc processing technology and premium ore
reserves.
 
Demand for the Corporation's industrial minerals is somewhat related to the pace
of the general economy and, particularly, to the automotive industry and the
residential and commercial construction industries.
 
The Corporation's industrial minerals sales were $43.4 million in 1997, compared
with $40.5 million in 1996 and $37.1 million in 1995. This business segment
reported operating income of $5.2 million in 1997, $1.4 million in 1996 and $4.6
million in 1995.
 
During 1997, considerable efforts were directed to product development,
marketing, capital expansion projects and product quality improvement. The
Corporation expects these efforts will bear fruit in the future.
 
Capital expenditures were $9.9 million in 1997 compared to $11.9 million in 1996
and $9.7 million in 1995. Major capital spending in 1997 included the completion
of the sodium feldspar facility and the low iron sand plant at Spruce Pine,
North Carolina, and completion of a fine grind mill at SMP's plant in Benwood,
West Virginia.
 
METAL PRODUCTS
 
The metal products segment consists of Pyron Corporation and Pyron Metal
Powders, Inc. (together, "Pyron") and Alumitech, Inc., Aluminum Waste
Technology, Inc., ETS Schaefer Corporation, and AWT Properties, Inc.
(collectively, "Alumitech"), all of which are directly or indirectly
wholly-owned subsidiaries of Zemex.
 
Pyron operates plants located in Niagara Falls, New York; St. Marys,
Pennsylvania; and Greenback and Maryville, Tennessee. The Maryville operation,
which was temporarily closed in order to optimize production efficiencies and
lower operating costs, was re-opened in late 1997 due to increased demand. In
addition, a new water atomized copper powder process was successfully
commissioned at the Greenback location in late 1996.
 
Pyron's major products include iron, steel, copper, copper alloy powders and
manganese sulfide. The primary applications of metal powders are in the
fabrication of precision metal parts using powder metallurgy and the friction
industry. Powder metallurgy is an efficient,
 
                                      -2-
<PAGE>
economical process for the production of complex components used in the
automotive, farm, garden and lawn equipment, and business machine industries.
Key features of powder metallurgy technology are low scrap ratios and lower
production costs than other conventional metal working processes such as
machining, casting and forging.
 
In recent years, metal powder use in the friction industry and, particularly, in
automotive and rail braking systems has grown rapidly as a replacement for
asbestos, achieving better performance and improved environmental and health
conditions. Metal powders are also used in the production of welding rods, for
cutting and scarfing of steel ingots and billets, for the inspection of oil
field pipe and tubing, and in food supplements.
 
In 1995, Pyron completed construction of a blending plant in St. Marys,
Pennsylvania. Through its new blending plant, Pyron is able to provide custom
pre-packaged powders and just-in-time service to its customers.
 
In late 1996, Pyron completed construction of a facility designated for the
production of manganese sulfide at its Greenback, Tennessee location. Pyron's
new product, Manganese Sulfide Plus (MnS+ (TM) ), was developed in Pyron's
laboratory and is used as an additive by the powder metallurgical industry to
enhance tool life and aid in machinability. Customer demand for MnS+ (TM) has
been strong and, as a result, the capacity of the facility was doubled in 1997
to satisfy orders. Manganese sulfide is a natural complement to Pyron's core
ferrous and non-ferrous businesses as it further broadens Pyron's product line.
 
The Corporation acquired its initial interest in Alumitech in 1994 and increased
its ownership to 100% in 1995. Alumitech has three processing plants: an
aluminum dross reprocessing plant in Cleveland, Ohio and two ceramic fiber
fabrication plants in Medina and Streetsboro, Ohio. In February 1997, Alumitech,
through its wholly-owned subsidiary, Engineered Thermal Systems, Inc., acquired
the assets of Schaefer Brothers, Inc., a small regional manufacturer of ceramic
fiber-based heat containment systems located in Medina, Ohio. The Schaefer
Brothers business was merged with Engineered Thermal Systems to form ETS
Schaefer Corporation.
 
Alumitech is an aluminum dross reprocessor that has developed and patented
proprietary technology to recycle secondary aluminum drosses into commercial
industrial feedstock components, eliminating the necessity for landfill.
Aluminum dross is the waste by-product produced by primary and secondary
aluminum smelters. Secondary dross, which has a high salt content, forms the
primary feedstock for Alumitech's process. Conventional dross processors simply
recover aluminum metal and send any remaining materials to landfill. Using its
patented process, Alumitech has the ability to separate the dross into its basic
components: aluminum metal, alumina and metal fines, salts and non-metallic
product ("NMP") and further refine the NMP for use in the production of calcium
aluminate, refractory ceramic fiber and other commercially acceptable products.
Currently, competitive processes landfill anywhere from 40%-75% of the volume of
dross received, whereas Alumitech's recycling process will virtually eliminate
the need for landfill. Alumitech is considered the industry leader in the
development of alternative uses for NMP. Alumitech's patents on its technology
to process NMP have a remaining life of about thirteen years.
 
Alumitech also operates two ceramic fiber fabrication plants in Medina and
Streetsboro, Ohio. At these facilities, refractory ceramic fiber components are
fabricated into products used in various high temperature applications.
 
Sales for the metal products group increased to $53.8 million in 1997 from $46.0
million in 1996. Sales were $48.0 million in 1995. The increase from 1996 to
1997 was due to higher volumes of ferrous and non ferrous metal powders and
higher aluminum prices. During the
 
                                      -3-
<PAGE>
same interval, operating income increased from $1.9 million in 1996 to $3.2
million in 1997. Operating income was $3.7 million in 1995. Management
anticipates improved margins in this segment in 1998 as a result of new
products, higher metal powder production, continuing cost reductions, and
efficiency improvement programs.
 
Capital expenditures for the metal products group were $6.6 million in 1997 as
compared to $4.5 million in 1996 and $5.8 million in 1995. The expenditures were
primarily directed to the construction and commercialization of a new NMP
processing facility at the Cleveland plant. In 1998, capital expenditures are
anticipated to be $4.3 million.
 
RAW MATERIALS AND OTHER REQUIREMENTS
 
In recent years, the Corporation has not experienced any substantial difficulty
in satisfying the raw materials requirements for its metal products operations,
which is the segment that consumes, rather than supplies, raw materials.
However, no assurance can be given that any shortages of these or other
necessary materials or equipment will not develop or that increased prices will
not adversely affect the Corporation's business in the future.
 
SEASONALITY
 
The efficiency and productivity of the Corporation's operations can be affected
by unusually severe weather conditions. During the winter of 1997, there were
minor production outages at the Corporation's operating facilities in North
Carolina and New York States due to inclement weather, but they were not
significant enough to materially affect 1997 operating results.
 
COMPETITION
 
All of the Corporation's products are sold in highly competitive markets which
are influenced by price, performance, customer location, service, competition,
material substitution and general economic conditions. The Corporation competes
with other companies active in industrial minerals and metal products. No
material part of the Corporation's business is dependent upon any single
customer, or upon very few customers, the loss of any one of which could have a
material adverse impact on the Corporation.
 
Industrial mineral prices generally are not subject to the price fluctuations
typical of commodity metals. Demand for industrial minerals is primarily related
to general economic conditions, particularly in the automotive, housing and
construction industries. Markets for industrial mineral products are sensitive
not only to service, product performance, and price, but also to competitive
pressures and transportation costs. In the United States, there are three major
feldspathic mineral producers, including the Corporation. The Corporation is the
only North American producer of phlogopite mica and one of many talc producers.
 
The Corporation is one of five North American producers of metal powders. The
market for metal powders is affected primarily by product performance,
consistency of quality and price. To some extent, competition in the metal
powders industry is affected by imports of finished metal powder parts. Product
prices over the last several years have been strongly influenced by costs of
production and available capacity. Demand for metal powders is a function of
general economic conditions, particularly in the automotive market.
 
There are numerous aluminum dross processors in the United States, however, only
Alumitech has patented technology which enables it to process aluminum dross
without the necessity for landfill. While the Corporation competes for the
supply of aluminum dross with a number of other operations, the major factor
affecting the supply of dross is the level of activity of the secondary aluminum
smelting industry. In addition, as aluminum is one of the
 
                                      -4-
<PAGE>
products of aluminum dross reprocessing, commodity price fluctuations of
aluminum may have an impact on the earnings of the Corporation.
 
RESEARCH AND DEVELOPMENT
 
The Corporation carries on an active program of product development and
improvement. Research and development expense was $1.0 million in 1997, $0.6
million in 1996 and $0.3 million in 1995.
 
Financial information about industry segments is set forth on pages 39 and 40 of
the Annual Report to Shareholders and is incorporated herein by reference.
 
ENVIRONMENTAL CONSIDERATIONS
 
Laws and regulations currently in force which are or may affect the
Corporation's domestic operations include the Federal Clean Air Act of 1970, the
Federal Water Pollution Control Act (Clean Water Act), the National
Environmental Policy Act of 1969, the Solid Waste Disposal Act (including the
Resource Conservation and Recovery Act of 1976), the Toxic Substances Control
Act, the Emergency Planning and Community Right-to-Know Act, CERCLA (Superfund),
state statutory counterparts to these federal environmental laws and regulations
under these Acts, the environmental protection regulations of various
governmental agencies (e.g. the Bureau of Land Management Surface Management
Regulations, Forest Service Regulations, Department of Transportation
Regulations), laws and regulations with respect to permitting of land use,
various state and local laws and regulations concerned with zoning, mining
techniques, reclamation of mined lands, air and water pollution and solid waste
disposal. Of primary concern are Title V of the Clean Air Act of 1990 (governing
the issuance of operating permits for release of air pollutants from Zemex
facilities), Section 402 of the Clean Water Act (governing the issuance of
permits for point-source discharges of pollutants and contaminants, as well as
stormwater discharges, to waters of the U.S.), and Subtitles C and D of the
Solid Waste Disposal Act (governing the issuance of permits for the proper
handling, treatment, storage and disposal of solid and hazardous wastes).
Currently, the Corporation is not aware of any materially adverse environmental
problems or issues.
 
EMPLOYEES
 
The approximate number of employees in the Corporation as of December 31, 1997
is set forth below:
 
<TABLE>
<S>                                                                     <C>
Industrial Minerals...................................................        282
Metal Products........................................................        285
Corporate.............................................................          7
                                                                              ---
Total.................................................................        574
                                                                              ---
                                                                              ---
</TABLE>
 
Approximately 58 employees at the Corporation's metal powder operations in
Niagara Falls, New York, are covered by a collective bargaining agreement.
Negotiations are currently underway for a new agreement to replace the current
three-year agreement, which expires April 15, 1998. At the ferrous metal powder
facilities in Tennessee, approximately 42 employees are covered by a four-year
agreement which expires February 28, 2002. Approximately 20 employees at
Suzorite are covered by a three-year collective bargaining agreement that
expires December 13, 1999. At Alumitech, approximately 28 employees are covered
by two collective bargaining agreements, one agreement expiring April 30, 1998
and one agreement expiring December 31, 1998. On March 26, 1998, the hourly
employees at
 
                                      -5-
<PAGE>
TFC's plant in Spruce Pine, North Carolina voted in favor of union
certification. Contract negotiations will commence shortly. The Corporation
considers its labor relations to be good.
 
FOREIGN OPERATIONS
 
The Corporation's international operations are located in Canada whose
institutions and governmental policies are generally similar to those of the
United States. Although there can be no assurance as to future conditions, the
Corporation has experienced no political activities, social upheavals, currency
restrictions or similar factors which have had any material adverse effect to
date on the results of its operations or financial condition.
 
EXPORT SALES
 
The Corporation's industrial minerals and metal products operations sell their
products internationally to a wide variety of customers including the ceramics,
glass and powder metallurgy industries. Export sales in these two segments were
less than 8% of total sales.
 
ITEM 2. PROPERTIES
 
The industrial minerals segment has operations and mines in Edgar, Florida;
Monticello, Georgia; Boucherville, Quebec; Suzor Township, Quebec; Natural
Bridge, New York; Murphy, North Carolina; Spruce Pine, North Carolina; Van Horn,
Texas; and Benwood, West Virginia. This segment owns approximately 391,500
square feet of office and plant floor space. As well, the 60% owned processing
facility in Benwood, West Virginia has approximately twelve acres of land. In
1996, The Feldspar Corporation purchased 655 acres which contain, at minimum, 20
years additional ore reserves for its Spruce Pine, North Carolina facility. The
mineral deposits at the mines currently operated by the industrial minerals
segment are estimated by the Corporation to be at least 25 years, except in the
case of the mica mine in Suzor Township where mineral deposits are estimated to
be in excess of 100 years. All of the Corporation's mining properties are either
owned or leased, with the leases expiring from 1999 to 2018.
 
The metal products group has operations in Niagara Falls, New York; St. Marys,
Pennsylvania; Greenback and Maryville, Tennessee; Cleveland, Ohio; and Medina
and Streetsboro, Ohio. At its facility in Niagara Falls, Pyron Corporation
utilizes approximately 79,000 square feet of office and plant floor space which
it leases from the Niagara County Industrial Development Agency. The lease was
established as part of the Industrial Development Revenue Bond issued in
November 1989 to finance the construction of an atomized steel powder plant.
Lease payments are to be sufficient to pay the debt service on the Industrial
Development Revenue Bond. The atomized plant utilizes approximately 16,000
square feet of floor space and is adjacent to the existing facility. The
blending plant in St. Marys, Pennsylvania, which was built in 1995, has 32,000
square feet of plant, office and storage space and is situated on 3.4 acres of
land. The Greenback facility is situated on 27.5 acres of land of which 6 acres
is actively used in the operations. The Maryville facility is a leased facility
which utilizes approximately 23,000 square feet of office and plant floor space.
General office space comprises approximately 6,300 square feet; there is
approximately 87,000 square feet of production, storage and shipping/receiving
space. The aluminum dross processing plant in Cleveland, Ohio owns 6.1 acres and
has buildings totaling 51,000 square feet. The Streetsboro, Ohio operation
leases approximately 60% of a 36,000 square foot building, which it uses for its
plant and office space. The Medina facility is leased and includes 19,000 square
feet of plant and office space.
 
All facilities are maintained in good operating condition.
 
                                      -6-
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
CAPITAL STOCK
 
Zemex Corporation's common shares are traded on the New York Stock Exchange
under the symbol ZMX. The price range in which the shares have traded for the
past two years is shown below:
 
COMMON SHARE PRICES
<TABLE>
<CAPTION>
1997                                                                     Q1         Q2         Q3         Q4        YEAR
--------------------------------------------------------------------  ---------  ---------  ---------  ---------  ---------
<S>                                                                   <C>        <C>        <C>        <C>        <C>
High................................................................  $    7.75  $    8.00  $    9.50  $   10.94  $   10.94
Low.................................................................       6.75       6.75       7.88       7.94       6.75
Close...............................................................       6.75       7.75       9.50       8.75       8.75
 
<CAPTION>
 
1996                                                                     Q1         Q2         Q3         Q4        YEAR
--------------------------------------------------------------------  ---------  ---------  ---------  ---------  ---------
<S>                                                                   <C>        <C>        <C>        <C>        <C>
High................................................................  $   10.00  $    9.63  $    8.13  $    8.88  $   10.00
Low.................................................................       8.88       7.50       6.88       7.00       6.88
Close...............................................................       9.13       7.63       7.75       7.00       7.00
</TABLE>
 
In the fourth quarter of each of 1997, 1996 and 1995, the Corporation declared a
2% stock dividend.
 
As of December 31, 1997, there were approximately 1,782 holders of record of the
Corporation's common shares. This number includes shares held only in nominee
name and, thus, does not reflect the number of holders of a beneficial interest
in the shares.
 
                                      -7-
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                         1997            1996           1995           1994           1993
                                    --------------  --------------  -------------  -------------  -------------
<S>                                 <C>             <C>             <C>            <C>            <C>
SUMMARY OF OPERATIONS
Net Sales.........................  $   97,226,000  $   86,420,000  $  85,056,000  $  55,306,000  $  47,958,000
Reorganization Charges............        --             1,216,000       --             --            1,250,000
Operating Income..................       8,371,000       3,066,000      8,342,000      5,841,000      1,237,000
Other Income (Expenses)...........         (309000)     (1,403,000)      (443,000)      (262,000)     2,421,000
Net Income........................       5,793,000       2,612,000      8,418,000      6,250,000      1,852,000
 
FINANCIAL POSITION
Working Capital...................  $   18,975,000  $   18,688,000  $  19,709,000  $  26,046,000  $   9,288,000
Total Assets......................     118,774,000     109,376,000     96,681,000     70,864,000     48,414,000
Long Term Debt (non-current
  portion)........................      20,527,000      17,797,000      7,485,000      5,461,000      8,735,000
 
COMMON SHARES
Average Common Shares
  Outstanding.....................       8,097,642       8,102,916      8,170,927      5,643,485      4,787,801
Actual Common Shares Issued and
  Outstanding at Year End.........       8,463,491       8,269,099      8,355,722      7,168,153      4,535,283
Per Common Share
  Basic Earnings per Share........  $         0.72  $         0.32  $        1.03  $        1.11  $        0.39
  Diluted Earnings per Share......            0.70            0.31           0.99           1.03           0.35
</TABLE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS
 
The following is a discussion and analysis of the results of operations and
financial condition of the Corporation for the years ended December 31, 1997,
1996 and 1995, and certain factors that may affect the Corporation's prospective
financial condition and results of operations. The following should be read in
conjunction with the Consolidated Financial Statements and related notes
thereto.
 
OVERVIEW
 
The Corporation is a diversified producer of specialty materials and products
for use in a variety of industrial applications. The Corporation operates in two
principal business segments: (i) industrial minerals, which includes The
Feldspar Corporation, Suzorite Mica Products Inc. and Suzorite Mineral Products,
Inc.; and (ii) metal products, which includes Pyron Corporation, Pyron Metal
Powders, Inc. and Alumitech, Inc.
 
The financial performance of the Corporation was significantly better in 1997
than in 1996. Net sales were up 12.5% but, more importantly, the gross margin
improved from 23% in 1996 to 27% in 1997. This was partially as a result of the
focus on operational efficiency and cost control.
 
In August 1997, the Corporation entered into an agreement with respect to
Alumitech, Inc.'s fiber manufacturing operation located in Streetsboro, Ohio.
Under the agreement, the fiber line was sold to a new corporation in which
Alumitech, Inc. retained a nominal non-voting equity participation. Alumitech
and the purchaser entered into a joint research and development agreement in
conjunction with the purchase and sale agreement. The one-time
 
                                      -8-
<PAGE>
gain, when netted against certain other non-recurring items, resulted in other
income of $1.6 million.
 
During the first quarter of 1996, the Corporation recognized reorganization
costs of $1.2 million in connection with the reorganization of its industrial
minerals division and the recognition of a provision for anticipated costs. A
write-down to market of inventory held in Brazil in the amount of $536,000 was
recorded as a charge against cost of goods sold. The Brazilian enterprise was
unsuccessful primarily due to rapidly deteriorating market prices which made
market penetration extremely difficult.
 
The Corporation's strategy going forward is to enhance its position as a leading
supplier of specialty materials through investments in its core businesses, the
introduction of new products, strategic acquisitions, and investments in new
technologies.
 
RESULTS OF OPERATIONS
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
 
Net Sales
 
<TABLE>
<CAPTION>
                                                                1997           1996          CHANGE        CHANGE
                                                            -------------  -------------  -------------  -----------
<S>                                                         <C>            <C>            <C>            <C>
Industrial Minerals.......................................  $  43,396,000  $  40,469,000  $   2,927,000         7.2%
Metal Products............................................     53,830,000     45,951,000      7,879,000        17.1%
                                                            -------------  -------------  -------------
                                                            $  97,226,000  $  86,420,000  $  10,806,000        12.5%
                                                            -------------  -------------  -------------
                                                            -------------  -------------  -------------
</TABLE>
 
The Corporation's net sales for 1997 were $97.2 million, an increase of $10.8
million, or 12.5%, from 1996. Sales in the industrial minerals segment and the
metal products group increased $2.9 million and $7.9 million, respectively.
 
The industrial minerals segment recorded a 7.2% increase in sales from $40.5
million in 1996 to $43.4 million in 1997. The increase was primarily due to a
$1.7 million increase from the feldspar group generated by a favorable product
mix, resulting in slightly higher margins, and a $1.4 million increase due to an
increased volume of talc sales. Talc sales are expected to increase in 1998 as
market share continues to increase. Feldspar sales to the sanitaryware industry
should increase; however, uncertainty exists in the tile industry due to the
devaluation of the Malaysian currency.
 
Net sales of the metal products group increased 17.1%, or $7.9 million, from
$46.0 million in 1996 to $53.8 million in 1997. Of the increase, approximately
$1.3 million was due to an increase in the price of aluminum, $2.6 million was
due to increased sales of ceramic fiber products, and $1.7 million was due to
increased sales of ferrous metal powders. In 1998, modest sales growth in both
metal powders and aluminum dross processing is anticipated.
 
COST OF GOODS SOLD
 
Cost of goods sold were $70.8 million in 1997 compared to $67.0 million in 1996.
The corresponding gross margins were 27.2% for 1997 and 22.5% for 1996. The main
increase came from the industrial minerals group where the gross margin
increased from 25.8% to 34.2% as a result of production efficiencies, a
favorable product mix and the 1996 write-down of inventory held in Brazil.
 
                                      -9-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
Selling, general and administrative ("SG&A") expenses increased 15.9% from $10.5
million in 1996 to $12.2 million in 1997. As a percent of net sales, SG&A
expense was 12.5% in 1997 as compared to 12.1% in 1996. The increase was due to
increased staffing in the industrial minerals group, expenses associated with
investigating potential acquisitions, and bonuses paid pursuant to the
Corporation's management incentive program.
 
DEPRECIATION, DEPLETION AND AMORTIZATION
 
Depreciation, depletion and amortization increased by $1.2 million, or 25.1%,
from $4.7 million in 1996 to $5.9 million in 1997. This increase was driven by
the capital expenditures made by the Corporation over the past several years.
Prospectively, depreciation will continue to increase as current capital
programs are placed into service.
 
OPERATING INCOME BEFORE REORGANIZATION CHARGES
 
Operating income before reorganization charges was $8.4 million in 1997 compared
to $4.3 million in 1996. A $1.2 million dollar reorganization charge was
recognized in the first quarter of 1996 in connection with the reorganization of
the Corporation's industrial minerals division.
 
OPERATING INCOME
 
Operating income increased from $3.1 million for fiscal 1996 to $8.4 million in
fiscal 1997, representing a 173.1% increase.
 
INTEREST EXPENSE
 
Net Interest expense for the year ended December 31, 1997 was $1.9 million, an
increase of $1.0 million over 1996. During 1996, the interest expense relating
to the expansion of the Spruce Pine facility was capitalized. During 1997, the
project was completed and, accordingly, the related interest was expensed. Total
indebtedness decreased from $26.6 million in 1996 to $25.5 million in 1997.
 
OTHER, NET
 
In 1997, the Corporation recognized other net income of $1.6 million. The
largest component of this revenue was generated by a one-time gain on the sale
of Alumitech, Inc.'s fiber line.
 
PROVISION FOR (RECOVERY OF) INCOME TAXES
 
The provision for income taxes for the fiscal year 1997 was $2.3 million as
compared to a tax recovery of $0.9 million in 1996. The 1996 tax recovery
reflected the recognition of the benefit of net operating losses available to
the Corporation. In 1998 and beyond, the Corporation will use a tax rate of
approximately 30% to calculate its income taxes, reflecting the permanent
difference arising from the application of percent depletion to income derived
from extractive industries.
 
                                      -10-
<PAGE>
NET INCOME AND EARNINGS PER SHARE
 
As a result of the factors discussed above, net income for the year ended
December 31, 1997 was $5.8 million, an increase of $3.2 million from 1996.
 
<TABLE>
<CAPTION>
                                                                        1997          1996
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
Net Income........................................................    $5,793,000    $2,612,000
Earnings Per Share--Basic.........................................         $0.72         $0.32
Earnings Per Share--Diluted.......................................         $0.70         $0.31
</TABLE>
 
RESULTS OF OPERATIONS
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
 
NET SALES
 
<TABLE>
<CAPTION>
                                                                1996           1995          CHANGE        CHANGE
                                                            -------------  -------------  -------------  -----------
<S>                                                         <C>            <C>            <C>            <C>
Industrial Minerals.......................................  $  40,469,000  $  37,089,000  $   3,380,000         9.1%
Metal Products............................................     45,951,000     47,967,000     (2,016,000)       (4.2%)
                                                            -------------  -------------  -------------
                                                            $  86,420,000  $  85,056,000  $   1,364,000         1.6%
                                                            -------------  -------------  -------------
                                                            -------------  -------------  -------------
</TABLE>
 
The Corporation's net sales for 1996 were $86.4 million, an increase of $1.4
million, or 1.6%, from 1995. The major components of the increase were: the full
year consolidation of Alumitech, Inc. and increased industrial minerals sales of
$3.4 million, offset by decreased metal powder sales of $2.7 million.
 
The industrial minerals segment recorded a 9.1% increase in sales from $37.1
million in 1995 to $40.5 million in 1996. The increase was due to a $1.7 million
increase from the feldspar group, a $1.2 million increase in the talc group's
sales and a $0.5 million increase in sales of phlogopite mica. The increase in
talc sales was largely due to the inclusion of a full year's sales from the
Benwood facility, which was acquired in May 1995.
 
Net sales of the metal products group decreased 4.2%, or $2.0 million, from
$48.0 million in 1995 to $46.0 million in 1996. Of this decrease, $2.1 million
was primarily due to lower copper prices and slightly lower volume of copper
sales affecting sales at Pyron Metal Products, Inc. as a well as a $1.3 million
decline in atomized steel sales. These decreases were offset in part by
increased sales of $0.7 million from Alumitech, Inc. Sponge iron sales increased
by 2.3% while atomized steel sales decreased 21.2%.
 
COST OF GOODS SOLD
 
Cost of goods sold were $67.0 million in 1996 compared to $64.4 million in 1995.
The corresponding gross margin was 22.5% for 1996 and 24.3% for 1995. The
decline in gross margin was due to lower aluminum prices and a provision of
$536,000 for the write-down of inventory in Brazil. The decline in aluminum
prices realized in 1996 compared to 1995 resulted in margin erosion of 1.8%,
offsetting a slight improvement achieved by the other groups. In addition, cost
of goods sold was negatively affected by the write-down of parts and supplies
that had been rendered obsolete as the result of the expansion of the sodium
feldspar plant at Spruce Pine, North Carolina.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
SG&A expenses increased 21.0% from $8.7 million in 1995 to $10.5 million in
1996. As a percent of sales, SG&A expense was 12.1% in 1996 as compared to 10.2%
in 1995. The
 
                                      -11-
<PAGE>
increase was the result of the full year consolidation of Alumitech, Inc. and
the addition of sales and marketing staff for the industrial minerals segment.
 
DEPRECIATION, DEPLETION AND AMORTIZATION
 
Depreciation, depletion and amortization increased by $1.0 million, or 27.2%,
from $3.7 million in 1995 to $4.7 million in 1996. This increase results from
the 19.4% net increase in property, plant and equipment during 1996 as a result
of capital expenditures.
 
OPERATING INCOME BEFORE REORGANIZATION CHARGES
 
Operating income before reorganization charges was $4.3 million in 1996 compared
to $8.3 million in 1995. A $1.2 million reorganization charge was recognized in
the first quarter of 1996 in connection with the reorganization of the
Corporation's industrial minerals division.
 
OPERATING INCOME
 
Operating income decreased to $3.1 million for fiscal 1996 from $8.3 million in
fiscal 1995, representing a 63.2% decline. This decline was due to reasons
discussed previously.
 
INTEREST EXPENSE, NET
 
Net interest expense for the year ended December 31, 1996 was $0.9 million, an
increase of $0.4 million over 1995. This was attributable to an increase in
total indebtedness from $13.1 million in 1995 to $26.6 million in 1996.
 
OTHER, NET
 
In 1996, the Corporation recognized other net expense of $0.5 million. The
largest component of this expense was a $0.7 million provision relating to a
property which the Corporation had sold and on which the purchaser had
defaulted. The offset was a number of small income items which reduced the total
expense.
 
RECOVERY OF INCOME TAXES
 
In 1996, the Corporation realized an income tax recovery of $0.9 million as
compared to a recovery of $0.5 million in 1995. The recoveries reflect the
recognition of the benefit of net operating losses available to the Corporation.
 
NET INCOME AND EARNINGS PER SHARE
 
As a result of the factors discussed above, net income for the year ended
December 31, 1996 was $2.6 million, a decrease of $5.8 million from 1995.
 
<TABLE>
<CAPTION>
                                                                        1996          1995
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
Net Income........................................................    $2,612,000    $8,418,000
Earnings Per Share--Basic.........................................         $0.32         $1.03
Earnings Per Share--Diluted.......................................         $0.31         $0.99
</TABLE>
 
LIQUIDITY AND CAPITAL RESOURCES
 
The Corporation has historically funded its extraction and processing activities
through cash flow from operations, bank debt and sales of capital stock and
warrants. During the most recent three-year period ended December 31, 1997, the
Corporation funded all capital expenditures, acquisitions and debt reduction
from a combination of additional debt, and cash flow from operations. In
addition, during 1995, outstanding warrants were exercised which
 
                                      -12-
<PAGE>
resulted in net proceeds of $4.8 million. These funds were utilized to repay
long term debt, fund acquisitions and purchase treasury stock.
 
CASH FLOW FROM OPERATIONS
 
The Corporation had $19.0 million of working capital at December 31, 1997,
compared to $18.7 million at December 31, 1996. During 1997, the Corporation
generated cash flow from operations of $13.5 million as compared to $6.0 million
for 1996. The increase of $7.5 million is primarily due to higher operating
income in the 1997 period and a one-time gain realized on the sale of Alumitech,
Inc's. dormant fiber line. In 1997, non-cash working capital items generated
$3.7 million of the cash otherwise generated from operations as compared to $0.5
million used in the corresponding period of 1996 as a result of a decrease in
inventories and prepaid expenses and an increase in accounts payable, accrued
liabilities and accrued income taxes.
 
FINANCING AGREEMENTS
 
In March 1997, the Corporation amended its credit facility to increase the total
availability to $50,224,000. The credit facility is further subdivided into four
facilities: (i) a $30,000,000 revolving credit facility; (ii) a $10,000,000
multiple advance term loan facility; (iii) a $5,224,000 standby letter of
credit; and (iv) a $5,000,000 operating line. These facilities are secured by
specific assets and a floating charge over the Corporation's assets. The
facilities bear interest at rates varying from bank prime to bank prime plus
0.25% and from LIBOR plus 1.25% to LIBOR plus 2.25%, depending upon certain
financial tests. As at December 31, 1997, there was $3,000,000 outstanding under
the operating line, $8,056,000 outstanding under the multiple advance term loan
facility, $10,000,000 outstanding under the revolving credit facility, and the
standby letter of credit was issued to secure the Corporation's Industrial
Development Revenue Bond. The operating line matures June 30, 1998 and is
reviewed annually for purposes of renewal. The multiple advance term loan
facility requires quarterly payments of $278,000 with the balance outstanding,
if any, due January 1, 2000.
 
CAPITAL EXPENDITURES
 
The Corporation's primary capital activities in the past involved the
acquisition and development of industrial mineral properties and facilities, and
capital investments to expand its facilities, increase operating efficiencies,
and meet environmental, health and safety standards at its existing operations.
During 1997, capital expenditures were $16.6 million compared to $16.4 million
and $15.5 million for the years ended December 31, 1996 and 1995, respectively.
The capital expenditures were funded by cash flow from operations and bank
indebtedness.
 
The Corporation is currently implementing and/or planning several major capital
programs. These include retrofitting of the aluminum dross plant in Cleveland.
In aggregate, 1998 capital expenditures are anticipated to be approximately
$14.1 million. The Corporation plans on funding these expenditures from a
combination of cash flow from operations and credit facilities.
 
Although the Corporation's capital budgets provide for certain reclamation and
environmental compliance activities, management does not believe that the cost
of the Corporation's environmental compliance will have a material adverse
effect on the Corporation's results of operations or financial condition in
1998.
 
                                      -13-
<PAGE>
SUBSEQUENT EVENTS
 
In January 1998, the Corporation acquired a muscovite mica producer for
approximately $2,200,000, which includes the assumption of debt. The acquisition
was financed by drawing down on the Corporation's credit facility. In addition,
in February 1998, the Corporation effected the sale of 40% of its talc facility
located in Benwood, West Virginia to Industria Mineraria Fabi S.r.1. for
$3,400,000.
 
SEASONALITY AND INFLATION
 
Although the Corporation's results from extraction and processing operations are
cyclical due to fluctuations in industrial minerals and metal products demands,
sales of the Corporation's products are generally not seasonal. Inflation in
recent years has not adversely affected the Corporation's results of operations
and is not expected to adversely affect the Corporation in the future unless it
grows substantially and the markets for industrial minerals and metal products
suffer from a negative impact on the economy in general.
 
YEAR 2000
 
The Corporation operates in basic industries that do not rely heavily on
computerized systems. The major systems operated by the Corporation are those
for financial reporting all of which are year 2000 compliant. It is the opinion
of management that any year 2000 issues that may arise will not be significant
and will not have a material adverse impact on the financial performance of the
Corporation.
 
The Corporation has initiated a review of key suppliers to determine their
exposure to problems arising from Year 2000. The review is being conducted by
management personnel and additional resources are not required.
 
MARKET RISK
 
Market risk represents the risk of loss that may impact the consolidated
financial statements of the Corporation due to adverse changes in financial
market prices and rates. The Corporation's market risk is primarily the result
of fluctuations in interest rates and aluminum prices. Management monitors the
movements in interest rates and performs sensitivity analysis on aluminum prices
and, on that basis, decides on the appropriate measures to take. Prices and
interest rates are such that no measures need be taken at this time.
 
The Corporation does not hold or issue financial instruments for trading
purposes. A discussion of the Corporation's financial instruments is included in
the financial instruments note to the Consolidated Financial Statements.
 
                                      -14-
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEPENDENT AUDITORS' REPORT
 
To the Shareholders and
Board of Directors of Zemex Corporation
 
We have audited the accompanying consolidated balance sheets of Zemex
Corporation and its Subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Zemex Corporation and
its Subsidiaries as of December 31, 1997 and 1996 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles in the United States.
 
As discussed in Note 20 to the financial statements, these consolidated
financial statements have been restated. Our report, dated February 6, 1998, on
the previously issued consolidated financial statements for the three years
ended December 31, 1997, has been withdrawn.
 
Deloitte & Touche LLP
 
Chartered Accountants
 
Toronto, Ontario
 
February 6, 1998 except for Note 18(ii) as to which the date is February 24,
1998 and except for Note 20 as to which the date is November 6, 1998
 
                                      -15-
<PAGE>
MANAGEMENT'S REPORT
 
The management of Zemex Corporation and its subsidiaries has the responsibility
for preparing the consolidated financial statements presented in this Annual
Report and for their accuracy and integrity. The statements have been prepared
in conformity with generally accepted accounting principles in the United
States, and include informed judgments and estimates as required. Other
financial information in this Annual Report is consistent with the financial
statements.
 
Zemex Corporation's system of internal controls is designed to provide
reasonable assurance, at a justifiable cost, as to the reliability of financial
records and reporting and the protection of assets. This system includes
organizational arrangements with clearly defined lines of responsibility.
 
Deloitte & Touche LLP, independent auditors, have audited the consolidated
financial statements of Zemex Corporation and their opinion is included on the
preceding page.
 
Zemex Corporation has formal standards of corporate conduct and policies
regarding high standards of ethics and financial integrity. These policies have
been disseminated to appropriate employees and internal control procedures
provide reasonable assurance that violations of these policies, if any, are
detected.
 
<TABLE>
<S>                                         <C>
Allen J. Palmiere                           Richard L. Lister
Vice President and Chief Financial Officer  President and Chief Executive Officer
</TABLE>
 
AUDIT COMMITTEE REPORT
 
The Audit Committee of the Board of Directors is composed of three independent
directors, Patrick H. O'Neill, Chairman, John M. Donovan, and Thomas B. Evans,
Jr. The Committee held one meeting during 1997.
 
The Audit Committee oversees the financial reporting process of the Corporation
on behalf of the Board of Directors. In fulfilling its responsibility, the
Committee recommended to the Board of Directors, subject to shareholder
approval, the selection of the Corporation's independent auditors. The Audit
Committee met with management and representatives of the auditors, Deloitte &
Touche LLP, to review accounting, auditing and financial reporting matters. The
Committee met with Deloitte & Touche LLP representatives without management
present.
 
Patrick H. O'Neill
 
Chairman, Audit Committee
 
                                      -16-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31
                                                                      -------------------------------------------
                                                                          1997           1996           1995
                                                                      -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>
Net Sales...........................................................  $  97,226,000  $  86,420,000  $  85,056,000
                                                                      -------------  -------------  -------------
Costs and Expenses
  Cost of goods sold (Note 10)......................................     70,826,000     66,952,000     64,356,000
  Selling, general and administrative...............................     12,158,000     10,492,000      8,669,000
  Depreciation, depletion and amortization..........................      5,871,000      4,694,000      3,689,000
                                                                      -------------  -------------  -------------
                                                                         88,855,000     82,138,000     76,714,000
                                                                      -------------  -------------  -------------
Operating Income Before Reorganization Charges......................      8,371,000      4,282,000      8,342,000
Reorganization Charges (Note 10)....................................       --            1,216,000       --
                                                                      -------------  -------------  -------------
Operating Income....................................................      8,371,000      3,066,000      8,342,000
                                                                      -------------  -------------  -------------
Other Income (Expenses)
  Interest expense, net (Note 8)....................................     (1,944,000)      (948,000)      (523,000)
  Other, net (Notes 2 and 10).......................................      1,635,000       (455,000)        80,000
                                                                      -------------  -------------  -------------
                                                                           (309,000)    (1,403,000)      (443,000)
                                                                      -------------  -------------  -------------
Income Before Income Taxes..........................................      8,062,000      1,663,000      7,899,000
  Provision for (recovery of) income taxes (Note 6).................      2,269,000       (949,000)      (519,000)
                                                                      -------------  -------------  -------------
Net Income..........................................................  $   5,793,000  $   2,612,000  $   8,418,000
                                                                      -------------  -------------  -------------
Net Income Per Share--Basic.........................................  $        0.72  $        0.32  $        1.03
Net Income Per Share--Diluted.......................................  $        0.70  $        0.31  $        0.99
Average Common Shares Outstanding...................................      8,097,642      8,102,916      8,170,927
</TABLE>
 
See Notes to the Consolidated Financial Statements
 
                                      -17-
<PAGE>
CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                            DECEMBER 31
                                                                                   ------------------------------
                                                                                        1997            1996
                                                                                   --------------  --------------
<S>                                                                                <C>             <C>
ASSETS
Current Assets
Cash and cash equivalents........................................................  $    2,189,000  $    2,279,000
Accounts receivable (less allowance for doubtful accounts of
  $328,000 at December 31, 1997 and $452,000 at December 31, 1996)
  (Notes 2 and 15)...............................................................      16,287,000      15,003,000
Inventories (Note 3).............................................................      17,595,000      18,171,000
Prepaid expenses.................................................................         786,000       1,388,000
Deferred income taxes (Note 6)...................................................       1,328,000       1,013,000
                                                                                   --------------  --------------
                                                                                       38,185,000      37,854,000
Property, Plant and Equipment
  (Notes 4 and 8)................................................................      70,812,000      62,084,000
Other Assets (Note 5)............................................................       9,777,000       9,438,000
                                                                                   --------------  --------------
                                                                                   $  118,774,000  $  109,376,000
                                                                                   --------------  --------------
                                                                                   --------------  --------------
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current Liabilities
Bank indebtedness (Note 8).......................................................  $    3,000,000  $    6,590,000
Accounts payable.................................................................       9,805,000       7,091,000
Accrued liabilities..............................................................       3,151,000       2,983,000
Accrued income taxes.............................................................       1,235,000         301,000
Current portion of long term debt (Note 8).......................................       2,019,000       2,201,000
                                                                                   --------------  --------------
                                                                                       19,210,000      19,166,000
Long Term Debt (Note 8)..........................................................      20,527,000      17,797,000
Other Non-Current Liabilities....................................................       1,014,000         599,000
Deferred Income Taxes (Note 6)...................................................       1,488,000         817,000
                                                                                   --------------  --------------
                                                                                       42,239,000      38,379,000
                                                                                   --------------  --------------
Shareholders' Equity
Common stock (Note 9)............................................................       9,204,000       8,950,000
Paid-in capital..................................................................      53,298,000      51,304,000
Retained earnings................................................................      24,235,000      20,040,000
Note receivable from shareholder (Note 9)........................................      (1,749,000)     (1,749,000)
Cumulative translation adjustment................................................      (1,588,000)     (1,175,000)
Treasury stock at cost (Note 9)..................................................      (6,865,000)     (6,373,000)
                                                                                   --------------  --------------
                                                                                       76,535,000      70,997,000
                                                                                   --------------  --------------
                                                                                   $  118,774,000  $  109,376,000
                                                                                   --------------  --------------
</TABLE>
 
               See Notes to the Consolidated Financial Statements
 
                                      -18-
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                                              CUMULATIVE
                                                    COMMON       PAID-IN       RETAINED    NOTE RECEIVABLE   TRANSLATION
                                                     STOCK       CAPITAL       EARNINGS    FROM SHAREHOLDER   ADJUSTMENT
                                                  -----------  ------------  ------------  ----------------  ------------
<S>                                               <C>          <C>           <C>           <C>               <C>
Balance at December 31, 1994....................  $ 7,221,000  $ 38,703,000  $ 11,668,000    $ (1,749,000)   $ (1,326,000)
Stock issued under employee stock purchase plan
  (a)...........................................       49,000       422,000       --              --              --
Stock dividend (a)..............................      167,000     1,233,000    (1,403,000)        --              --
Stock options and warrants exercised (a)........      626,000     4,423,000       --              --              --
Stock issued in connection with Alumitech
  purchase (b)..................................      632,000     5,133,000       --              --              --
Warrants repurchased (a)........................      --           (222,000)      --              --              --
Stock purchased for
  treasury (a)..................................      --            --            --              --              --
Net income for the year.........................      --            --          8,418,000         --              --
Translation adjustment..........................      --            --            --              --              108,000
                                                  -----------  ------------  ------------  ----------------  ------------
Balance at December 31, 1995....................    8,695,000    49,692,000    18,683,000      (1,749,000)     (1,218,000)
                                                  -----------  ------------  ------------  ----------------  ------------
Stock issued under employee stock purchase plan
  (a)...........................................       73,000       535,000       --              --              --
Stock dividend (a)..............................      161,000     1,089,000    (1,255,000)        --              --
Stock options exercised (a).....................       21,000        84,000       --              --              --
Stock purchased for
  treasury (a)..................................      --            --            --              --              --
Stock options repurchased.......................      --            (96,000)      --              --              --
Net income for the year.........................      --            --          2,612,000         --              --
Translation adjustment..........................      --            --            --              --               43,000
                                                  -----------  ------------  ------------  ----------------  ------------
Balance at December 31, 1996....................    8,950,000    51,304,000    20,040,000      (1,749,000)     (1,175,000)
Stock issued under employee stock purchase plan
  (a)...........................................       75,000       528,000       --              --              --
Stock dividend (a)..............................      165,000     1,428,000    (1,598,000)        --              --
Stock options exercised (a).....................       14,000       205,000       --              --              --
Stock purchased for
  treasury (a)..................................      --            --            --              --              --
Stock options repurchased.......................      --           (167,000)      --              --              --
Net income for the year.........................      --            --          5,793,000         --              --
Translation adjustment..........................      --            --            --              --             (413,000)
                                                  -----------  ------------  ------------  ----------------  ------------
Balance at December 31, 1997....................  $ 9,204,000  $ 53,298,000  $ 24,235,000    $ (1,749,000)   $ (1,588,000)
                                                  -----------  ------------  ------------  ----------------  ------------
 
<CAPTION>
 
                                                    TREASURY
                                                     STOCK         TOTAL
                                                  ------------  ------------
<S>                                               <C>           <C>
Balance at December 31, 1994....................  $   (465,000) $ 54,052,000
Stock issued under employee stock purchase plan
  (a)...........................................       --            471,000
Stock dividend (a)..............................       --             (3,000)
Stock options and warrants exercised (a)........       --          5,049,000
Stock issued in connection with Alumitech
  purchase (b)..................................       834,000     6,599,000
Warrants repurchased (a)........................       --           (222,000)
Stock purchased for
  treasury (a)..................................    (3,572,000)   (3,572,000)
Net income for the year.........................       --          8,418,000
Translation adjustment..........................       --            108,000
                                                  ------------  ------------
Balance at December 31, 1995....................    (3,203,000)   70,900,000
                                                  ------------  ------------
Stock issued under employee stock purchase plan
  (a)...........................................       --            608,000
Stock dividend (a)..............................       --             (5,000)
Stock options exercised (a).....................       --            105,000
Stock purchased for
  treasury (a)..................................    (3,170,000)   (3,170,000)
Stock options repurchased.......................       --            (96,000)
Net income for the year.........................       --          2,612,000
Translation adjustment..........................       --             43,000
                                                  ------------  ------------
Balance at December 31, 1996....................    (6,373,000)   70,997,000
Stock issued under employee stock purchase plan
  (a)...........................................       --            603,000
Stock dividend (a)..............................       --             (5,000)
Stock options exercised (a).....................       --            219,000
Stock purchased for
  treasury (a)..................................      (492,000)     (492,000)
Stock options repurchased.......................       --           (167,000)
Net income for the year.........................       --          5,793,000
Translation adjustment..........................       --           (413,000)
                                                  ------------  ------------
Balance at December 31, 1997....................  $ (6,865,000) $ 76,535,000
                                                  ------------  ------------
</TABLE>
 
See Notes to the Consolidated Financial Statements
 
(a) See Note 9
 
(b) See Note 2
 
                                      -19-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31
                                                                   ----------------------------------------------
                                                                        1997            1996            1995
                                                                   --------------  --------------  --------------
<S>                                                                <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income.....................................................  $    5,793,000  $    2,612,000  $    8,418,000
  Adjustments to reconcile net income from operations to net cash
    flows from operating activities
    Depreciation, depletion and amortization.....................       5,871,000       4,694,000       3,689,000
    Amortization of deferred financing costs.....................         147,000         101,000          65,000
    Loss on assets held for resale...............................        --              --                61,000
    Decrease in deferred income taxes............................         356,000      (1,761,000)       (122,000)
    Share of net income of investee..............................        --              --               (87,000)
    (Gain) loss on sale of property, plant and equipment.........      (1,831,000)        255,000          22,000
    (Increase) decrease in other assets..........................        (957,000)        670,000        (227,000)
    Increase (decrease) in non-current liabilities...............         415,000          (6,000)         56,000
    Changes in non-cash working capital items (a)................       3,709,000        (533,000)     (4,660,000)
                                                                   --------------  --------------  --------------
      Net cash provided by operating activities..................      13,503,000       6,032,000       7,215,000
                                                                   --------------  --------------  --------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to property, plant and equipment.....................     (16,584,000)    (16,426,000)    (15,451,000)
  Assets acquired in connection with acquisitions (b)............        --              --            (3,658,000)
  Proceeds from sale of assets...................................       3,939,000          86,000        --
                                                                   --------------  --------------  --------------
      Net cash used in investing activities......................     (12,645,000)    (16,340,000)    (19,109,000)
                                                                   --------------  --------------  --------------
CASH FLOWS FROM FINANCING ACTIVITIES
  (Payments) proceeds net, on bank indebtedness..................      (3,590,000)      3,370,000       3,040,000
  Proceeds from long term debt...................................       5,717,000      12,882,000       6,219,000
  Repayment of long term debt....................................      (3,169,000)     (2,747,000)     (5,343,000)
  Deferred financing costs.......................................        --              --              (467,000)
  Cash paid in lieu of fractional shares.........................          (5,000)         (5,000)         (3,000)
  Issuance of common stock (c)...................................         679,000         713,000       5,520,000
  Purchase of common stock, options and warrants for treasury
    (c)..........................................................        (516,000)     (3,266,000)     (3,794,000)
                                                                   --------------  --------------  --------------
      Net cash (used in) provided by financing activities........        (884,000)     10,947,000       5,172,000
                                                                   --------------  --------------  --------------
Effect Of Exchange Rate Changes On Cash..........................         (64,000)        (13,000)         32,000
                                                                   --------------  --------------  --------------
Net (Decrease) Increase In Cash..................................         (90,000)        626,000      (6,690,000)
Cash and Cash Equivalents at Beginning Of Year...................       2,279,000       1,653,000       8,343,000
                                                                   --------------  --------------  --------------
Cash and Cash Equivalents at End of Year.........................  $    2,189,000  $    2,279,000  $    1,653,000
                                                                   --------------  --------------  --------------
Supplemental Disclosure of Cash Flow Information
  Income taxes paid..............................................  $      821,000  $      393,000  $      303,000
  Interest paid..................................................       2,412,000         937,000         656,000
                                                                   --------------  --------------  --------------
Supplemental Disclosure of Non-Cash Activities
  Stock issued in connection with acquisition (b)................  $     --        $     --        $    6,599,000
  Notes received in connection with sale of assets held for
    resale (b) (d)...............................................       2,274,000        --               423,000
</TABLE>
 
See Notes to the Consolidated Financial Statements
 
(a) See Note 14
 
(b) See Note 2
 
(c) See Note 9
 
(d) See Note 10
 
                                      -20-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Corporation's significant
accounting policies are as follows:
 
a. PRINCIPLES OF CONSOLIDATION
 
The consolidated financial statements include the accounts of Zemex Corporation
and its wholly-owned subsidiaries (the "Corporation"). All material intercompany
transactions have been eliminated. As discussed in Note 2, Alumitech, Inc.
("Alumitech") was acquired in two separate transactions and, accordingly, was
accounted for on an equity basis until it became a wholly-owned subsidiary in
February 1995.
 
b. INVENTORIES
 
Inventories are stated at the lower of cost or market and are computed using the
average cost method. It is not practical to segregate finished products from ore
and concentrates. Supplies are stated at cost using the first-in, first-out or
average cost method.
 
c. PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment are recorded at cost. Repairs and maintenance are
charged to expense as incurred. Expenditures for major renewals and improvements
are capitalized. When assets are sold or otherwise retired, the cost and
accumulated depreciation or depletion are removed from the accounts and any gain
or loss is included in results of operations. Provisions for depreciation are
based upon estimated useful lives, using principally the straight-line method.
Depletion of mining properties and depreciation of other mining assets are
computed using the unit-of-production method, except in the case of the
Corporation's mica operation where the estimated reserves exceed the expected
production during the term of the mining lease. The mica mining lease rights and
deferred costs, including all preproduction and set-up costs, are amortized
using the straight-line method over the term of the mining lease.
 
d. POSTRETIREMENT BENEFITS
 
PENSION PLANS
 
Generally, the funding policy of the Corporation is to contribute annually at a
rate that is intended to provide for the cost of benefits earned during the year
and which will amortize prior service costs over periods of 10 to 30 years,
subject to Internal Revenue Service limits for deductible contributions.
 
HEALTHCARE AND OTHER POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
 
The Corporation accounts for healthcare and other postretirement benefits other
than pensions in accordance with Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions". This Statement requires the accrual of all postretirement benefits
other than pensions during the years in which employees render the necessary
services to be entitled to receive such benefits. The
 
                                      -21-
<PAGE>
1997, 1996 and 1995 amounts include the current year expense and the transition
liability which is being amortized over twenty years as allowed by SFAS No. 106
(Note 7).
 
e. FOREIGN CURRENCY TRANSLATION
 
The functional currency for the Corporation's foreign operations is the local
currency. Foreign currency assets and liabilities are translated using the
exchange rates in effect at the balance sheet date. The effect of exchange rate
fluctuations on translating foreign currency assets and liabilities into U.S.
dollars is accumulated as part of the cumulative translation adjustment
component of shareholders' equity. Results of operations and cash flows are
translated using the average exchange rates during the year. Gains and losses
from foreign currency transactions are included in net income for the year.
 
f. REVENUE RECOGNITION
 
Revenue is recognized when goods are shipped to customers. Consignment sales are
recognized when a customer draws the goods from inventory.
 
g. RESEARCH AND DEVELOPMENT EXPENSE
 
Research and development expenses were $961,000, $622,000 and $320,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
 
h. PROVISION FOR FUTURE RECLAMATION COSTS
 
Costs for future reclamation have been provided for based upon estimated future
reclamation costs allocated over the expected productive lives of the
Corporation's quarries and mines.
 
i. INCOME TAXES
 
The Corporation accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". This Statement requires income taxes to be
recognized during the year in which transactions enter into the determination of
financial statement income, with deferred taxes being provided for temporary
differences between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws.
 
j. EARNINGS PER SHARE
 
The Corporation calculates earnings per share in accordance with SFAS No. 128,
"Earnings Per Share", and has given affect to this standard on a retroactive
basis. Under this standard, earnings per share is calculated based upon the
weighted average number of common shares outstanding. For the purpose of
calculating earnings per share, stock dividends are considered to be issued at
the beginning of all periods presented.
 
k. DEFERRED FINANCING COSTS
 
Costs associated with the issuance of long term debt are deferred, and are being
amortized over the term of the debt on a straight-line basis. The unamortized
balance is included in other assets.
 
l. OTHER ASSETS
 
Other assets includes assets held for sale which are stated at the lower of cost
or estimated net realizable value. In determining the estimated net realizable
value, the Corporation deducts from the estimated selling price the projected
costs to bring the assets into a saleable condition, to dispose of the assets
and to hold the property to an expected date of sale. Other assets also includes
patents which are stated at cost and are being amortized over their
 
                                      -22-
<PAGE>
remaining life of 13 years on a straight-line basis. Intangible assets are
evaluated periodically and, if conditions warrant, an impairment valuation is
provided.
 
m. CASH EQUIVALENTS
 
For purposes of the consolidated statements of cash flows, highly liquid
investments with original maturities of three months or less, when purchased,
are considered as cash equivalents.
 
n. STOCK-BASED COMPENSATION COSTS
 
Stock-based compensation costs for pro forma presentation purposes (Note 9) are
based on the fair value of each option at the grant date. The option value is
calculated using the Black-Scholes option-pricing model.
 
2. ACQUISITIONS AND DISPOSITIONS
 
ACQUISITIONS
 
ACQUISITION OF ALUMITECH, INC.
 
In June 1994, the Corporation acquired its initial 39.5% investment in Alumitech
by investing $2,000,000 to acquire treasury stock. In 1995, the Corporation
increased its interest to 100% by issuing 722,352 shares of common stock with an
ascribed value of $6,599,000. The shares were issued as to 266,106 to Dundee
Bancorp International Inc. ("Dundee Bancorp"), the Corporation's largest
shareholder, and as to 266,106 to Clarion Capital Corporation, a company
controlled by a director of the Corporation. The balance of the 722,352 shares
went to various other parties. Alumitech, an aluminum dross processor, has
developed proprietary technology that enables it to have the ability to convert
100% of its dross feed into marketable products.
 
The acquisition of Alumitech has been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
purchased and liabilities assumed based upon the fair values at the date of
acquisition. The net purchase price was allocated as follows:
 
<TABLE>
<S>                                       <C>
Working capital.........................  $   73,000
 
Property, plant and equipment...........   5,527,000
 
Patents.................................   7,363,000
 
Other assets............................     225,000
 
Other liabilities.......................  (2,192,000)
 
Deferred income taxes...................  (2,025,000)
                                          ----------
 
                                          $8,971,000
                                          ----------
 
CONSIDERATION
 
Carrying value of investment at date of
  acquisition of remaining interest.....  $2,372,000
 
Capital stock...........................   6,599,000
                                          ----------
 
                                          $8,971,000
                                          ----------
                                          ----------
</TABLE>
 
                                      -23-
<PAGE>
The operating results of Alumitech have been included in the consolidated
statements of income from the date of acquisition. On the basis of a pro forma
consolidation of the results of operations as if the acquisition had taken place
at the beginning of fiscal 1994, rather than at February 15, 1995, consolidated
net sales would have been $64,500,000 for fiscal 1994, and $86,900,000 for
fiscal 1995. Consolidated pro forma income and earnings per share would not have
been materially different from the reported amounts for fiscal 1994 and 1995.
Such pro forma amounts are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisition had been
effective at the beginning of fiscal 1994.
 
ACQUISITION OF THE ASSETS OF BENWOOD LIMESTONE COMPANY, INC.
 
On May 15, 1995, the Corporation acquired the assets of Benwood Limestone
Company, Inc. ("Benwood"), through its wholly-owned subsidiary, Suzorite Mineral
Products, Inc. ("SMP"), for $3,658,000. The acquisition of Benwood augmented the
Corporation's talc and mineral processing capability.
 
DISPOSITIONS
 
ASSET SALE
 
During the third quarter of 1997, the Corporation sold certain assets previously
utilized to manufacture refractory ceramic fiber. These assets were vended into
an entity in which the Corporation retained a nominal non-voting interest. The
sale resulted in a pre-tax gain of $1,768,000, which has been included in other
income (expense). Total proceeds were $4,324,000, which included $2,050,000 in
cash and $2,274,000 in notes receivable included in accounts receivable.
 
3. INVENTORIES
 
<TABLE>
<CAPTION>
                                                                     1997           1996
                                                                 -------------  -------------
<S>                                                              <C>            <C>
ORE, CONCENTRATES AND FINISHED PRODUCTS
  Industrial minerals..........................................  $   8,312,000  $   8,565,000
  Metal products...............................................      4,110,000      5,035,000
                                                                 -------------  -------------
                                                                    12,422,000     13,600,000
                                                                 -------------  -------------
 
MATERIALS AND SUPPLIES
  Industrial minerals..........................................      3,955,000      3,683,000
  Metal products...............................................      1,218,000        888,000
                                                                 -------------  -------------
                                                                     5,173,000      4,571,000
                                                                 -------------  -------------
                                                                 $  17,595,000  $  18,171,000
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>
 
                                      -24-
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
 
<TABLE>
<CAPTION>
                                                                     1997           1996
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Land...........................................................  $   5,344,000  $   5,246,000
Mining properties and deferred costs...........................      8,125,000      6,605,000
Buildings......................................................     18,092,000     16,728,000
Machinery and equipment........................................     64,952,000     50,937,000
Construction in progress.......................................      8,308,000     15,065,000
                                                                 -------------  -------------
Total property, plant and equipment, at cost...................    104,821,000     94,581,000
Less: Accumulated depreciation, depletion and amortization.....     34,009,000     32,497,000
                                                                 -------------  -------------
Net property, plant and equipment..............................  $  70,812,000  $  62,084,000
                                                                 -------------  -------------
</TABLE>
 
The effective lives of the Corporation's buildings and machinery and equipment
are estimated to be 30-40 years and 3-15 years, respectively. As of December 31,
1997, the Corporation estimates that approximately $3,973,000 will be expended
to complete its construction in progress.
 
5. OTHER ASSETS
 
<TABLE>
<CAPTION>
                                                                                            1997          1996
                                                                                        ------------  ------------
<S>                                                                                     <C>           <C>
Prepaid pension cost (Note 7).........................................................  $  1,378,000  $  1,488,000
Assets held for resale (Note 10)......................................................       300,000       300,000
Deferred financing costs..............................................................       646,000       659,000
Long term note receivable.............................................................       549,000       --
Other.................................................................................       547,000       318,000
Patents, net..........................................................................     6,357,000     6,673,000
                                                                                        ------------  ------------
                                                                                        $  9,777,000  $  9,438,000
                                                                                        ------------  ------------
                                                                                        ------------  ------------
</TABLE>
 
                                      -25-
<PAGE>
6. INCOME TAXES
 
The provision for income taxes consists of the following components:
 
<TABLE>
<CAPTION>
                                                                              1997          1996          1995
                                                                          ------------  ------------  ------------
<S>                                                                       <C>           <C>           <C>
Income from operations before provision for income taxes
  Domestic..............................................................  $  7,476,000  $  1,492,000  $  7,708,000
Foreign.................................................................       586,000       171,000       191,000
                                                                          ------------  ------------  ------------
Total pre-tax income....................................................  $  8,062,000  $  1,663,000  $  7,899,000
                                                                          ------------  ------------  ------------
Current tax provision
  Federal...............................................................  $  1,277,000  $    478,000  $  1,849,000
  State and local.......................................................       211,000       123,000       293,000
  Foreign...............................................................       350,000        76,000        37,000
                                                                          ------------  ------------  ------------
Total...................................................................     1,838,000       677,000     2,179,000
                                                                          ------------  ------------  ------------
Deferred tax provision
  Federal...............................................................       279,000    (1,369,000)      283,000
  State and local.......................................................       152,000      (257,000)       55,000
  Foreign...............................................................       --            --             40,000
                                                                          ------------  ------------  ------------
Total...................................................................       431,000    (1,626,000)      378,000
                                                                          ------------  ------------  ------------
Benefit of operating loss and tax credit carryforwards..................       --            --         (3,076,000)
                                                                          ------------  ------------  ------------
Provision for (recovery of) income taxes................................  $  2,269,000  $   (949,000) $   (519,000)
                                                                          ------------  ------------  ------------
</TABLE>
 
The following tabulation reconciles the U.S. federal statutory income tax rate
to the federal, state and foreign overall effective income tax rate.
 
<TABLE>
<CAPTION>
                                                                              1997          1996          1995
                                                                          ------------  ------------  ------------
                                                                               %             %             %
<S>                                                                       <C>           <C>           <C>
Statutory federal rate..................................................          34.0          34.0          34.0
State income tax (net of federal benefit)...............................           3.0          (0.9)          1.4
Non-recognition from foreign loss.......................................           1.3       --            --
Difference in foreign tax rates.........................................           0.5       --            --
Benefit of operating loss carryforwards (net of foreign income taxes)...       --              (43.8)        (38.1)
Percentage depletion....................................................         (11.4)        (47.9)         (4.9)
Other...................................................................           0.7           1.5           1.0
                                                                          ------------  ------------  ------------
Effective income tax rate...............................................          28.1         (57.1)         (6.6)
                                                                          ------------  ------------  ------------
</TABLE>
 
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. At December 31, 1997 and
December 31, 1996, the Corporation had unused tax benefits of $6,661,000 and
$6,172,000, respectively, related to U.S. federal and state net operating loss
and tax credit carryforwards. Significant components
 
                                      -26-
<PAGE>
of the Corporation's deferred tax assets and liabilities as of December 31 are
as follows (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                                   1997                             1996
                                                      -------------------------------  -------------------------------
                                                        U.S.      FOREIGN     TOTAL      U.S.      FOREIGN     TOTAL
                                                      ---------  ---------  ---------  ---------  ---------  ---------
<S>                                                   <C>        <C>        <C>        <C>        <C>        <C>
Deferred tax assets
Net operating loss and tax credit carryforwards.....  $   6,661  $  --      $   6,661  $   6,172  $  --      $   6,172
  Accrued expenses and reserves.....................        958     --            958        763     --            763
  Bad debt allowances...............................        110     --            110        139     --            139
  Inventories.......................................        280     --            280        526     --            526
  Other.............................................        167     --            167         63     --             63
                                                      ---------  ---------  ---------  ---------  ---------  ---------
Gross deferred tax assets...........................      8,176     --          8,176      7,663     --          7,663
Valuation allowance.................................       (523)    --           (523)    --         --         --
                                                      ---------  ---------  ---------  ---------  ---------  ---------
Net deferred tax assets.............................      7,653     --          7,653      7,663     --          7,663
                                                      ---------  ---------  ---------  ---------  ---------  ---------
Deferred tax liabilities
  Property, plant and equipment.....................      3,206      2,012      5,218      2,656      2,075      4,731
  Patent............................................      1,658     --          1,658      1,791     --          1,791
  Pension contributions.............................        580     --            580        521     --            521
  Other.............................................        357     --            357        424     --            424
                                                      ---------  ---------  ---------  ---------  ---------  ---------
Total...............................................      5,801      2,012      7,813      5,392      2,075      7,467
                                                      ---------  ---------  ---------  ---------  ---------  ---------
Net deferred tax (assets) liabilities...............  $  (1,852) $   2,012  $     160  $  (2,271) $   2,075  $    (196)
                                                      ---------  ---------  ---------  ---------  ---------  ---------
</TABLE>
 
At December 31, 1997, the Corporation had approximately $12,462,000 of federal
net operating loss carryforwards available to reduce future taxable income,
which will expire between 2002 and 2011. Additionally, the Corporation has
unused general business tax credits, which expire between 1998 and 2011, and
alternative minimum tax credits. The Corporation also has state net operating
losses and investment credit carryforwards; however, a valuation allowance of
$523,000 has been recognized to offset the related deferred tax asset due to the
uncertainty of realizing the full benefit of the tax attribute carryforward.
 
7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
 
PENSION PLANS
 
The Corporation has several pension plans covering substantially all domestic
employees. The plans covering salaried employees provide pension benefits that
are based on the compensation of the employee. In all plans, the plan assets
exceed the benefit obligations and hence the plans are overfunded.
 
Net periodic pension cost (income) included the following components:
 
<TABLE>
<CAPTION>
                                                                              1997         1996         1995
                                                                           -----------  -----------  -----------
<S>                                                                        <C>          <C>          <C>
Current service costs....................................................  $   466,000  $   528,000  $   369,000
Interest cost on projected benefit obligations...........................      978,000    1,028,000      940,000
Actual return on assets..................................................   (1,383,000)    (389,000)  (2,587,000)
Net amortization and deferral............................................       49,000   (1,023,000)   1,164,000
                                                                           -----------  -----------  -----------
Net pension expense (income).............................................  $   110,000  $   144,000  $  (114,000)
                                                                           -----------  -----------  -----------
</TABLE>
 
Net amortization and deferral consists of amortization of net assets at
transition and deferral of subsequent net gains and losses. The assumptions used
to determine projected benefit
 
                                      -27-
<PAGE>
obligations were (i) a discount rate of 7% in 1997, 1996 and 1995; (ii) an
expected long term rate of return on assets of 8.75% in 1997, 1996 and 1995; and
(iii) an increase in the level of compensation of 4% in 1997, and 6% in each of
1996 and 1995.
 
The status of the plans and the amounts recognized in the consolidated balance
sheets of the Corporation for its pension plans as of December 31, 1997 and 1996
are tabulated below:
 
<TABLE>
<CAPTION>
                                                                                         1997            1996
                                                                                    --------------  --------------
<S>                                                                                 <C>             <C>
Actuarial present value of benefit obligations
  Vested benefit obligation.......................................................  $   11,191,000  $   11,687,000
                                                                                    --------------  --------------
  Accumulated benefit obligation..................................................  $   11,350,000  $   11,896,000
                                                                                    --------------  --------------
Projected benefit obligation......................................................  $  (15,126,000) $  (15,925,000)
Plan assets at fair value.........................................................      17,147,000      16,432,000
                                                                                    --------------  --------------
Plan assets in excess of projected benefit obligation.............................       2,021,000         507,000
Unrecognized net loss.............................................................        (662,000)      1,071,000
Prior service cost not yet recognized in net periodic pension cost................         196,000         239,000
Unrecognized net assets at year end...............................................        (177,000)       (329,000)
                                                                                    --------------  --------------
Prepaid pension cost included in consolidated balance sheets......................  $    1,378,000  $    1,488,000
                                                                                    --------------  --------------
</TABLE>
 
OTHER POSTRETIREMENT BENEFITS
 
The Corporation provides healthcare and life insurance benefits for certain
retired employees, which are accrued as earned (Note 1). The cost of such
benefits was $66,000 in 1997, $85,000 in 1996 and $95,000 in 1995. The
unrecognized obligation for postretirement benefits is not material.
 
8. LONG TERM DEBT
 
<TABLE>
<CAPTION>
                                                                                         1997           1996
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
Credit facility (a)................................................................  $  18,056,000  $  14,167,000
Other term loans (b)...............................................................       --              813,000
Industrial Development Revenue Bonds (c)...........................................      3,570,000      4,080,000
Promissory notes...................................................................         70,000        113,000
Capital leases (d).................................................................        654,000        488,000
Other..............................................................................        196,000        337,000
                                                                                     -------------  -------------
Total debt.........................................................................     22,546,000     19,998,000
Less: Current portion..............................................................      2,019,000      2,201,000
                                                                                     -------------  -------------
Long term debt.....................................................................  $  20,527,000  $  17,797,000
                                                                                     -------------  -------------
</TABLE>
 
------------------------
 
(a) During 1995, the Corporation entered into a $30,224,000 credit facility with
    a syndicate of two banks. During 1997, the credit facility was amended to
    increase the total availability to $50,224,000. The amended credit facility
    is further subdivided into four facilities: (i) a $30,000,000 revolving
    credit facility; (ii) a $10,000,000 multiple advance term loan facility;
    (iii) a $5,224,000 standby letter of credit; and (iv) a $5,000,000 operating
    line. These facilities are secured by specific assets and a floating charge
    over the Corporation's assets. The facilities bear interest at rates varying
    from bank prime to bank prime plus 0.25% and from LIBOR plus 1.25% to LIBOR
    plus 2.25%, depending upon certain financial tests. As at December 31, 1997
    and December 31, 1996, there was $3,000,000 and $5,000,000, respectively,
    outstanding under the operating line and $8,056,000 and $9,167,000,
    respectively, outstanding under the multiple advance term loan facility.
    Advances under the revolving credit facility as at December 31, 1997 and
    1996 were $10,000,000 and $5,000,000,
 
                                      -28-
<PAGE>
    respectively, and the standby letter of credit was issued to secure Pyron
    Corporation's ("Pyron") Industrial Development Revenue Bonds (see (c)
    below). The operating line matures June 30, 1998 and is reviewed annually
    for renewal. The revolving credit facility matures and is due and payable
    January 1, 2000. The multiple advance term loan facility requires quarterly
    payments of $278,000 which commenced April 1, 1996 with the balance
    outstanding, if any, due January 1, 2000.
 
(b) The other term loans incurred interest at the prime rate of the lending
    institution plus 1.25% to 1.5% and were repaid in full during 1997.
 
(c) Pyron entered into a lease agreement on November 29, 1989 with the Niagara
    County Industrial Development Agency (the "Agency") to partially finance the
    construction of a manufacturing facility, acquire and install equipment and
    machinery, and renovate the existing Pyron facility for the purpose of
    manufacturing atomized steel powders. The agreement authorized the Agency to
    issue and sell Industrial Development Revenue Bonds in the aggregate
    principal amount of $7,650,000 to provide the funds for the project.
 
    While the bonds are not the obligation of Pyron, the agreement requires
    Pyron to make quarterly rental payments equal to the debt service under the
    sinking fund requirements and interest on the outstanding principal to the
    Agency. The amount outstanding at December 31, 1997 and 1996 was $3,570,000
    and $4,080,000, respectively. Pyron's annual obligation under the agreement
    is $510,000 until paid.
 
    The bonds bear interest at a variable rate not to exceed 15% per annum. The
    rate at December 31, 1997 was 4.15% and at December 31, 1996 was 4.15%.
    Pyron has the option to convert the bonds to a fixed interest rate at any
    time during the term. Under the lease agreement, Pyron may purchase the
    facility at any time during the term, which expires November 1, 2004, by
    paying the outstanding principal amount of the bonds plus $1.
 
    The bonds are collateralized by a mortgage on the land, the new facility and
    the existing facility, which have an aggregate net book value of
    approximately $9,602,000 at December 31, 1997.
 
    A bank has provided Pyron with a letter of credit which is available to
    support Pyron's obligations under the lease agreement. If the bondholders
    tender their bonds for repayment, the letter of credit will be utilized to
    pay the bondholders. The letter of credit is collateralized under the credit
    facility in (a) above. The letter of credit expires on October 1, 1999.
 
(d) The Corporation has long term capital lease agreements at various rates and
    for various terms with maturities ranging from 1998 to 2002 for equipment
    used in its operations. The carrying value of the leased equipment as of
    December 31, 1997 was $623,000. The current obligation under the long term
    lease agreement is $280,000.
 
Principal repayments on long term debt are as follows:
 
<TABLE>
<CAPTION>
<S>                                                                              <C>
1998...........................................................................  $   2,019,000
1999...........................................................................      1,850,000
2000...........................................................................     16,515,000
2001...........................................................................        618,000
2002...........................................................................        524,000
Thereafter.....................................................................      1,020,000
                                                                                 -------------
                                                                                 $  22,546,000
                                                                                 -------------
</TABLE>
 
                                      -29-
<PAGE>
INTEREST
 
Interest earned and expensed in each of the past three years is summarized
below:
 
<TABLE>
<CAPTION>
                                                                             1997           1996          1995
                                                                         -------------  -------------  -----------
<S>                                                                      <C>            <C>            <C>
Interest income........................................................  $     150,000  $      93,000  $   268,000
Interest expense.......................................................     (2,094,000)    (1,041,000)    (791,000)
                                                                         -------------  -------------  -----------
Net interest expense...................................................  $  (1,944,000) $    (948,000) $  (523,000)
                                                                         -------------  -------------  -----------
</TABLE>
 
9. COMMON SHARES, STOCK OPTIONS AND WARRANTS
 
SHARES OUTSTANDING
 
During 1995, the Corporation increased its authorized common stock from
10,000,000 to 25,000,000, par value one dollar per share, of which 20,000,000
will be denominated common shares and 5,000,000 will be denominated preferred
shares. There were 8,463,491 common shares issued and outstanding as of December
31, 1997 and 8,269,099 common shares as of December 31, 1996.
 
During 1997, 1996 and 1995, 90,000, 80,000 and 49,000 common shares,
respectively, were purchased pursuant to the Corporation's employee stock
purchase plan for an aggregate cost of $729,000, $672,000 and $471,000,
respectively.
 
As part of a share repurchase program in 1997, the Corporation purchased 60,000
common shares on the open market for an aggregate cost of $492,000, 344,000
common shares in 1996 for an aggregate cost of $3,170,000, and 376,000 common
shares in 1995 for an aggregate cost of $3,572,000.
 
In 1995, the Corporation completed its purchase of 100% of Alumitech by issuing
722,352 common shares with an ascribed value of $6,599,000.
 
DIVIDENDS
 
On November 21, 1997, the Corporation declared a 2% stock dividend to
shareholders of record on December 1, 1997, which was paid December 15, 1997.
Retained earnings were charged $1,598,000 as a result of the issuance of 165,537
common shares of the Corporation, and cash payments of $5,000 in lieu of
fractional shares.
 
On October 18, 1996, the Corporation declared a 2% stock dividend to
shareholders of record on November 4, 1996, which was paid November 18, 1996.
Retained earnings were charged $1,255,000 as a result of the issuance of 161,398
common shares of the Corporation, and cash payments of $5,000 in lieu of
fractional shares.
 
On November 10, 1995, the Corporation declared a 2% stock dividend to
shareholders of record on November 24, 1995, which was paid December 8, 1995.
Retained earnings were charged $1,403,000 as the result of the issuance of
167,149 common shares of the Corporation, and cash payments of $3,000 in lieu of
fractional shares.
 
STOCK OPTIONS
 
The Corporation provides stock option incentive plans and has, with shareholder
approval, issued options to certain directors outside of the plans. The plans
are intended to provide long term incentives and rewards to executive officers,
directors and other key employees contingent upon an increase in the market
value of the Corporation's common shares.
 
                                      -30-
<PAGE>
Options for 10% of the Corporation's outstanding common shares are issuable
under the plans.
 
The following is a summary of option transactions under the Corporation's stock
option plans:
 
<TABLE>
<CAPTION>
                                                                         1997           1996            1995
                                                                     -------------  -------------  --------------
<S>                                                                  <C>            <C>            <C>
Options outstanding at beginning of year...........................        845,550        852,550         556,550
Options granted during the year....................................        198,000         61,000         341,000
Options exercised during the year..................................        (13,800)       (45,000)        (38,250)
Options cancelled during the year..................................        (87,000)       (23,000)         (6,750)
                                                                     -------------  -------------  --------------
Options outstanding at end of year.................................        942,750        845,550         852,550
Options exercisable at end of year.................................        628,250        631,550         511,550
                                                                     -------------  -------------  --------------
Price range of options granted during the year.....................  $ 7.00 - 8.63  $ 7.75 - 9.75  $  9.125-10.13
</TABLE>
 
The options expire from 1998 to 2003. In addition, directors out of the plan
were, in aggregate, granted 30,000 shares in 1997.
 
The Corporation does not recognize compensation expense for its stock-based
compensation plans. Had compensation cost for the stock option plans been
determined based upon fair value at the grant date for awards under these plans
consistent with the methodology prescribed under SFAS No. 123, "Accounting for
Stock-Based Compensation", the Corporation's net income and earnings per share
would have been reduced by approximately $221,000 or $0.03 per share in 1997,
$341,000 or $0.04 per share in 1996 and $2,177,000 or $0.28 per share in 1995.
The fair value of the options granted during 1997, 1996 and 1995 is estimated to
be $221,000, $173,000 and $1,344,000, respectively. The fair value of each
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 1997, 1996 and 1995: dividend yield of 0%; expected volatility of 32%,
38% and 39%, respectively; risk-free interest rate of 5.5%; and an expected life
of 5 years.
 
WARRANTS
 
During 1993, in connection with the acquisition of Suzorite Mica Products Inc.,
the Corporation issued a transferable warrant to Dundee Bancorp to purchase at
any time prior to July 15, 1995 up to 100,000 common shares (104,040 shares
after adjustments for stock dividends) at $7.00 per share. The warrant was
exercised by Dundee Bancorp on July 14, 1995 for proceeds of $700,000. As a
result of a stock rights offering in 1990, 725,769 warrants were issued. Each
warrant entitled the holder to purchase, prior to July 15, 1995, 1.08 common
shares at an exercise price of $8.56 per share, which was repriced from $9.25
per share as a result of dilution due to the issuance of stock dividends. Of the
725,769 warrants originally issued, the Corporation repurchased 218,046 warrants
at an aggregate cost of $222,000. During 1995, 448,000 warrants were exercised
for 484,027 common shares for net proceeds of $4,143,000. During 1994, 31,514
warrants were exercised resulting in the issuance of 32,771 common shares at an
exercise price of $8.88 per share for aggregate proceeds of $291,000. There were
no remaining warrants outstanding as at December 31, 1995.
 
NOTE RECEIVABLE FROM SHAREHOLDER
 
The note receivable from shareholder of $1,749,000 represents amounts due from
the Corporation's President and Chief Executive Officer pursuant to the Key
Executive Common Stock Purchase Plan. The loan, which was used to acquire
357,000 common shares of the Corporation, is non-interest bearing and secured by
a pledge of most of the shares acquired.
 
                                      -31-
<PAGE>
The terms were amended in 1997 and the loan is now due on the earlier of August
12, 1998 or 30 days after the termination of employment. Since the loan arose
from the sale of shares, it is classified as a reduction of shareholders'
equity.
 
10. REORGANIZATION CHARGES AND UNUSUAL ITEMS
 
REORGANIZATION CHARGES
 
During the first quarter of 1996, the Corporation recognized reorganization
costs of $1,216,000 in connection with the reorganization of its minerals
division and the recognition of a provision for costs. A write-down to market of
inventory held in Brazil in the amount of $536,000 was also recorded as a charge
against cost of goods sold. The Brazilian enterprise was unsuccessful primarily
due to rapidly deteriorating market prices which made market penetration
extremely difficult.
 
UNUSUAL ITEMS
 
In December 1991, the Corporation closed its industrial minerals plant located
in Connecticut. The assets of this operation were reclassified to assets held
for resale and written down in 1991 by $430,000 to their estimated net
realizable value. These assets were written down by a further $300,000 in 1993.
In 1995, a portion of the property was sold for approximately net book value. In
1996, the purchaser defaulted on the payment obligations. Accordingly, the
Corporation instituted legal action to repossess the property. A provision of
$723,000 has been recorded to provide for reclamation costs, legal costs and to
write-down the property to current market value.
 
11. OPERATING LEASES AND OTHER COMMITMENTS
 
OPERATING LEASES
 
The Corporation has a number of operating lease agreements primarily involving
equipment, office space, warehouse facilities and rail sidings. The operating
lease for equipment provides that the Corporation may, after the initial lease
term, renew the lease for successive yearly periods or may purchase the
equipment at the fair market value. An operating lease for office facilities
contains escalation clauses for increases in operating costs and property taxes.
The majority of the leases are cancellable and are renewable on a yearly basis.
 
Future minimum rental payments required by operating leases that have initial or
remaining non-cancellable lease terms in excess of one year as of December 31,
1997 are as follows:
 
<TABLE>
<CAPTION>
                                                                               MINIMUM LEASE
YEARS                                                                             PAYMENTS
----------------------------------------------------------------------------  ----------------
<S>                                                                           <C>
1998........................................................................    $    515,000
1999........................................................................         341,000
2000........................................................................         287,000
2001........................................................................         282,000
2002........................................................................         273,000
Thereafter..................................................................         556,000
                                                                              ----------------
Total minimum lease payments................................................    $  2,254,000
                                                                              ----------------
</TABLE>
 
Rent expense was $492,000, $668,000 and $442,000 in 1997, 1996 and 1995,
respectively.
 
                                      -32-
<PAGE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
 
The following is a summary of certain unaudited quarterly financial data.
 
<TABLE>
<CAPTION>
                                                                                         1997           1996
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
NET SALES
  First quarter....................................................................  $  23,700,000  $  22,405,000
  Second quarter...................................................................     25,199,000     21,356,000
  Third quarter....................................................................     24,773,000     21,601,000
  Fourth quarter...................................................................     23,554,000     21,058,000
                                                                                     -------------  -------------
                                                                                     $  97,226,000  $  86,420,000
                                                                                     -------------  -------------
OPERATING INCOME
  First quarter....................................................................  $   1,766,000  $     170,000
  Second quarter...................................................................      2,255,000      1,512,000
  Third quarter....................................................................      2,372,000      1,444,000
  Fourth quarter...................................................................      1,978,000        (60,000)
                                                                                     -------------  -------------
                                                                                     $   8,371,000  $   3,066,000
                                                                                     -------------  -------------
NET INCOME
  First quarter....................................................................  $     862,000  $       6,000
  Second quarter...................................................................      1,064,000        819,000
  Third quarter....................................................................      2,095,000        779,000
  Fourth quarter...................................................................      1,772,000      1,008,000
                                                                                     -------------  -------------
                                                                                     $   5,793,000  $   2,612,000
                                                                                     -------------  -------------
NET INCOME PER SHARE--BASIC
  First quarter....................................................................  $         .11  $         .00
  Second quarter...................................................................            .13            .10
  Third quarter....................................................................            .26            .10
  Fourth quarter...................................................................            .22            .12
</TABLE>
 
13. FINANCIAL INSTRUMENTS
 
Financial instruments which potentially subject the Corporation to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Corporation's customer base and
their dispersion across a number of different industries, principally
construction, glass, electrical and automotive.
 
Financial instruments comprise cash and cash equivalents, accounts receivable,
short term bank borrowings, accounts payable, accrued liabilities, and long term
debt. The fair value of these financial instruments approximates their carrying
value reflecting: (i) the proximity to market rates of the interest obligations
on the debt instruments; and (ii) the limited durations of all of the other
instruments.
 
                                      -33-
<PAGE>
14. CHANGES IN NON-CASH WORKING CAPITAL ITEMS
 
The changes in non-cash working capital items are as follows:
 
<TABLE>
<CAPTION>
                                                                           1997           1996           1995
                                                                       -------------  -------------  -------------
<S>                                                                    <C>            <C>            <C>
(Increase) in accounts receivable....................................  $  (1,285,000) $  (1,838,000) $    (783,000)
Decrease (increase) in inventories...................................        576,000      2,005,000     (2,742,000)
Decrease (increase) in prepaid expenses..............................        602,000       (547,000)       (16,000)
Increase (decrease) in accounts payable and accrued liabilities......      2,882,000       (185,000)    (1,495,000)
Increase in accrued income taxes.....................................        934,000         32,000        376,000
                                                                       -------------  -------------  -------------
                                                                       $   3,709,000  $    (533,000) $  (4,660,000)
                                                                       -------------  -------------  -------------
</TABLE>
 
15. RELATED PARTY TRANSACTIONS
 
As at December 31, 1997 and 1996, accounts receivable included amounts due from
directors of $115,000 and $350,000, respectively. These amounts are non-interest
bearing, with no fixed terms of repayment, and have not otherwise been disclosed
in the consolidated financial statements.
 
During 1997, the Corporation agreed to guarantee a personal loan in the amount
of $600,000 drawn down by the President and Chief Executive Officer. The
proceeds of the loan were used to acquire common shares of the Corporation on
the open market. The shares acquired are held by the Corporation as security for
the guarantee.
 
16. SEGMENT INFORMATION
 
The Corporation has two principal lines of business and is organized into two
operating units based on its product lines: (i) industrial minerals, and (ii)
metal products. Industrial mineral products include feldspar, kaolin, mica,
talc, baryte, feldspathic sand and industrial sand. These products are marketed
principally to the automotive, housing, and ceramics industries in North
America. They are produced from mines and processing plants located near Edgar,
Florida; Monticello, Georgia; Murphy, North Carolina; Spruce Pine, North
Carolina; Natural Bridge, New York; Van Horn, Texas; Benwood, West Virginia;
Boucherville, Quebec; and Suzor Township, Quebec. Metal products are processed
in Niagara Falls, New York; St. Marys, Pennsylvania; and Greenback and
Maryville, Tennessee. The Corporation's ferrous and non-ferrous metal powders
are marketed primarily in North America to manufacturers of powder metallurgy
parts used in the automotive and transportation industries. Aluminum dross is
recycled at a plant in Cleveland, Ohio and ceramic fiber products are marketed
from a plant in Streetsboro, Ohio. Corporate assets principally include cash,
term deposits, and furniture and fixtures.
 
                                      -34-
<PAGE>
Information pertaining to sales and earnings from operations and assets by
business segment appears below:
 
<TABLE>
<CAPTION>
                                                                        1997            1996           1995
                                                                   --------------  --------------  -------------
<S>                                                                <C>             <C>             <C>
 Net sales (a)
    Industrial minerals..........................................  $   43,396,000  $   40,469,000  $  37,089,000
    Metal products...............................................      53,830,000      45,951,000     47,967,000
                                                                   --------------  --------------  -------------
  Total..........................................................  $   97,226,000  $   86,420,000  $  85,056,000
                                                                   --------------  --------------  -------------
  Operating income (a)
    Industrial minerals..........................................  $    5,203,000  $    3,118,000  $   4,622,000
    Metal products...............................................       3,221,000       1,868,000      3,677,000
    Reorganization charges (b)...................................        --            (1,752,000)      --
    General unallocated corporate................................         (53,000)       (168,000)        43,000
                                                                   --------------  --------------  -------------
  Total..........................................................       8,371,000       3,066,000      8,342,000
                                                                   --------------  --------------  -------------
    Interest expense net.........................................      (1,944,000)       (948,000)      (523,000)
    Other income, (expense) net (b)..............................       1,635,000        (455,000)        80,000
                                                                   --------------  --------------  -------------
  Income before income taxes.....................................  $    8,062,000  $    1,663,000  $   7,899,000
                                                                   --------------  --------------  -------------
  Capital expenditures (a)(c)
    Industrial minerals..........................................  $    9,945,000  $   11,855,000  $   9,653,000
    Metal products...............................................       6,633,000       4,528,000      5,784,000
    Corporate....................................................           6,000          43,000         14,000
                                                                   --------------  --------------  -------------
  Total..........................................................  $   16,584,000  $   16,426,000  $  15,451,000
                                                                   --------------  --------------  -------------
Depreciation, depletion and amortization (a)
  Industrial minerals............................................  $    3,228,000  $    2,352,000  $   1,932,000
  Metal products.................................................       2,241,000       1,948,000      1,451,000
  Corporate......................................................         402,000         394,000        306,000
                                                                   --------------  --------------  -------------
Total............................................................  $    5,871,000  $    4,694,000  $   3,689,000
                                                                   --------------  --------------  -------------
Identifiable assets at year end (a)
  Industrial minerals............................................  $   65,750,000  $   60,915,000  $  52,348,000
  Metal products.................................................      42,400,000      37,145,000     34,133,000
  Corporate (d)..................................................      10,624,000      11,316,000     10,200,000
                                                                   --------------  --------------  -------------
Total............................................................  $  118,774,000  $  109,376,000  $  96,681,000
                                                                   --------------  --------------  -------------
</TABLE>
 
------------------------
 
(a) The Corporation's businesses are located in the United States and Canada,
    which the Corporation considers one geographic segment.
 
(b) See Note 10.
 
(c) Capital expenditures for 1995 exclude property, plant and equipment of
    $9,027,000 acquired in connection with the Corporation's 1995 acquisitions
    (Note 2).
 
(d) Includes cash and cash equivalents for all years presented.
 
17.  CONTINGENCIES
 
The Corporation is involved in various legal actions in the normal course of
business. In the opinion of management, the aggregate amount of any potential
liability, for which provision has not already been made, is not expected to
have a material adverse effect on the Corporation's financial position or its
results.
 
                                      -35-
<PAGE>
18.  SUBSEQUENT EVENTS
 
(i) In January 1998, the Corporation, through its wholly-owned subsidiary, Zemex
Industrial Minerals, Inc., acquired Aspect Minerals, Inc., a muscovite mica
producer, for approximately $2,200,000, which includes the assumption of debt.
The two facilities acquired in the purchase are located in the Spruce Pine,
North Carolina area and will operate under the name Zemex Mica Corporation. The
acquisition was financed through borrowings on the Corporation's credit
facility.
 
(ii) On February 24, 1998, Industria Mineraria Fabi S.r.1. ("Fabi") became a
partner in the Corporation's talc facility located in Benwood, West Virginia by
acquiring a 40% interest in a new limited liability company, Zemex Fabi-Benwood,
LLC. As part of the transaction, Fabi paid $3,400,000 and is providing access to
its technology. SMP, a wholly-owned subsidiary of the Corporation, will manage
the new entity pursuant to an operating agreement.
 
19.  COMPARATIVE FIGURES
 
Certain 1996 and 1995 figures in the consolidated financial statements have been
reclassified to conform with the 1997 presentation.
 
20.  RESTATEMENT
 
Subsequent to the issuance of the Corporation's 1997 financial statements, the
Corporation's management determined that:
 
(i) earnings per share disclosed in such statements in respect of 1996 and 1995
were calculated on the basis that stock dividends issued were issued at the
beginning of the year in which they were declared. Applicable accounting
principles, Financial Accounting Standard 128 effective for periods ending after
December 15, 1997, require that such calculation be made assuming that such
dividends were issued on January 1, 1995. The effect of the restatement is as
follows:
 
<TABLE>
<CAPTION>
                                                                                 1996                      1995
                                                                       ------------------------  ------------------------
                                                                           AS                        AS
                                                                       PREVIOUSLY                PREVIOUSLY
                                                                        REPORTED    AS RESTATED   REPORTED    AS RESTATED
                                                                       -----------  -----------  -----------  -----------
<S>                                                                    <C>          <C>          <C>          <C>
Earnings per share
  Basic..............................................................   $    0.33    $    0.32    $    1.07    $    1.03
  Diluted............................................................   $    0.32    $    0.31    $    1.03    $    0.99
</TABLE>
 
                                      -36-
<PAGE>
(ii) Reorganization charges presented in 1996 included a charge, in the amount
of $536,000, to write down certain inventory to market value, that would more
appropriately have been classified in cost of goods sold. The effect of the
restatement is as follows:
 
<TABLE>
<CAPTION>
                                                                                                 1996
                                                                                     ----------------------------
                                                                                     AS PREVIOUSLY
                                                                                       REPORTED      AS RESTATED
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
Net Sales..........................................................................  $  86,420,000  $  86,420,000
                                                                                     -------------  -------------
Cost and Expenses
  Cost of goods sold...............................................................     66,416,000     66,952,000
  Selling, general and administrative..............................................     10,492,000     10,492,000
  Depreciation, depletion and amortization.........................................      4,694,000      4,694,000
                                                                                     -------------  -------------
                                                                                        81,602,000     82,138,000
                                                                                     -------------  -------------
Operating income before Reorganization Charges.....................................      4,818,000      4,282,000
Reorganization Charges.............................................................      1,752,000      1,216,000
                                                                                     -------------  -------------
Operating Income...................................................................  $   3,066,000  $   3,066,000
                                                                                     -------------  -------------
</TABLE>
 
                                      -37-
<PAGE>
                                    PART III
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
1.  Financial Statements
 
    Independent Auditors' Report
 
    Consolidated Balance Sheets at December 31, 1997 and 1996
 
    Consolidated Statements of Income for the three years ended December 31,
    1997
 
    Consolidated Statements of Shareholders' Equity for the three years ended
    December 31, 1997
 
    Consolidated Statements of Cash Flows for the three years ended December 31,
    1997
 
    Notes to the Consolidated Financial Statements
 
3.  Exhibits
 
    23.1 Consent of Deloitte & Touche LLP
 
                                      -38-
<PAGE>
                                   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, thereunder duly authorized.
 
<TABLE>
<S>                             <C>  <C>
                                ZEMEX CORPORATION
 
Dated November 12, 1998         By:            /s/ RICHARD L. LISTER
                                     -----------------------------------------
                                                 Richard L. Lister
                                       PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
 
Pursuant to requirements of the Securities Exchange Act of 1934, this report is
signed below by the following persons on behalf of the registrant in the
capacities and on the date indicated:
 
<TABLE>
<CAPTION>
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
 
<C>                             <S>                         <C>
  /s/ PETER LAWSON-JOHNSTON
------------------------------  Chairman of the Board and    November 12, 1998
    Peter Lawson-Johnston         Director
 
                                President, Chief Executive
    /s/ RICHARD L. LISTER         Officer and Director
------------------------------    (PRINCIPAL EXECUTIVE       November 12, 1998
      Richard L. Lister           OFFICER)
 
     /s/ PAUL A. CARROLL
------------------------------  Director                     November 12, 1998
       Paul A. Carroll
 
------------------------------  Director                     November   , 1998
       Morton A. Cohen
 
     /s/ JOHN M. DONOVAN
------------------------------  Director                     November 12, 1998
       John M. Donovan
 
   /s/ THOMAS B. EVANS, JR
------------------------------  Director                     November 12, 1998
     Thomas B. Evans, Jr.
</TABLE>
 
                                      -39-
<PAGE>
<TABLE>
<CAPTION>
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
 
<C>                             <S>                         <C>
     /s/ R. PETER GILLIN
------------------------------  Director                     November 12, 1998
       R. Peter Gillin
 
    /s/ GARTH A.C. MACRAE
------------------------------  Director                     November 12, 1998
      Garth A.C. MacRae
 
    /s/ WILLIAM J. VANDEN
            HEUVEL
------------------------------  Director                     November 12, 1998
   William J. vanden Heuvel
 
                                Vice President and Chief
    /s/ ALLEN J. PALMIERE         Financial Officer and
------------------------------    Assistant Secretary        November 12, 1998
      Allen J. Palmiere           (PRINCIPAL FINANCIAL AND
                                  ACCOUNTING OFFICER)
</TABLE>
 
                                      -40-