<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

         For the fiscal year ended              Commission file number
             DECEMBER 31ST, 1996                        0-27992

                              ELAMEX, S.A. DE C.V.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

           MEXICO                                       NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)


           AVENIDA INSURGENTES NO. 4145-B OTE.
              Cd. JAUREZ, CHIHUAHUA  MEXICO                       C.P. 32340
        (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                  (ZIP CODE)

  REGISTRANT  TELEPHONE NUMBER, INCLUDING AREA CODE:          (915) 774-8252
                                                            IN EL PASO, TEXAS

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:
       Title of each class                Name of exchange on which registered
CLASS I COMMON STOCK, NO PAR VALUE              NASDAQ NATIONAL MARKET

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes X   No 
                                   ---     ---

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 3, 1997 was: $37,583,437.50

     The number of shares of Class I Common Stock of the registrant outstanding
as of March 3, 1997 was: 
                                   7,400,000


                       DOCUMENTS INCORPORATED BY REFERENCE

     Item 14 incorporates by reference exhibits to the registrant's registration
statement on Form S-1, file number 333-01768.

     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 any amendment to this Form 10-K. [X]


<PAGE>

     REFERENCES IN THIS FORM 10-K TO "ELAMEX" OR THE "COMPANY" ARE TO ELAMEX,
S.A. DE C.V. AND ITS SUBSIDIARIES, COLLECTIVELY, AND REFERENCES TO "ELAMEX,
S.A. DE C.V". ARE SOLELY TO ELAMEX, S.A. DE C.V. EFFECTIVE JANUARY 1, 1993, THE
MEXICAN CONGRESS APPROVED THE ESTABLISHMENT OF A NEW CURRENCY UNIT, THE NEW
PESO, WHICH REPLACED THE PESO AT A RATE OF ONE NEW PESO PER ONE THOUSAND PESOS.
BEGINNING JANUARY 1, 1996, THE NAME OF THE CURRENCY UNIT WAS CHANGED FROM NEW
PESO TO PESO WITHOUT ADJUSTING ITS VALUE. IN THIS FORM 10-K, REFERENCES TO "$"
AND "U.S. DOLLARS" ARE TO UNITED STATES DOLLARS AND REFERENCES TO "NPS.", "PS",
"NEW PESOS" AND "PESOS" ARE TO MEXICAN PESOS AFTER THE CHANGES DESCRIBED ABOVE.

ITEM 1. BUSINESS

     Elamex is a leading contract manufacturer located in Mexico, delivering
high-quality finished goods to Original Equipment Manufacturers ("OEMs") based
in North America pursuant to manufacturing contracts. Although functioning as
independent contractor, the Company operates in material respects as a
manufacturing arm of its customers, offering a rapid and cooperative response
to the customers' needs. The Company focuses on the effective management of
assembly processes, which range from assembly-only services managed by the
customer or by Elamex to full materials procurement and assembly contracts that
are referred to in the industry as "turnkey" contracts. The Company frequently
works with customers from product design and prototype stages through ongoing
production, and provides manufacturing services for successive product
generations.

     Elamex's OEM customers are primarily U.S. and Canadian companies, mainly
in the electronics industry, as well as in the electromechanical, avionics and
medical industries. The Company's revenues are in U.S. dollars and it obtains
financing in U.S. dollars based on contracts with such U.S. and Canadian
customers providing for payment in U.S. dollars. The Company's headquarters and
certain of its manufacturing facilities are located within nine miles of the
U.S. border and the international's airport, rail and truck depots in El Paso
Texas. Elamex currently operates or directs operations at 17 manufacturing
facilities. The Company prepares financial statements in U.S. dollars in
conformity with generally accepted accounting principles applicable in the U.S.
("U.S. GAAP") and also maintains certain financial information in conformity
with generally accepted accounting principles applicable in Mexico ("Mexican
GAAP").

     The Company was a pioneer in Mexico's Border Industrialization Program,
usually referred to as the Maquiladora program, in which originally real
estate, and later labor, were provided to foreign companies. This companies
managed the production for export, or the enhancement of their own imports into
Mexico for subsequent export. Elamex's business has evolved from the early
Maquiladora concept of supplying real estate and labor for foreign managers to
its present status which includes management by Elamex, itself, of assembly
services and turnkey manufacturing services. Elamex, S.A. de C.V. is the
successor pursuant to the merger, effective October 1, 1995, of Elamex
Internacional, S.A. de C.V. ("Elamex Internacional") with and into Elamex, S.A.
de C.V. The predecessor of Elamex, S.A. de C.V. was formed in 1990, when Accel,
S.A. de C.V. ("Accel"), a public company listed on the Mexican Stock Exchange,
indirectly acquired a majority interest in the Company's operations.

INDUSTRY BACKGROUND

     During the early 1980s, the commercialization of the personal computer
began to fuel substantial growth in the electronics industry and, with it, the
growth of contract manufacturers. At about the same time, significant advances
were made in commercial manufacturing technology as Surface Mount Technology
("SMT") began to replace Pin Through-Hole ("PTH") technology as the preferred
method for the assembly of circuit boards. SMT provided OEMs with significant
cost savings while at the same time increasing the performance of their
products. Many of the benefits of SMT, especially those relating to cost
reduction, were passed along to customers. The Company believes these benefits
have helped to sustain the 

                                       2
<PAGE>

double digit percentage growth rate of the electronics industry into the 1990s.

     OEMs originally utilized contract manufacturing sources primarily to
reduce labor costs in the production of electronic assemblies and to provide
additional manufacturing capacity in times of peak demand. These early contract
manufacturers typically were employed on an assembly basis in which the OEM
provided the circuit and production designs, procured all components,
frequently managed the production process and performed the final product
testing. As contract manufacturers began to perform more management services,
the relationship between OEMs and contract manufacturers became more strategic
in nature, with the two now linked in a closer relationship in order to quickly
deliver cost-effective, high-quality products to the marketplace. The practice
of contract manufacturers providing management services has evolved into
turnkey manufacturing, in which the contract manufacturer performs the
procurement function and manages the assembly process. In Elamex's experience,
procurement generates lower margins than assembly work, and Elamex believes the
same is true for other contract manufacturers. However, Elamex has also found
that parts and equipment procurement creates other advantages, such as greater
control over the manufacturing process and increased customer satisfaction due
to the reduction of an additional cost to the OEM. Elamex believes that the
ability to provide these procurement advantages reinforces the strategic
relationship between the OEM and the contract manufacturer.

     The Company believes that the strategic use of contract manufacturers has
provided significant benefits to contract manufacturers and to OEMs. Contract
manufacturers have benefited from the economies of scale resulting from larger
and more frequent orders from OEMs, as well as from the strategic and
operational benefits arising from the stability of longer-term relationships.
OEMs have been able to reduce costs and increase flexibility through the use of
contract manufacturers.

     The contract manufacturing industry is characterized by a high degree of
customer and market concentration. According to Technology Forecasters, Inc.,
approximately 50% of the contract manufacturing industry's sales in 1995 were
to the computer industry. While the Company does not currently perform a
significant amount of manufacturing for the computer industry, it has found
that margins on computer products it has manufactured are generally lower than
those for other products the Company manufactures. The Company believes that
the two largest customers of the average contract manufacturer account for in
excess of 45% of sales for such contract manufacturer.

     The industry is also expected to grow significantly. Technology
Forecasters, Inc. estimates that U.S.-Canadian demand for electronics contract
manufacturing will grow from expenditures of approximately $22 billion in 1995
to approximately $63 billion by 1999, an average annual growth rate of
approximately 30%, and that the worldwide electronics contract manufacturing
industry will grow from expenditures of $46 billion in 1995 to approximately
$117 billion by 1999, an average annual growth rate of approximately 26%. The
Company believes that the integration of digital and wireless technologies into
new products will help generate growth from several markets outside of the
computer industry, such as telecommunications, industrial electronics and
medical instrumentation. In addition to growth directly relating to the
electronics industry, the Company believes that further growth for contract
manufacturing will come from an increasing need for OEMs to reduce product time
to market and to manage more complex product designs, inventories and component
procurements.

MANUFACTURING SERVICES

     Elamex is a contract manufacturer in the electronics industry, as well as
the electromechanical, avionics and medical industries. Elamex's work for the
electronics and avionics industries includes the assembly of printed circuit
boards with SMT, including SMT on flexible boards, plastic over-molding of SMT
boards and other technologies. The Company's work for the electromechanical
industry includes the manufacture of such electrical devices as switchboard
components, outlet strips, smoke detectors, automatic timer switches and other
devices that are not based on complex electronic circuitry, fiber optic cables
and connectors, and the refurbishment of telephones. Elamex's work for the
medical industry includes assembly 


                                       3
<PAGE>

surgery sets and band aid packaging. Many of these operations are conducted in
special clean rooms.

     Approximately 28.5% of Elamex's net sales in 1996 were derived from
assembly projects, in which Elamex provides manufacturing services, while the
customer retains responsibility for parts procurement and, in some cases,
direct management of Elamex's employees. Turnkey projects, which accounted for
71.5% of Elamex's net sales during 1996, are those in which Elamex is
responsible for manufacturing and delivering the completed product. All turnkey
projects involve manufacturing and assembly services and materials procurement.
In these projects, Elamex buys raw materials from U.S. and worldwide suppliers,
and then performs the required assembly work using those raw materials. The
majority of the finished products are returned to the United States and the
import duty, if any, is paid only on the value added during assembly plus the
value of foreign content. When finished products are delivered from the United
States to other countries, the customer pays the import duty, if any, imposed
by such other country. Under The North America Free Trade Agreement ("NAFTA"),
most products produced by Elamex are duty-free into the United States.

     As an independent-contractor-manufacturing-arm of its customers, Elamex
combines stringent quality control, sophisticated inventory management and
cost-effective assembly techniques for the benefit of its customers. The
Company's manufacturing operations are structured to incorporate the complex
design specifications of its customers' products and to respond rapidly to
their design changes. Prior to commencing a manufacturing project, Elamex works
closely with the OEM to determine the manufacturing operations and the
organization, selection and training of the work force, with particular
emphasis on sophisticated training techniques. In establishing a "total
manufacturing solution" to its OEM customers, the Company provides expertise in
managing the work force available at its facilities, assisting its customers
with accounting and management functions, and handling customs, warehousing and
other matters inherent in manufacturing in Mexico. In a further effort to
create a "total manufacturing solution" relationship with its customers, the
Company has improved communications and information reporting using electronic
data interchange with its customers. Elamex maintains a microwave link across
the border to El Paso, Texas, and as a result it can be reached through
telephone numbers in the El Paso area code; this system also functions for
electronic data interchange, fully integrating the Company into the U.S.
telephone system.

     Approximately 77.1% of Elamex's net sales for 1996 were derived from the
manufacture of electronic products. Over the last three decades, continuous
advances have been made in the design of electronic components and in
interconnection technologies. Prior to the 1980s, manufacturers developed the
technique of PTH technology. In PTH assembly, electrical components such as
integrated circuits are attached to printed circuit boards by means of pins or
leads that are inserted into pre-drilled holes and soldered to the electrical
circuits on the boards. As electronic devices required greater numbers of
components with increasing functional density and more interconnections,
manufacturers developed SMT. SMT eliminates the need for holes in the printed
circuit board, permitting a higher number of leads than PTH and finer
lead-to-lead spacings ("pitch"). This technology also allows components to be
placed on both sides of a board. Both factors substantially reduce board size.
SMT requires the use of more expensive automated assembly equipment and
substantially more engineering expertise than PTH. Elamex has adopted SMT as
the primary means of electronic assembly for a number of major products,
including personal computers, computer peripheral products, communications
equipment, navigational control systems, automotive sensors and audio mixing
boards. The Company also produces complex wire cable assemblies, plastic
over-molded SMT printed circuit boards and fiber optic cables and connectors.

     Elamex customizes its assembly lines for each customer by assigning a
separate workforce, team leaders, supervisors, production engineers, managers
and quality control personnel to each project. Elamex analyzes the customer's
proposed production process, including the original process if applicable, and
proposes improvements whenever possible. Assembly lines are customized to the
customer's needs before manufacturing begins. The size of an assembly line is
jointly determined by Elamex and the customer. The customer generally provides
some of the equipment, particularly for specialized testing and other
customer-specific work, while Elamex provides the assembly services and generic
equipment. Some 


                                       4
<PAGE>

customers provide materials used in the production process, while others
contract for turnkey projects involving procurement. Final manufacturing
inspection may be performed at the customer's plant or by Elamex in "dock to
stock" arrangements. Additionally, many products manufactured by Elamex are in
the early stages of their product lifecycle and, therefore, may require ongoing
design or engineering changes. Responsiveness to customers, particularly with
respect to engineering changes once manufacturing has commenced, is a crucial
component of Elamex's manufacturing approach.

     The Company's business is materially dependent on it's ability to produce
products of uniformly high quality. The Company has established quality
processes under International Standards Organization certification ISO 9002,
military specifications of the U.S. Department of Defense and Good
Manufacturing Practices certifications. Where appropriate, Elamex also works to
achieve this objective using specialized "pick and place" automated equipment.
To implement and maintain these quality goals, Elamex employs a large staff of
professional engineers.

CUSTOMERS AND MARKETS

     The Company has attempted to balance its marketing efforts and
manufacturing services between OEMs of industrial and professional products and
those of consumer electronics products. Elamex customers are a diverse group of
United States, Canadian and multinational OEMs, including Black & Decker Corp.,
Polaroid Corp., Xircom, Inc., Texas Instruments, Motorola, JBL
Professional/Harman International, Lockheed Martin, Adtran and Siemens Rolm.
Contracts with Elamex's five largest customers for 1996 accounted for
approximately 66% of Elamex's committed contract revenues. Approximately 18%,
16% and 14% of the Company's net sales for 1996 were derived from sales to
Black & Decker Corp., a manufacturer of home appliance consumer products,
Polaroid Corp., a manufacturer of photographic consumer products and Xircom,
Inc., a manufacturer of computer products, respectively, and approximately 23%,
18% and 16% of the Company's net sales 1995 were derived from sales to Polaroid
Corp., Black & Decker Corp., and Xircom, Inc., respectively. Certain of the
Company's contracts contain pricing mechanisms that are based on the Company's
costs.

     Elamex and O.F. Mossberg & Sons ("Mossberg") are parties to a
manufacturing contract pursuant to which Elamex has agreed to manufacture
shotgun components and safe deposit boxes. Due to the Mexican government's
regulation of the manufacture of firearms, this contract is performed by Elamex
de Torreon S.A. de C.V. ("Elamex de Torreon"), a company beneficially owned by
certain of the Company's officers and directors, under contract to Elamex.

     Elamex has been qualified by the U.S. Department of Defense for
manufacturing military and aerospace specifications products. To serve a larger
base of customers in Europe as well as in the United States, Elamex has been
certified under ISO 9002, one of the highest total quality control standards in
the world, at all of its facilities where Elamex manages the labor force.

     The Company's primary customers include Black & Decker Corp., Polaroid
Corp., Xircom, Inc., ADC Telecommunications, Inc. and Texas Instruments.

                                       5
<PAGE>

     The chart below sets forth the Company's OEM customers by industry, the
application for which Elamex manufactures products for such customers and the
products and services provided by the Company.

<TABLE>
<CAPTION>

       OEM CUSTOMER                 END USE                  OEM APPLICATION              ELAMEX PRODUCTS AND SERVICES
<S>                         <C>                     <C>                                <C>

ADC Telecommunications      Telecommunications      PBX Telecommunications equipment   PBX/Switchboards & fiber optic
                                                                                       cable connection

Adtran                      Data Communications     Cable/telephone communications     Printed circuit boards
                                                    systems

American Sensors            Commercial              Smoke detectors                    Printed circuit boards & final
                                                                                       assembly

ASO Corporation             Medical                 Flexible bandages                  Bandage packaging
Austin Innovations          Commercial              Pet trainers                       Printed circuit boards & final
                                                                                       assembly

Black & Decker              Commercial              Power tool battery chargers        Printed circuit boards & final
                                                                                       assembly

Clinipad                    Medical                 Medical kits                       Surgical kits packaging

Honeywell                   Commercial              Home and building controls         Printed circuit boards
Infopak                     Computer                Palmtop computers                  Printed circuit boards & computer
                                                                                       assembly

Intermatic                  Commercial              Electronic timers, powerstrips,    Printed circuit boards & final
                                                    sensors                            assembly

JBL Professional/Harman     Commercial              Sound Mixers                       Printed circuit boards & final
  International                                                                        assembly

Lockheed Martin             Military/Aerospace      Military products                  Printed circuit boards & cables
Lucent Technologies         Telecommunications      Telephones                         Telephone equipment repair
Motorola                    Commercial              Semiconductors                     Semiconductors/mark test & packing
M. Stephens Manufacturing   Commercial              Electric connectors boxes          Painting, polishing assembly and
                                                                                       packaging of  Electric connector
                                                                                       boxes

Nintendo of America         Commercial              Video Game System                  Printed circuit boards and final
                                                                                       assembly
O.F. Mossberg & Sons        Commercial              Pump action shotguns               Fabrication of shotgun components
                                                                                       & safe deposit boxes
Plantronics                 Telecommunications      Telecommunications equipment       Printed circuit boards
Polaroid                    Commercial              Instant & industrial photographic  Flexible and rigid circuit
                                                    cameras                            boards/component assembly

Siemens/Rolm Systems        Telecommunications      PBX Telecommunications equipment   Switchboard repair
Sunflower                   Commercial              Marketing of promotional products  Packaging of promotional products
Texas Instruments           Industrial              Motor control circuits             Printed circuit boards
                            Automotive              Automotive control devices         Flexible printed circuit boards
                                                    (transducers)

                            Commercial              Transponders for toll systems      Printed circuit boards

Texas Microsystems          Computer                Motherboards and VGAs              Printed circuit boards
Venusa                      Medical                 Intravenous kits                   Intravenous kit assembly
Viskase                     Commercial              Food products                      Casing of food products
Xircom                      Computer                LAN adapters                       Printed circuit boards & cables
Zoom Telephonics            Data Communications     Communications products            Printed circuit boards
</TABLE>




SALES AND MARKETING

     The Company has pursued the diversification of its market segments and
customer base and sought relationships with leading OEMs in the markets it
serves. The Company's principal sources of new business originate from the
growth of existing relationships, referrals and direct sales through senior
management and direct sales personnel. Sales personnel, supported by the
executive staff, identify and attempt to develop relationships with potential
OEM customers who meet a certain profile, which includes financial stability,
industry leadership, need for technology and assembly-driven manufacturing,
anticipated unit volume 


                                       6
<PAGE>

growth and long-term relationship potential. Elamex also conducts seminars to
introduce potential customers to the benefits of contract manufacturing in
Mexico. In addition to the efforts of it's sales force, Elamex may pursue the
growth through selective acquisitions.

COMPETITION

     The electronics assembly and the contract manufacturing industries are
comprised of a large number of companies, several of which have achieved
substantial market shares. Several of Elamex's competitors have significantly
higher sales, primarily those manufacturers of high volume computer components
where sales volume can be high. Elamex also faces competition from current and
prospective customers who evaluate Elamex's capabilities against the merits of
manufacturing products internally. Elamex competes with various companies,
depending on the type of service or geographic area. Certain of Elamex's
competitors, including SCI Systems, Inc. and Solectron Corporation and
divisions of International Business Machines Corp., Inc. have substantially
greater resources than Elamex.

     The Company believes that the primary bases of competition in its targeted
markets are time to market, capability, price, manufacturing quality, advanced
manufacturing technology and reliable delivery. Elamex believes that it
generally competes favorably with respect to each of these factors. To remain
competitive, the Company must continue to provide technologically advanced
manufacturing services, maintain world-class quality levels, offer flexible
delivery schedules, deliver reliable finished products and compete favorably on
the basis of price.

EFFECT OF NAFTA

     The Company believes that NAFTA is having an overall positive effect on
its business. NAFTA eliminates import duties and reduces other restrictions on
imports into the United States and Canada. These benefits enable Elamex to
manufacture goods from imports into Mexico and to return the finished product
to the United States and Canada, without paying significant duties. Moreover,
the Company believes that NAFTA has the general effect of encouraging growth in
industries for which Elamex provides manufacturing services, and will permit
the Company's customers to increase their sales in the Mexican market.

BACKLOG

     The Company's order backlog at December 31, 1996 was approximately $147.9
million, compared to order backlog at December 31, 1995 of approximately $115.2
million. Backlog consists of firm purchase orders, commitments and forecasts
which are to be filled within the next 12 months. However, since orders and
commitments may be rescheduled, increased or canceled, backlog is not
necessarily a meaningful indicator of future financial performance.

SUPPLIERS

     The Company uses numerous suppliers of electronic components and other
materials for its operations. Although the Company has a general policy against
procuring components without a customer commitment to pay for them, it must do
so on occasion. While the Company will work with customers and suppliers to
minimize the impact of any component shortages or allocations, component
shortages and allocations have had, and are expected to have from time to time,
short-term adverse effects on Company sales.

RAW MATERIALS

                                       7
<PAGE>

     Raw materials consist of electronic commodities, including integrated
circuits, transistors and other solid state elements, printed circuit boards
and other circuit elements, as well as components for electromechanical and
medical assembly, many of which are provided by customers. Virtually all raw
materials supplied by Elamex are purchased in Asia and the United States, with
the larger part coming from the United States. Elamex believes that it is not
materially dependent on any one supplier or group of suppliers; it purchased
less than 6% of its supplies from its largest vendor in 1996. Certain vendors
operate at full capacity from time to time and allocate their products among
customers. Elamex believes that larger companies generally command larger
allocations; however, because of its large-scale purchases of these products,
Elamex also believes that it sometimes has greater bargaining power for
particular products than its customers even though it may be smaller.

EMPLOYEES

     Elamex had 5,040 employees at December 31, 1996, of which 264 were
employees subcontracted from Elamex de Torreon. In 15 active facilities
currently used by Elamex in its manufacturing operations, 291 employees in four
facilities are covered by collective bargaining agreements; all other employees
of the Company at the remaining eleven facilities are not. Elamex believes that
its labor relations are good in all of its facilities.

     Twenty-nine of the Company's executives and senior managers who are
citizens or residents of the United States are employees of a U.S. corporation
owned by such executives, and provide contracted services to Elamex. The
purpose of this arrangement is to provide to U.S.-resident employees U.S.
dollar-denominated salaries and U.S.-style employee benefits. Under the
contract, the Company pays to the corporation an amount equal to the salary and
benefits provided to the executives by the corporation.

ENVIRONMENTAL COMPLIANCE

     The Company's operations are subject to the Mexican General Law of
Ecological Stabilization and Environmental Protection (the "Ecological Law")
and the regulations promulgated thereunder. In accordance with the Ecological
Law, companies engaged in industrial activities are subject to the regulatory
jurisdiction of the SECRETARIA DEL MEDIO AMBIENTE, RECURSOS NATURALES Y PESCA
(the "Ministry of the Environment, Natural Resources and Fishing"). Since
September 1990, each such company has been required to file several semi-annual
reports regarding its production facilities and to comply with the Ecological
Law and the regulations thereunder, with respect to its environmental
protection controls and the disposition of industrial waste. The Company is
licensed to handle radioactive materials, which are presently used in the
manufacture of smoke alarms, and complies with both U.S. and Mexican standards
relating to the handling of such materials. In addition, the Company is subject
to U.S. environmental laws and regulations as a consequence of the return to
the United States of hazardous wastes generated by the Company that are derived
from materials imported from the United States, a requirement of its
participation in the Maquiladora program. Such laws and regulations may impose
joint and several liability on certain statutory classes of persons for the
costs of investigation and remediation of contaminated properties regardless of
fault or the legality of the original disposal. These persons include the
present and former owner or operator of a contaminated property and companies
that generated, disposed of, or arranged for the disposal of hazardous
substances found at a property.


                                       8
<PAGE>

     Mexican environmental laws and regulations have become increasingly
stringent over the last decade. This trend is likely to continue and may be
influenced by the environmental agreement entered into by Mexico, the United
States and Canada in connection with NAFTA. The Company believes that its
policies with respect to environmental matters in Mexico currently exceed the
standards set forth in the Ecological Law. The Company is committed to
maintaining high standards of environmental protection controls.

EXCHANGE RATES

     The following table sets forth, for the periods indicated, the high, low,
average and period-end and free market rates for the purchase and sale of U.S.
dollars (presented in each case as the average between such purchase and sale
rates), expressed in nominal Pesos per U.S. dollar.

<TABLE>
<CAPTION>

YEAR ENDED                        HIGH(1)     LOW(1)     AVERAGE (2)      PERIOD END(1)
DECEMBER 31,                      -------     ------     -----------      -------------
------------
<C>                               <C>        <C>         <C>              <C> 

1990............................    Ps$.2.95   Ps$.2.68      Ps$.2.84         Ps$.2.95
1991............................        3.07       2.95          3.01             3.07
1992............................        3.14       3.06          3.08             3.12
1993............................        3.16       3.02          3.11             3.11
1994............................        5.00       3.11          3.35             5.00
1995............................        8.05       5.00          6.44             7.69
1996                                    8.05       7.33          7.60             7.86
1997 (through March 3)..........        7.97       7.74          7.82             7.97
------
</TABLE>

SOURCE:  Ciemex Wefa Group
(1)      Daily rate at market close.
(2)      Average of daily rates.

ITEM 2. PROPERTIES

     The Company's Ciudad Juarez facilities (including its headquarters) are
located only a short distance from the U.S. border and the international
airport, rail and truck depots in El Paso Texas. Set forth below are Elamex's
principal manufacturing facilities:

<TABLE>
<CAPTION>
 LOCATION        SQUARE FEET                   ACTIVITY                                LEASED/OWNED
 --------        -----------                   --------                                ------------
<S>                    <C>   <C>                                                      <C>

 Cd. Juarez        80,280   Electronic Equipment Assembly and Electronic Circuit     Leased(1)
                             Manufacturing
                            
 Cd. Juarez        88,897   Electromechanical Part Assembly                          Leased
 Cd. Juarez        44,909   Electronic Circuit Manufacturing                         Leased
 Cd. Juarez        58,841   Medical Product Assembly                                 Owned(2)
 Cd. Juarez        43,034   Avionics Product Assembly                                Owned
 Cd. Juarez        64,866   Electromechanical Product Assembly                       Leased(1)
 Cd. Juarez        67,038   Medical Product Assembly                                 Owned
 Cd. Juarez        40,263   Electronic Equipment Assembly                            Leased
 Delicias          26,804   Electromechanical Product Assembly                       Leased
 Nuevo Laredo      60,658   Telephone Repair and Auto Part Assembly                  Owned
 Nuevo Laredo      43,917   Telephone Repair                                         Leased(1)
 Guadalajara       57,246   Testing of Electronic Semiconductors                     Owned(3)
 Torreon           55,845   Assembly of shotgun parts                                Owned
 Tijuana           55,647   Electromechanical product assembly                       Leased
 Tijuana           13,778   Electromechanical product assembly                       Leased
</TABLE>


                                       9
<PAGE>

<TABLE>

<S>                    <C>   <C>                                                      <C>
 Monterrey          22,098   Electromechanical product assembly                       Leased
 Praxedis           11,517   Electromechanical product assembly                       Leased
                    ------
      Total        835,638
</TABLE>

-------
(1)  Leased from a company controlled by Federico Barrio, a Director of the
     Company.

(2)  A customer who leases this facility has an option under the lease to
     purchase the facility at fair market value. 

(3)  Asset available for sale or lease.

ITEM 3. LEGAL PROCEEDINGS

     The Company is a party to various claims, actions and complaints, the
ultimate disposition of which, in the opinion of management will not have a
material adverse effect on the business or financial position of the Company.

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

On April 18, 1996 the stockholders of Elamex, S.A. de C.V. at a general
ordinary annual stockholders meeting approved: (i) the business report on
Elamex, S.A. de C.V. for 1995 fiscal year;(ii) the presentation of audited
financial statements as of December 31, 1995 and the report by the statutory
auditor; (iii) the proposal for application of Net Income; (iv) the election of
Board of Directors, Secretary and Statutory Auditor; and (v) the ratification
of the appointment of KPMG Peat Marwick LLP as independent auditors of Elamex,
S.A. de C.V. for the fiscal year ending December 31, 1996;

On February 24, 1997 the stockholders of Elamex, S.A. de C.V. at an
extraordinary stockholders meeting approved the merger of Kronos, Inc., formerly
a wholly owned subsidiary of the Company, into Elamex, S.A. de C.V., effective
December 31, 1996.

                                     PART II

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

     The Company's Class I Common Stock, no par value ("Common Stock") has been
traded on The Nasdaq National Market under symbol ELAMF since March 20, 1996.
The following table sets forth, for the period stated, the high and low closing
sales prices for the Common Stock as reported on the Nasdaq National Market
Systems.

                                                    CLOSING SALES PRICE

          PERIOD                                  HIGH               LOW
-------------------------------------------------------------------------
March 20, 1996 - March 31, 1996                    9 1/8             8 7/8
April 1, 1996 - June 30, 1996                     10 3/8             8 7/8
July 1, 1996 - September 30, 1996                  9 7/8             8
October 1, 1996 - December 31, 1996               10 1/2             8 7/8
January 1, 1997 - March 14, 1997                  11 3/4             9


                                       10
<PAGE>

     The Company currently intends to follow a policy of retaining earnings, if
any, for use in the development of business and to finance growth. The Company
has never paid cash dividends on its Common Stock and has no plans to do so in
the foreseeable future. Certain of the Company's existing bank credit lines
impose limitations on the amount of dividends that Elamex may pay.
Specifically, one limits the amount of dividends that may be declared, without
the consent of the lender, to the prior year's net profits. Another credit
agreement permits payment of dividends only if the Company has complied with
all of its covenants and other obligations under such credit agreement. As of
March 21, 1997, there were approximately 1,098 beneficial holders of the
Company's Common Stock.

     Also, on April 18, 1996 at the Company's annual stockholders meeting,
$897,406 was reserved for the stock repurchase fund.

     The Mexican Law of Commercial Companies ("LEY GENERAL DE SOCIEDADES
MERCANTILES") requires that at least 5% of the Company's net income each year
(after profit sharing and other deductions required by law) be allocated to a
legal reserve fund, which is not thereafter available for distribution except
as a stock dividend until the amount of such fund equals 20% of the Company's
historical capital stock. The Company may also maintain additional reserves.

TAXATION OF DIVIDENDS

UNITED STATES FEDERAL INCOME TAXES

     Dividends (other than certain dividends paid on a pro rata basis in
additional Common Stock) paid by the Company with respect to Common Stock out
of current or accumulated earnings and profits ("E&P") to a United States
holder will be treated as ordinary income to such holder. United States
corporations that hold Common Stock will not be entitled to the dividends
received deduction generally available for dividends received from United
States corporations (and certain non-United States corporations). To the extent
a distribution exceeds E&P, it will be treated first as a return of such
holder's basis to the extent thereof, and then as gain from the sale of a
capital asset. Such capital gain will be long term if the Common Stock has been
held by such holder for more than one year.

     Dividends generally will constitute foreign source "passive income" or, in
the case of certain United States holders, "financial services income" for U.S.
foreign tax credit purposes.

     Dividends paid in Mexican Pesos will be included in gross income of a
United States holder in a U.S. dollar amount calculated by reference to the
exchange rate in effect on the date of receipt of the distribution, whether or
not the Pesos are in fact converted into U.S. dollars at that time. If Pesos
are converted into U.S. dollars on the day they are received by a United States
holder, such holder generally should not be required to recognize foreign
currency gain or loss in respect of the dividend income. United States holders
should consult their own tax advisors regarding the treatment of any foreign
currency gain or loss on any Pesos which are not converted into U.S. dollars on
the day the Pesos are received by such holders.

     Distributions of additional Common Stock to United States holders with
respect to their pre-distribution holdings of Common Stock ("old Common Stock")
that are made as part of a pro rata distribution to all stockholders of the
Company generally will not be subject to U.S. federal income tax 


                                       11
<PAGE>

(except with respect to cash received in lieu of fractional shares of Common
Stock). The basis of the Common Stock so received will be determined by
allocating the United States holders' adjusted basis in the old Common Stock
between the old Common Stock and the Common Stock so received.

     A holder of Common Stock that is, with respect to the United States, not a
United States holder (a "non-United States holder") will not be subject to U.S.
federal income or withholding tax on dividends paid with respect to the Common
Stock, unless such dividends are effectively connected with the conduct by the
holder of a trade or business in the United States.

MEXICAN INCOME TAXES

     Mexican income tax law requires that Mexican corporations must pay income
tax on taxable income for each fiscal year. Mexican corporations must maintain
an account called the CUENTA DE UTILIDAD FISCAL NETA or "previously taxed net
earnings account" ("CUFIN", from the Spanish initials). In its CUFIN the
Mexican corporation records the balance of the tax profits from previous years,
on which income tax has already been paid plus dividends received from Mexican
corporations. The CUFIN account balance is subject to restatement for
inflation.

     Whenever a Mexican corporation pays dividends to its stockholders, if the
amount maintained in the CUFIN balance exceeds the dividend payment to be made,
neither the Mexican corporation nor the stockholders will have to pay Mexican
income tax on such dividend payment. Therefore, for Mexican tax purposes,
dividend payments made by the Company to United States holders will not
generally be subject to imposition of Mexican income taxes. However, if the
Mexican corporation's CUFIN balance is less than the dividend payment, then the
Mexican corporation must pay income tax of 34% of 1.515 times the amount which
exceeds such balance.

     If the Company distributes stock dividends to United States holders, or
pays a dividend in cash and such payment is to be used by the United States
holders for a capital subscription or for reinvestment in the Company's stock,
and either such transaction by the United States holders occurs within 30 days
following the date of the dividend payment, there will be no Mexican tax
consequences for such United States holders, so long as the Company does not
reduce its capital stock liquidity. If the Company reduces its capital stock
and the balance of its CUFIN plus its capital contributions restated for
inflation is less than the amount of such stock reduction, the Company will be
required to pay income tax on such excess. Tax must also be paid on the excess,
if any, of the shareholder's equity over the sum of the CUFIN, the capital
contributions restated for inflation and the taxable amount determined as
previously indicated. In this case the taxable basis cannot be greater than the
total amount of the capital reduction.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     Although the Company is a Mexican Company located in Mexico, its
functional currency is the U.S. dollar, which is the principal currency in
which it conducts business. The Company prepares consolidated financial
statements in U.S. dollars in conformity with U.S. GAAP and also maintains
certain financial information in conformity with Mexican GAAP. Except as
otherwise stated herein, all monetary amounts in this report have been
presented in U.S. dollars.

                                       12
<PAGE>

     The following table sets forth selected consolidated financial data of the
Company as of and for each of the years ended December 31, 1992, 1993, 1994, 
1995 and 1996. Each of the Company's fiscal quarters is comprised of 13 weeks 
and ends on a Sunday, except for the first quarter, which starts on January 1, 
and the fourth quarter which ends on December 31. This table is qualified by
reference to and should be read in conjunction with the Consolidated Financial
Statements, related Notes thereto and other financial data included elsewhere
in this Form 10-K.

     The selected consolidated financial data presented below under the
captions "Income Statement Data" for each of the years in the four-year period
ended December 31, 1996 and "Balance Sheet Data" as of December 31, 1993, 1994,
1995 and 1996, set forth below, have been derived from consolidated financial
statements of Elamex, S.A. de C.V. and subsidiaries, which financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated financial statements as of December 31, 1996, and
1995, and for each of the years in the three-year period ended December 31,
1996, and the report thereon, are included elsewhere in this Form 10-K. The
selected consolidated financial data as of December 31, 1992 have been derived
from unaudited financial data of predecessor entities. These historical results
are not necessarily indicative of the results to be expected in the future.

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                       ------------------------
                                   1992 (1)         1993             1994        1995           1996
                                   --------         ----             ----        ----           ----
                                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                 <C>          <C>             <C>         <C>            <C>   

INCOME STATEMENT DATA:
Net sales...............            $60,221      $70,244          $84,816     $97,544       $118,919
Gross profit............              6,977        9,524           10,210      14,972         18,683
Operating income........                980        2,617            2,748       8,788         10,366
EBITDA                                2,717        4,613            4,703      11,206         13,315
Other income (expense)..               (769)        (821)            (460)       (852)           136
Income tax provision(2).                256          622              743       1,727          2,575
Net income (loss).......               $(45)      $1,173           $1,545      $6,209         $7,927
Net income (loss) per                $(0.27)      $(0.03)           $0.23       $1.20          $1.15
  share (3)
BALANCE SHEET DATA:
Current assets..........            $16,227      $19,659          $23,360     $30,586        $38,955
Property, plant and                  22,211       22,582           22,684      24,023         28,611
  equipment, net.
Total assets............             39,718       43,259           46,783      55,110         67,976
Short-term debt and current
  maturities of long-term debt        4,959       12,017            2,830       5,257            564
Long-term debt, excluding
  current maturities....              7,433        8,603           16,176      15,212            923
Total stockholders' equity (4)       $9,160      $13,336          $14,495     $23,196        $49,864
</TABLE>


------
(1) The Selected Consolidated Financial Data as of December 31, 1992 have been
derived from unaudited financial data. Amounts from separate predecessor
entities are included in the Selected Consolidated Financial Data. All material
intercompany balances and transactions have been eliminated.

(2) The 1993 amount includes the cumulative effect of a change in accounting
principle amounting to $375,000 resulting from the adoption of the Financial
Accounting Standards Board's Statement of Financial Standards No. 109 ACCOUNTING
FOR INCOME TAXES ("FAS 109") in 1993.

(3) 1996 Net income per share of Common Stock was calculated by dividing net
income by the weighted average number of shares of Common Stock outstanding
which was approximately 6.9 million shares, 1995 and previous years' net income
(loss) per share of common stock was calculated by dividing net income (loss) by
the number of common shares outstanding as of the Effective Date, 5,000,000,
after deducting amounts attributable to the rights of senior securities.

                                       13
<PAGE>

(4) Does not include redeemable Preferred Stock and redeemable Common Stock as
of December 31, 1992, 1993, and 1994 of $9,485, $3,406 and $3,792,
respectively.

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

INTRODUCTION

GENERAL

     The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-K. The Company was acquired by Accel, S.A. de C.V. and certain other
investors in May 1990 and is controlled by Accel, S.A. de C.V. at present;
however, the internal organizational structure has changed during this period.
Elamex, S.A. de C.V. is the successor pursuant to the merger, effective October
1, 1995 (the "Effective Date"), of Elamex Internacional with and into Elamex,
S.A. de C.V.

     Although the Company is a Mexican corporation located in Mexico, its
functional currency is the U.S. dollar, which is the principal currency in
which it conducts business. The Company prepares Consolidated Financial
Statements in U.S. dollars in conformity with U.S. GAAP and maintains certain
financial information in accordance with Mexican GAAP.

EXCHANGE RATES; INFLATION

     The Company's results of operations are generally affected by changes in
the exchange rate between Pesos and U.S. dollars as follows: In the case of an
appreciation of value of the U.S. dollar against the Peso, the Company
generally experiences a benefit because its revenues are denominated in U.S.
dollars and certain of its costs and expenses are denominated in Pesos. This
benefit will be reduced by relative inflation in the Peso versus the U.S.
dollar, as well as by inflation within Mexico and by competitive pressures from
the Company's customers. In the case of a depreciation of the U.S. dollar
against the Peso, the Company generally experiences a detriment mirroring the
situation as to appreciation of the dollar, and this detriment will similarly
be reduced by relative inflation in the U.S. dollar against the Peso and
increased pricing by the Company.

     On October 26, 1996, the Mexican government signed a pact with labor and
business representatives called the Alliance for Economic Growth (the
"Alliance"). The Alliance defines a macroeconomic policy designed to support
Mexico's economic recovery and promote future growth. By its provisions, the
minimum wage rate was increased by 17% effective December 1996. Also, over the
12 months following execution of the Alliance, utility charges will increase an
average of approximately 20%. Under the Alliance the Mexican government will
attempt to boost the economy by providing tax incentives for new business
investments, while utilizing wage and price controls to contain inflation. As
part of the Alliance the Mexican government has committed to maintaining a free
flotation system for the Peso in the international currency markets. The
Alliance also calls for development of social and rural programs. The impact of
the Alliance on the Company or the Mexican economy cannot be accurately
predicted.

CERTAIN ACCOUNTING POLICIES

     Direct manufacturing contract costs related to initial manufacturing
layout and setup for new contracts ("Initial Manufacturing Expenses") are
expensed in the current period when such costs are not considered significant.
When such costs are considered significant, the portion of such costs expended
for 


                                       14
<PAGE>

capital equipment are capitalized and are amortized using the straight-line
method during the length of the applicable contract. No manufacturing contract
costs have been capitalized for the year ended December 31, 1996 and 1995. In
addition, labor costs required to achieve normal productivity levels are
expensed in the period incurred. Commencing in 1995, the Company also adopted a
policy of not engaging in futures contracts with the purpose of hedging U.S.
dollar/New Peso revenues or costs, with the exception of regular treasury
operations to cover operating requirements for up to 30 days.

STATUTORY EMPLOYEE PROFIT SHARING

     All Mexican companies are required to pay their employees, in addition to
their agreed compensation benefits, profit sharing in an aggregate amount equal
to 10% of net income, calculated for employee profit sharing purposes, of the
individual corporation employing such employees. All of Elamex's employees are
employed by its subsidiaries, each of which pays profit sharing in accordance
with its respective net income for profit sharing purposes. Tax losses do not
affect employee profit sharing. Statutory employee profit sharing expense is
reflected in the Company's cost of goods sold and selling, general and
administrative expenses, depending upon the function of the employees to whom
profit sharing payments are made. The Company's net income on a consolidated
basis as shown in the Consolidated Financial Statements is not a meaningful
indication of net income of the Company's subsidiaries for profit sharing
purposes or of the amount of employee profit sharing.

     Statutory employee profit sharing was $159,731 or an effective rate of
1.52% of income before taxes, for the year ended December 31, 1996, compared to
$120,474 or an effective rate of 1.52% of income before taxes, for the year
ended December 31, 1995 and $185,923 or an effective rate of 8.13% of income
before taxes, for the year ended December 31, 1994.

RESULTS OF OPERATIONS

GENERAL

     The following table sets forth income statement data as a percentage of
net sales, derived from audited Consolidated Financial Statements included
elsewhere herein, for each period indicated, unless otherwise indicated.

                             PERCENTAGE OF NET SALES

                                             YEAR ENDED DECEMBER 31,

                                               1994        1995        1996
                                               ----        ----        ----

Net sales................................     100.0%      100.0%      100.0%
Cost of sales............................      88.0        84.7        84.3
Gross profit.............................      12.0        15.3        15.7
Selling, general and 
     administrative expenses.............       8.8         6.3         7.0
Operating income.........................       3.2         9.0         8.7
Other income (expense)...................     (0.5)       (0.9)         0.1
Income before taxes......................       2.7         8.1         8.8
Income tax provision.....................       0.9         1.8         2.2
Net income (loss)........................       1.8         6.4         6.7


1996 COMPARED TO 1995

NET SALES. Net sales increased 22% to $118.9 million in 1996 from $97.5 million
in 1995. The increase was attributable principally to increased dollar volume of
turnkey sales to existing customers, and, to a lesser 


                                       15
<PAGE>

extent, an expansion of business from new customers in 1996.

GROSS PROFIT. Gross profit increased by $3.7 million, or 24.8%, to $18.7 million
in 1996 compared to $15.0 million for the prior year. Gross profit as a
percentage of net sales ("gross margin") increased to 15.7% in 1996 from 15.3%
in 1995 due primarily to a shift in the Company's sales mix toward higher
assembly-only services rather than turnkey services. Better utilization of the
Company's manufacturing facilities also contributed to the increased gross
margin, as manufacturing overhead increased at a lower rate than net sales.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 34.5% to $8.3 million, or 7.0% of net sales,
in the year ended December 31, 1996, as compared to $6.2 million, or 6.3% of net
sales, in the year ended December 31, 1995. This increase resulted in part from
the additional cost involved of a public company, an increase in the
administrative manufacturing infrastructure and the reinforcement of the supply
chain management processes.

     Of the Company's aggregate cost of sales and selling, general and
administrative expenses in 1996, approximately 30.3% was incurred in Pesos,
compared to approximately 29.7% in 1995.

OPERATING INCOME. Operating income increased by 18.0% to $10.4 million, or 8.7%
of net sales, during the year ended December 31, 1996 from $8.8 million, or 9.0%
of net sales, during the year ended December 31, 1995, as a result of the above
factors, the most significant of which were changes in the sales mix, turnkey
operations and the economies of scale described under "-Gross Profit" and
"-Selling, General and Administrative Expenses" above.

OTHER INCOME (EXPENSE). Interest and other expenses decreased by $1.0 million to
$0.1 million, or 0.1% of net sales, for the year ended December 31, 1996, from
$(0.9) million or (0.9)% of net sales, for the year ended December 31, 1995.
This decrease resulted principally from lower rates and decreased borrowings
during the period as a result of the public offering proceeds, partially offset
by less interest income on short term investments.


1995 COMPARED TO 1994

NET SALES. Net sales increased 15% to $97.5 million in 1995 from $84.8 
million in 1994. The increase was attributable principally to increased 
dollar volume of turnkey sales to existing customers, and, to a lesser 
extent, an expansion of business from new customers in 1995.

GROSS PROFIT. Gross profit increased by $4.8 million, or 46.6%, to $14.9 million
in 1995 compared to $10.2 million for the prior year. Gross profit as a
percentage of net sales ("gross margin") increased to 15.3% in 1995 from 12.0%
in 1994 due primarily to a shift in the Company's sales mix toward turnkey
services with substantially greater revenue from the assembly component of
turnkey services than the turnkey services provided by Elamex in prior periods;
the assembly component is the higher-margin component of turnkey services, while
materials procurement is the lower-margin component. Better utilization of the
Company's manufacturing facilities also contributed to the increased gross
margin, as manufacturing overhead increased at a lower rate than net sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 17.1% to $6.2 million, or 6.3% of net sales,
in the year ended December 31, 1995, as compared to $7.5 million, or 8.8% of net
sales, in the year ended December 31, 1994. This decrease resulted in part from
an increase in net sales that was achieved with essentially the same personnel
as in 1994, in addition to a depreciation of the Mexican peso; from December 18,
1994 through December 31, 1995, the U.S. dollar 


                                       16
<PAGE>

appreciated 128%, measured in value against the Peso. By December 31, 1995, the
beneficial effects of the devaluation were partially offset by increases in
wages and other costs in Mexico affected by inflation, which were incurred by
the Company during 1995.

     Of the Company's aggregate cost of sales and selling, general and
administrative expenses in 1995, approximately 29.7% was incurred in Pesos,
compared to approximately 39.9% in 1994. This decrease was due to the
devaluation of the Peso during 1995 and the change in sales mix during the
period.

OPERATING INCOME. Operating income increased by 219.9% to $8.8 million, or 9.0%
of net sales, during the year ended December 31, 1995 and from $2.7 million, or
3.2% of net sales, during the year ended December 31, 1994, as a result of the
above factors, the most significant of which were changes in turnkey operations,
the devaluation of the Peso and the economies of scale described under "-Gross
Profit" and "-Selling, General and Administrative Expenses" above.

OTHER INCOME (EXPENSE). Interest and other expenses increased by $0.4 million to
$(0.9) million, or (0.9)% of net sales, in the year ended December 31, 1995,
from $(0.5) million or (0.5)% of net sales, in the year ended December 31, 1994.
This increase resulted principally from higher rates and increased borrowings
required to support the Company's working capital growth needs during the
period, offset by interest increases on deposits, principally in Mexican banks,
during a period of high Mexican interest rates.

INCOME TAX; ASSETS TAX

     Under Mexican tax law as presently in effect, Mexican companies must pay
the greater of the income tax or the assets tax. The corporate income tax rate
is 34% . For income tax purposes, taxpayers may deduct certain expenses and
recognize certain effects of inflation and exchange rate gains or losses, but
these deductions are for different amounts than expenses recognized for
financial reporting under U.S. GAAP. For income tax purposes, tax losses,
updated to recognize the effects of inflation, may be carried forward ten years
succeeding the year of the loss.

     Previously paid assets tax, adjusted for inflation, may be used to offset
income taxes that exceed the assets tax due for the year for ten years
following the payment of the tax. In addition, tax net operating loss
carryforwards can be utilized by the Mexican company that incurred the losses.
The amounts of the Company's asset tax and net operating loss carryforwards at
December 31, 1996 and 1995 are set forth in Note 7 to the Consolidated
Financial Statements.

     The Mexican asset tax was a 2% tax on assets for 1994 and prior years, and
a 1.8% tax on assets for 1995 and later years, computed by recognizing certain
effects of inflation, and by reducing the asset base by the amount of certain
liabilities. The asset tax operates like an alternative minimum tax in the U.S.

     The Company's effective tax rate was 121% in 1992 (principally due to
imposition of the assets tax as the Company relied on net operating loss
carryforwards to reduce its income tax to an amount that was less than the
assets tax), 13.8% in 1993, 32.5% in 1994, 21.8% in 1995 and 24.5% in 1996.

     Accel files consolidated Mexican federal income tax returns, which include
Elamex. Consequently, Accel and Elamex have entered into a tax sharing
agreement providing for the allocation of taxes and tax benefits to the
Company. Under such agreement Elamex will pay Accel an amount equal to the
Mexican Federal monthly estimated income tax or assets tax (whichever applies),
proportionate to Accel's direct or indirect percentage of ownership of the
capital stock of Elamex, S.A. de C.V. and its subsidiaries. The amount Elamex
must pay under this agreement will not exceed the amount Elamex would be liable
to pay in taxes if each entity in the Elamex group filed separate tax returns.

LIQUIDITY AND CAPITAL RESOURCES



                                       17
<PAGE>

     In recent years the Company has experienced significantly increased
working capital needs as its business has grown and there has been an increase
in the number of turnkey projects requiring purchases of materials by the
Company. At December 31, 1996, the Company had working capital (defined as
inventory plus trade and other accounts receivable minus accounts payable) of
$23.3 million compared to $19.9 million at December 31, 1995. This increase was
due to growth in inventories and accounts receivable associated with an
increase in sales, especially those related to turnkey contracts.

     During the year ended December 31, 1996, the Company had gross operating
activities of $14.1 million, which consisted of net income of $7.9 million plus
depreciation and amortization of $2.9 million in addition to deferred taxes and
allowances of $3.3 million. This flow of activities financed an increase in
accounts receivable of $0.7 million and inventories of $5.3 million, which were
offset by a net increase in trade payables and accrued expenses of $2.7
million, resulting in net cash provided by operations of $10.9 million. The
increases in accounts receivable and inventories were due to the Company's
increased net sales during the period. Cash provided by operations plus
proceeds from financing of equipment of $1.3 million and proceeds from its
initial public offering of approximately $18.7 million allowed the Company to
pay down $20.3 million of indebtedness and to invest $7.2 million in property,
plant and equipment.

     In 1996 EBITDA was $13.3 or 11.2% of net sales, and capital expenditures
were $7.2 million. EBITDA in 1996 increased 18.8% over 1995. In 1995 EBITDA was
$11.2 million. EBITDA is defined by the Company as net income before interest,
income taxes, depreciation and amortization. EBITDA is presented in this
discussion of liquidity and capital resource because it is a widely accepted
financial indicator of the Company's ability to incur and service debt.
However, EBITDA should not be considered in isolation as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as measure of the Company's profitability or
liquidity. In addition, this measure of EBITDA might not be comparable to
measures as defined and reported by other companies.

     The Company had the following lines of credit and outstanding borrowings
at December 31, 1996:

<TABLE>
<CAPTION>

LENDER OR CLASS OF                 TYPE                   AMOUNT               INTEREST            MATURITY DATE
SECURITIES                         ----             OUTSTANDING AS OF          RATE AS OF          -------------
----------                                          DECEMBER 31, 1996      DECEMBER 31, 1996
                                                    -----------------      -----------------
<S>                       <C>                       <C>                    <C>                 <C>

Comerica Bank             $10 million Line of
                          Credit                             -                   8.75%         May 1, 1999

Bank of America N.T. &    $10 million Line of                            
  S.A.                    Credit                             -                   8.63          December 15, 1999

Confia S.A......(1)       $2.2 million Line of                           
                          Credit                                                 9.13          January 8, 1997

Norwest Bank El Paso      $5 million Line of                             
                          Credit                             -                   8.25          December 6, 2001

Amplicon Financial        $1.3 million capital                 
                          lease                                1,306,427         7.92          December 15, 1999
                                                               ---------


     Total.........                                           $1,306,427

</TABLE>
------

(1)  Line of credit under renewal.

     Effective March 19, 1996 the Company successfully completed an Initial
Public Offering of 2,400,000 shares of Class I Common Stock, no par value, the
net proceeds of which totaled approximately $18,700,000 and were used to pay
down $15,900,000 of outstanding debt and Subordinated Debentures. The remaining
$2,800,000 was used as working capital.

                                       18
<PAGE>

     Under its several credit agreements, Elamex has committed to maintain: (a)
a debt service coverage ratio of 1.3, (b) a current ratio no lower than 1.25,
(c) a leverage ratio (defined as the ratio of senior indebtedness to the sum of
capital plus subordinated indebtedness) no greater than 1.5 and (d) equity plus
subordinated indebtedness of no less than $18 million. The Company may not
invest in or advance significant amounts to other companies who are not a party
to one of the debt agreements. During the last three years, the Company has
been in compliance with all material covenants related to its debt obligations
and credit agreements.

     The Company has entered into a certain capital lease transaction to lease
machinery and equipment with an original cost of approximately $1.3 million in
1996. The future minimum rental payments under this equipment lease and other
capital leases are $658,167 in 1997, $509,981 in 1998 and $490,663 in 1999. See
Note 6 to the Consolidated Financial Statements for further information
regarding operating lease commitments.



                                       19
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Elamex, S.A. de C.V.:

We have audited the accompanying consolidated balance sheets of Elamex, S.A. de
C.V. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Elamex, S.A. de C.V.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with accounting principles generally
accepted in the United States of America.

                              KPMG Peat Marwick LLP

El Paso, Texas
February 27, 1997



                                       20
<PAGE>

                                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                                            Consolidated Balance Sheets
                                                (In U. S. Dollars)

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                               ------------

              ASSETS                                                    1996                1995
                                                                        ----                ----
<S>                                                                     <C>                <C> 

Current assets:
    Cash and cash equivalents                                      $    6,269,825          2,848,628
    Receivables (note 5):
       Trade accounts, less allowance for doubtful accounts
          ($525,029 in 1996 and $148,629 in 1995)                      13,944,948         14,860,718
       Other receivables                                                2,047,019            831,740
                                                                       ----------         ----------

              Total receivables                                        15,991,967         15,692,458
                                                                       ----------         ----------

    Inventories, net (note 3)                                          16,200,149         11,358,182
    Prepaid expenses                                                      492,933            686,766
                                                                       ----------         ----------

              Total current assets                                     38,954,874         30,586,034

Property, plant and equipment, net (notes 4 and 5)                     28,610,719         24,022,728
Other assets, net                                                         410,460            501,726
                                                                       ----------         ----------

                                                                    $  67,976,053         55,110,488
                                                                       ==========         ==========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

    Notes payable (note 5)                                         $      -                2,000,000
    Accounts payable                                                    8,886,613          7,134,943
    Accrued expenses                                                    2,292,682          1,746,074
    Current installments of long-term debt (note 5)                       -                2,691,054
    Current obligations of capital leases (note 6)                        564,216            565,555
    Taxes payable                                                       1,286,132            861,797
    Deferred income taxes (note 7)                                      1,379,783            -
    Due to related parties (note 12)                                       86,743            156,124
                                                                       ----------       ------------

              Total current liabilities                                14,496,169         15,155,547

Subordinated debentures (note 12)                                         -                2,044,558
Long-term debt, excluding current installments (note 5)                   -               12,986,621
Capital lease obligations, excluding current obligations (note 6)         923,273            181,062
Other liabilities                                                         212,403            181,964
Deferred income taxes (note 7)                                          2,480,399          1,364,407
                                                                       ----------        -----------

              Total liabilities                                        18,112,244         31,914,159
                                                                       ----------         ----------

Stockholders' equity (notes 8 and 9):

    Preferred stock, authorized 50,000,000 shares, none issued
       or outstanding                                                     -                  -
    Common stock, authorized 22,400,000 shares, 7,400,000 and,
       5,000,000 shares issued and outstanding in 1996 and 1995,
        respectively                                                   35,010,468         16,270,459
    Retained earnings                                                  14,853,341          6,925,870
                                                                       ----------        -----------

              Total stockholders' equity                               49,863,809         23,196,329
                                                                       ----------         ----------

Commitments and contingencies (notes 6, 9 and 13)                         -                  -
                                                                   $   67,976,053         55,110,488
                                                                       ==========         ==========
</TABLE>
See accompanying notes to consolidated financial statements.



                                       21
<PAGE>



                                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                                        Consolidated Statements of Earnings
                                                (In U. S. Dollars)

<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                                           ------------------------
                                                                   1996                1995              1994
                                                                   ----                ----              ----
<S>                                                                <C>                 <C>               <C> 

Net sales                                                      $  118,918,913          97,543,581        84,816,306
Cost of sales                                                     100,236,384          82,571,960        74,605,956
                                                                  -----------         ----------         ----------

          Gross profit                                             18,682,529          14,971,621        10,210,350
                                                                 ------------          ----------        ----------

Operating expenses:

    General and administrative                                      7,630,870           5,560,356         6,658,530
    Selling                                                           685,544             622,811           803,918
                                                               --------------        ------------      ------------

          Total operating expenses                                  8,316,414           6,183,167         7,462,448
                                                                -------------         -----------       -----------

          Operating income                                         10,366,115           8,788,454         2,747,902
                                                                 ------------         -----------       -----------

Other income (expense):

    Interest income                                                   255,362             965,341           153,191
    Interest expense                                                 (944,003)         (2,359,451)       (1,689,986)
    Other, net                                                        825,076             541,799         1,077,048
                                                               --------------        ------------       -----------

          Total other income (expense)                                136,435            (852,311)         (459,747)
                                                               --------------        ------------      -------------

          Income before income taxes                               10,502,550           7,936,143         2,288,155

    Income tax provision (note 7)                                   2,575,079           1,727,000           742,902
                                                                -------------         -----------      ------------

          Net income                                        $       7,927,471           6,209,143         1,545,253
                                                                =============         ===========       ===========


          Net income per common share
               (note 14)                                     $           1.15                1.20             0.23
                                                                         ====                ====             ====

Weighted average shares outstanding                                6,880,548           5,000,000         5,000,000
</TABLE>


See accompanying notes to consolidated financial statements.


                                       22
<PAGE>



<TABLE>
<CAPTION>
                                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                                  Consolidated Statements of Stockholders' Equity
                                                (In U. S. Dollars)

                                                                                Retained               Total
                                                        Common                  Earnings          Stockholders'
                                                         Stock                 (Deficit)             Equity
                                                         -----                 ---------             ------
<S>                                                     <C>                       <C>                 <C>       

Balances at December 31, 1993                           $   13,552,031            (215,646)           13,336,385

   Net income                                                  -                 1,545,253             1,545,253
   Accretion of redemption premium
       on redeemable common stock                              -                  (386,442)             (386,442)
                                                        --------------          ----------          ------------

Balances at December 31, 1994                               13,552,031             943,165            14,495,196

   Net income                                                  -                 6,209,143             6,209,143
   Cash capital contribution                                 2,718,428             -                   2,718,428
   Redemption of common stock                              (16,270,459)            -                 (16,270,459)
   Issuance of common stock                                 16,270,459             -                  16,270,459
   Accretion of redemption premium
       on redeemable common stock                              -                  (226,438)             (226,438)
                                                        --------------          ----------          ------------

Balances at December 31, 1995                               16,270,459           6,925,870            23,196,329

   Net income                                                  -                 7,927,471             7,927,471

   Proceeds from sale of common
       stock, net                                           18,740,009             -                  18,740,009
                                                        --------------          ----------          ------------

Balances at December 31, 1996                           $   35,010,468          14,853,341            49,863,809
                                                        ==============          ==========          ============


See accompanying notes to consolidated financial statements.


                                       23
<PAGE>



                                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                                      Consolidated Statements of Cash Flows
                                                (In U. S. Dollars)

                                                                                YEARS ENDED DECEMBER 31,
                                                                                ------------------------
  
                                                                         1996             1995            1994
                                                                         ----             ----            ----
Cash flows provided by operating activities:

    Net income                                                        $  7,927,471        6,209,143       1,545,253
    Adjustments to reconcile net income to net cash
       provided by operating activities:

          Depreciation and amortization                                  2,948,887        2,417,583       1,954,699
          Allowance for doubtful trade accounts receivable                 376,400          (45,103)        146,241
          Allowance for excess and obsolete inventory                      426,358          608,777         647,719
          Deferred income taxes, net                                     2,495,775        1,364,407         -
          (Gain) loss on disposal of equipment                             -                 (2,414)         56,789
          Change in assets and liabilities:

              Trade accounts receivable                                    539,370       (3,040,022)     (2,502,993)
              Other receivables                                         (1,215,279)         (63,526)        (80,757)
              Inventories                                               (5,268,325)      (3,093,396)     (1,661,107)
              Prepaid expenses                                             193,833         (438,953)       (111,611)
              Other assets                                                (224,071)          39,396         111,214
              Accounts payable                                           1,751,670          (99,007)      4,079,246
              Accrued expenses, related
                 parties, and taxes payable                                901,562          723,468        (270,169)
              Other liabilities                                             30,439          (33,486)        (24,821)
                                                                     -------------      -----------   -------------

                    Net cash provided by operating

                        activities                                      10,884,090        4,546,867       3,889,703
                                                                     -------------      -----------   -------------


Cash flows used by investing activities:

    Purchase of property, plant and equipment                           (7,221,541)      (3,572,668)     (2,188,736)
    Proceeds from disposal of equipment                                    -                 16,771         242,968
                                                                     -------------      -----------   -------------


                    Net cash used by investing activities               (7,221,541)      (3,555,897)     (1,945,768)
                                                                     -------------      -----------   -------------

Cash flows provided (used) by financing activities:

    Repayments of debt due to a related party                              -                -              (191,007)
    Net increase (decrease) in notes payable                            (2,000,000)       2,000,000     (10,300,000)
    Proceeds from issuance of long-term debt                               -              8,394,341      10,400,000
    Repayment of long-term debt                                        (17,722,233)      (8,366,666)     (1,166,666)
    Principal repayments of capital lease obligations                     (565,555)        (564,988)       (547,256)
    Proceeds from financing of equipment                                 1,306,427          -               -
    Proceeds from capital contributions                                    -              2,718,428         -
    Redemption of redeemable common stock                                  -             (4,018,444)        -
    Proceeds from sale of stock, net                                    18,740,009          -                    -
                                                                     -------------      -----------   -------------

                    Net cash provided (used) by financing

                        activities                                        (241,352)         162,671      (1,804,929)
                                                                     -------------      -----------   -------------

Net increase in cash and cash equivalents                                3,421,197        1,153,641         139,006

Cash and cash equivalents, beginning of year                             2,848,628        1,694,987       1,555,981
                                                                     -------------      -----------   -------------

Cash and cash equivalents, end of year                                $  6,269,825        2,848,628       1,694,987
                                                                     =============      ===========   =============

</TABLE>

See accompanying notes to consolidated financial statements.

                                          24
<PAGE>



                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)

 (1)   ORGANIZATION AND BASIS OF PRESENTATION

       COMPANY BACKGROUND

       Elamex, S.A. de C.V. and its subsidiaries ("Elamex" or the "Company") are
           Mexican companies, incorporated under the laws of Mexico. Elamex
           provides contract assembly services and turnkey manufacturing
           services to customers primarily located in the United States and
           Canada. The Company manufactures products mainly for companies in the
           electronics industry as well as in the electromechanical, avionics,
           and medical industries. All of the Company's manufacturing machinery
           and equipment are located in facilities in Ciudad Juarez, Nuevo
           Laredo, Guadalajara, Monterrey, Tijuana, and Delicias, Mexico.
           Although the organizational structure of Elamex changed during 1995,
           the business has operated under the control of substantially the same
           investor group since May 1990.

       The Company is a subsidiary of Accel, S.A. de C.V. (Accel) which owns
           approximately 51% of the Company's issued and outstanding common
           shares at December 31, 1996. As presented in these financial
           statements, the Company was formed effective October 1, 1995 (the
           "Effective Date") by means of a merger transaction between the
           predecessor to Elamex and its parent holding company, Elamex
           Internacional, S.A. de C.V. ("Internacional"). The merger was
           accounted for in a manner similar to a pooling of interests due to
           common control of the merged entities. As part of the merger
           transaction, the stock of Elamex, S.A. de C.V. was canceled and
           replaced by shares issued to Internacional's stockholders
           proportionate to their ownership interest. Internacional's stock was
           subsequently canceled.

       BASIS OF PRESENTATION

       These financial statements and accompanying notes are prepared in U.S.
           dollars, the functional and reporting currency of Elamex. The
           consolidated financial statements include the financial position at
           December 31, 1996 and 1995 and results of operations for the three
           years ended December 31, 1996 of:

           -  Elamex  Internacional,  S.A. de C.V., whose assets and 
              liabilities were merged into Elamex on the Effective Date.

           -  Elamex, S.A. de C.V., a wholly-owned subsidiary of Internacional
              prior to the Effective Date.

           -  Servicios  Administrativos Elamex, S.A. de C.V. (Servicios) a
              wholly-owned  subsidiary of Internacional prior to the Effective
              Date; now wholly owned by Elamex.

           -  Kronos,  Inc., a subsidiary of Internacional  prior to the
              Effective Date, merged into Elamex, S.A. de C.V. as of December
              31, 1996.

       These consolidated financial statements are prepared in accordance with
           accounting principles generally accepted in the United States of
           America and all monetary amounts are presented in U.S. dollars. All
           material intercompany transactions have been eliminated.

       MANAGEMENT ESTIMATES

       The preparation of financial statements in conformity with U.S. generally
           accepted accounting principles requires management to make certain
           estimates that affect the reported amounts of assets and liabilities
           and disclosure of contingent assets and liabilities at the date of
           the financial statements. Actual results could differ from those
           estimates.



                                          25
<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       CASH AND CASH EQUIVALENTS

       The Company considers all highly liquid debt instruments and investments
           purchased with an original maturity of three months or less to be
           cash equivalents. Cash includes deposits in Mexican banks,
           denominated in Mexican pesos, of approximately $957,000 and $73,000,
           at December 31, 1996 and 1995, respectively, and deposits denominated
           in U.S. dollars of approximately $2,801,000 and $2,426,000 at
           December 31, 1996 and 1995, respectively, in U.S. banks. The Company
           had approximately $2,512,000 and $350,000 of short-term repurchase
           agreements, denominated in U.S. dollars, deposited in U.S. banks and
           offshore branches of Mexican banks at December 31, 1996 and 1995,
           respectively.

       FOREIGN CURRENCY TRANSLATION

       The functional currency of the Company is the U.S. dollar, the currency
           of the primary economic environment in which the Company operates.
           Gains and losses on foreign currency transactions and translation of
           balance sheet amounts are reflected in net income. Included in
           "other, net" on the accompanying consolidated statements of earnings
           are foreign exchange gains of $437,845, $238,545, and $950,004 for
           the years ended December 31, 1996, 1995, and 1994, respectively.
           Assets and liabilities of the Company are denominated in U.S. dollars
           except for certain amounts as indicated below. Certain balance sheet
           amounts (primarily inventories, property, plant and equipment,
           accumulated depreciation, prepaid expenses, and common stock)
           denominated in other than U.S. dollars are translated at the rates in
           effect at the time the relevant transaction was recorded and all
           other assets and liabilities are translated at rates effective as of
           the end of the related periods. Revenues and expenses denominated in
           other than U.S. dollars are translated at weighted-average exchange
           rates for the relevant period the transaction was recorded. Assets
           and liabilities denominated in pesos are summarized as follows in
           U.S. dollars at the translation rate published in the DIARIO OFICIAL
           DE LA FEDERACIUN (the "Official Gazette of the Federation"), which is
           the approximate rate at which a receivable or payable can be settled
           as of each period-end:

<TABLE>
<CAPTION>
                                                             1996            1995
                                                             ----            ----
<S>                                                     <C>               <C>
              Cash and cash equivalents                  $     957,000         73,000
              Other receivables                              1,634,700        585,491
              Prepaid expenses                                 218,142        363,796
              Other assets, net                                 26,064         42,905
              Accounts payable                              (1,542,331)      (101,662)
              Accrued expenses and other liabilities        (2,206,667)    (1,560,230)
                                                            ----------      ---------

              Net foreign currency position              $    (913,092)      (596,700)
                                                           ===========     ==========
</TABLE>

       In  addition, the Company has recorded a net deferred tax liability
           pursuant to FAS 109, ACCOUNTING FOR INCOME TAXES (note 7). The
           recorded amount of $3,860,182 represents the net dollar denominated
           value of amounts provided for temporary differences between the
           financial statement carrying amounts of existing assets and
           liabilities and their respective Mexican tax basis.


                                          26
<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       FOREIGN EXCHANGE INSTRUMENTS

       Effective January 1995, the Company adopted a policy of not engaging in
           futures contracts with the purpose of hedging U.S. dollar/peso
           revenues or costs, with the exception of regular treasury operations
           to cover operating requirements for up to thirty days. The Company
           had no open hedge contracts at December 31, 1996 or 1995. However, as
           of December 31, 1994, the Company had an outstanding commitment to
           sell U.S. dollars for Mexican pesos. The Company realized a loss of
           approximately $1,060,000 on this contract, which is recorded in cost
           of sales and general and administrative expenses in the accompanying
           consolidated statement of operations for the year ended December 31,
           1995.

       INVENTORIES

       Inventories are stated at the lower of cost or market. Cost is determined
           using the first-in, first-out (FIFO) method. Inventory cost includes
           material, labor, and overhead. Overhead content in ending inventory
           at December 31, 1996 and 1995 was approximately $451,000 and
           $471,000, respectively. Inventory reserves, which are charged to cost
           of sales, are provided for excess inventory, obsolete inventory, and
           for differences between inventory cost and its net realizable value.

       PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment are stated at cost, less accumulated
           depreciation and amortization. Plant and equipment under capital
           leases are stated at the lower of their fair value at the inception
           of the lease or the present value of minimum lease payments.
           Depreciation and amortization are calculated using the straight-line
           method over the shorter of related lease terms or estimated useful
           lives of the assets. The policy of the Company is to charge amounts
           expended for maintenance and repairs to expense and to capitalize
           expenditures for major replacements and improvements.

       NET INCOME PER SHARE

       Net income per share of common stock for the year ended December 31, 1996
           was calculated by dividing net income by the weighted average number
           of common shares outstanding for the year.

       Net income per share of common stock for 1995 and 1994 was calculated by
           dividing net income by the number of common shares outstanding as of
           the Effective Date, 5,000,000, after deducting amounts attributable
           to the rights of senior securities in the amounts of $226,438, and
           $386,442 for the years ended December 31, 1995, and 1994,
           respectively.


                                          27
<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       INCOME TAXES

       The Company accounts for income taxes under the asset and liability
           method, as required by STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
           NO. 109, ACCOUNTING FOR INCOME TAXES (FAS 109). Under the asset and
           liability method of FAS 109, deferred tax assets and liabilities are
           recognized for the future tax consequences attributable to
           differences between the financial statement carrying amounts of
           existing assets and liabilities and their respective tax basis.
           Deferred tax assets and liabilities are measured using enacted tax
           rates expected to apply to taxable income in the years in which those
           temporary differences are expected to be recovered or settled. Under
           FAS 109, the effect on deferred tax assets and liabilities of a
           change in tax rates is recognized in income in the period that
           includes the enactment date.

       Provision for taxes is made based upon the applicable tax laws of Mexico.
           In conformity with FAS 109, deferred tax assets and liabilities are
           not provided for differences related to assets and liabilities that
           are remeasured from pesos into U.S. dollars using historical exchange
           rates and that result from indexing for Mexican purposes or exchange
           rate changes.

       REVENUE RECOGNITION

       Turnkey contract sales are recognized at the time the order is shipped.
           Sales from contract assembly services are recognized over the
           contract period and billed weekly as services are provided.

       EMPLOYEES' STATUTORY PROFIT SHARING

       A   provision, when material, for deferred employees' statutory profit
           sharing is computed on income subject to statutory profit sharing
           which differs from net income, due to certain differences in the
           recognition of income and expenses for statutory profit sharing and
           book purposes.

       POSTRETIREMENT BENEFITS

       Employees are entitled to certain benefits upon retirement after fifteen
           years or more of service (seniority premiums), in accordance with the
           Mexican Federal Labor Law. The benefits are accrued as a liability
           and recognized as expense during the year in which services are
           rendered.

       FISCAL YEAR

       The Company uses thirteen-week quarters ending on a Sunday except that
           the first quarter starts on January 1 and the fourth quarter ends on
           December 31.

       ACCOUNTING FOR ASSET IMPAIRMENT

       The Company adopted STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121,
           ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
           ASSETS TO BE DISPOSED OF (FAS 121), effective January 1, 1996. FAS
           121 requires that long-lived assets and certain identifiable
           intangibles to be held and used by an entity be reviewed for
           impairment whenever events or changes in circumstances indicate that
           the carrying amount of an asset may not be recoverable. The adoption
           of FAS 121 did not have a material adverse impact on the Company's
           financial position or the results of its operations.



                                          28
<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       ACCOUNTING FOR STOCK-BASED COMPENSATION

       The Company is required to adopt STATEMENT OF FINANCIAL ACCOUNTING
           STANDARDS NO. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (FAS 123),
           upon issuance of shares under stock-based compensation plans. FAS 123
           defines the fair value based method of accounting for an employee
           stock option or similar equity instrument and encourages all entities
           to adopt that method of accounting for all of their employee stock
           compensation plans. However, it also allows an entity to continue to
           measure compensation costs for those plans using the intrinsic value
           based method of accounting. The statement also requires that an
           employer's financial statements include certain disclosures about
           stock-based employee compensation arrangements regardless of the
           method used to account for them.

       FINANCIAL INSTRUMENTS

       STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107, DISCLOSURES ABOUT
           FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosures about the
           fair value of certain financial instruments for which it is
           practicable to estimate that value. The fair value of a financial
           instrument is generally the amount at which the instrument could be
           exchanged in a current transaction between willing parties, other
           than in a forced sale or liquidation.

       The carrying amounts of financial instruments, including cash and cash
           equivalents, receivables, accounts payable, accrued expenses, taxes
           payable, and amounts due to related parties, approximated fair value
           as of December 31, 1996 because of the relatively short maturity of
           these instruments. Capital lease obligations primarily represent
           obligations recorded at the present value of the minimum lease
           payments, at the inception of the lease agreement, in December 1996.
           Accordingly, the carrying value of capital lease obligations
           approximated the fair value as of December 31, 1996.

(3)    INVENTORIES

       Inventories consist of the following:

                                                  1996                1995
                                                  ----                ----

              Raw materials                   $  12,998,270          8,717,922
              Work-in-process                     3,138,189          2,286,032
              Finished goods                      1,961,415          1,825,595
                                                -----------        -----------

                                                 18,097,874         12,829,549

              Less reserve for excess and
                 obsolete inventory               1,897,725          1,471,367
                                                -----------        -----------

                                              $  16,200,149         11,358,182
                                                 ==========         ==========

       The reserve for excess and obsolete inventory is charged against cost of
           sales and was increased by $426,358 and $608,777 for the years ended
           December 31, 1996 and 1995, respectively.



                                          29
<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(4)    PROPERTY, PLANT AND EQUIPMENT

       A summary of property, plant and equipment, all of which is located in
Mexico, is as follows:

                               Estimated
                             Useful Lives
                                  (YEARS)             1996                1995
                             ----------------         ----                ----

   Land                              -             $  5,211,096       4,711,793
   Buildings                        20               13,197,575      10,556,598
   Machinery and equipment        3 - 10             19,963,535      16,678,864
   Leasehold improvements            5                1,386,811         755,357
   Vehicles                          5                  148,630         111,400
   Construction-in-progress          -                  127,906               -
                                                    -----------      ----------
                                                     40,035,553      32,814,012

   Less accumulated depreciation
      and amortization                               11,424,834       8,791,284
                                                     ----------     -----------

                                                   $ 28,610,719      24,022,728
                                                     ==========      ==========

       Included in property, plant and equipment is $2,206,676 and $3,371,054 of
           machinery and equipment under capital leases and $729,358 and
           $2,460,524 in related accumulated amortization at December 31, 1996
           and 1995, respectively.

(5)    NOTES PAYABLE AND LONG-TERM DEBT

       At  December 31, 1996, the Company had a $2,200,000 short-term credit
           facility, with a bank, with an adjusted interest rate of LIBOR, plus
           3 to 5%. The availability has been reduced by a letter of credit for
           $200,000. The line is secured by certain equipment. Promissory notes
           under the line are renewable, with adjusted interest rates, and are
           due 90 days or 180 days after issuance. Interest on the promissory
           notes is payable at each note maturity. The facility matured on
           January 8, 1997 and is in the process of being renewed.

       At  December 31, 1995, the Company had $2,000,000 outstanding on one
           credit facility. At December 31, 1995, the note bore interest at
           LIBOR plus 3.125%. The Company paid off the note during the first
           quarter of 1996.

       As  more fully described in note 9, the Company completed a public
           offering of 2,400,000 shares of its Class I common stock on March 19,
           1996. The net proceeds of the offering were used during the first
           quarter of 1996 to pay-off substantially all of the Company's
           outstanding debt.


                                          30
<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)

(5)    NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED

       All long-term debt is denominated in U.S. dollars and consists of the 
       following at December 31:
<TABLE>
<CAPTION>
                                                                       1996                   1995
                                                                       ----                   ----
<S>                                                                 <C>                     <C>
       Note payable to bank, paid in full during

       first quarter of 1996 and not renewed.                  $       -                    4,083,333

       Note payable to bank, under line of credit for up to
       $5,000,000 or 75% of appraised value of certain
       properties with an adjusted interest rate of prime.
       The available balance at December 31, 1996 was
       $5,000,000. The line of credit matures on December 6,
       2001 and is secured by a trust guaranty in certain

       properties.                                                     -                    4,400,000

       Revolving notes payable on a $10,000,000 line of
       credit to a bank, interest at prime plus 1/2% due
       upon expiration of term notes which are renewable at
       the option of the Company in 180 day intervals
       through May 1, 1999. Secured by trade accounts
       receivable. Commitment fees of 1/4% of

       unfunded balance are due quarterly.                             -                    5,200,000

       Note payable to a financing corporation, paid
       in full during first quarter of 1996 and not

       renewed.                                                        -                    1,994,342
                                                                 -------------            -----------

       Total long-term debt                                            -                   15,677,675

       Less current installments                                       -                    2,691,054
                                                                 -------------            -----------

       Long-term debt, excluding current installments    $             -                   12,986,621
                                                                 =============             ==========

       In   addition to the above short and long-term credit facilities
            available, the Company originated a $10,000,000 line of credit with
            a bank in December 1996. The revolving credit facility allows the
            Company to draw on term notes payable, with adjusted interest rates
            of LIBOR plus 3%, through December 15, 1999. The credit facility is
            secured by eligible accounts receivable. Commitment fees of 1/8% of
            unfunded balance are due quarterly.

       In  December 1996, the Company entered into a capital lease obligation
            in which a standby letter of credit, for an amount up to $650,000,
            was issued by a bank, as a security to the lessor, as part of the
            lease agreement.

       Interest payments on the notes payable and long-term debt were $857,104, 
            $2,085,530,  and $1,267,235 for the years ended December 31, 1996,
            1995, and 1994, respectively.

       The available credit facilities place certain restrictions on the
            payment of dividends and use of proceeds from disposition of
            collateralized fixed assets, limit investments or advances in other
            companies, limit the incurrence of debt, and require the Company to
            maintain certain financial ratios and insurance coverage. The
            Company is in compliance with such covenants or restrictions at
            December 31, 1996.



                                          31
<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(6)    LEASES

       The Company utilizes certain machinery and equipment and occupies certain
           buildings under lease arrangements which expire at various dates from
           1997 through 2001, some of which have renewal options for additional
           periods. Rental expense for certain manufacturing and warehouse
           facilities, mainly for operating lease agreements, aggregated
           $2,406,815, $1,689,425, and $2,114,578 for the years ended December
           31, 1996, 1995, and 1994, respectively. Interest payments on capital
           leases were $33,160, $90,599, and $146,357, respectively.

       Future minimum lease obligations at December 31, 1996 for assets under
           capital leases and for rental commitments under non-cancelable
           operating leases having an initial or remaining term in excess of one
           year are as follows:

                                                                         Capital      Operating
              Year ended December 31,                                     Leases        Leases
              -----------------------                                    ------       ---------
<S>                                                                 <C>              <C>

              1997                                                    $    658,167     2,311,600
              1998                                                         509,981     2,019,778
              1999                                                         490,663     1,465,203
              2000                                                         -           1,193,753
              2001                                                         -             232,550
                                                                     -------------     ---------

                 Total minimum obligations                            $  1,658,811     7,222,884
                                                                                       =========
                    Less amounts representing interest
                       (approximately 7.92%)                               171,322
                                                                         ---------
              Present value of net minimum lease obligations             1,487,489
                 Less current obligations under capital leases             564,216

              Capital lease obligations, excluding current

                 obligations                                         $     923,273
                                                                        ==========
</TABLE>

       The Company leases manufacturing facilities to unrelated parties under
           operating lease agreements which expire in 1999. The Company pays
           certain taxes on the properties and provides for general maintenance.
           Included in property, plant and equipment at December 31, 1996 is the
           cost of the land and buildings of $4,421,961 and the related
           accumulated depreciation of $611,337.

       Rental income was $644,187, $501,370, and $300,047 for the years ended
           December 31, 1996, 1995, and 1994, respectively. The future minimum
           rental income to be received under these operating leases in the
           following years is: $674,274 in 1997; $368,330 in 1998; and $220,583
           in 1999.


                                          32
<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(7)    INCOME TAXES

       Mexican tax legislation requires that companies pay a tax calculated as
           the greater of tax resulting from taxable income or tax on the total
           value of certain assets less certain liabilities (assets tax). Taxes
           resulting from net income are calculated using Mexican tax
           regulations which define deductibility of expenses and recognize
           certain effects of inflation.

       The tax provision differs from the expected tax rate of 34% in 1996,
1995, and 1994 on taxable income as follows:

<TABLE>
<CAPTION>
                                                                  1996        1995       1994
                                                                  ----        ----       ----
<S>                                                              <C>          <C>       <C>

              Statutory tax rate                                  34.0%       34.0%      34.0%
              Foreign currency gains or losses not
                 subject to income taxes                          (1.4)%      (1.0)%    (14.1)%
              Kronos losses (income) not subject to tax (i)        0.4%       (1.2)%    (10.2)%
              Non-deductible expenses                              1.7%        2.1%       3.5%
              Inflation and currency exchange rate
                 gains or losses on monetary items

                 for tax purposes only (ii)                      (15.1)%      (2.7)%     (1.1)%
              Inflation and currency exchange rate
                 portion of depreciation expense for

                 tax purposes only                                 0.5%        2.4%      (4.3)%
              Deferred income tax valuation reserve
                 adjustment (iii)                                  4.4%      (11.8)%     24.7%
                                                                   ---        ----       ----
                                                                  24.5%       21.8%      32.5%
                                                                  ====        ====       ====
</TABLE>

       Significant items impacting the Company's effective tax rate include: (i)
           Kronos, Inc. is a British Virgin Islands Corporation and its income
           is not subject to income taxes (Kronos, Inc. was merged into Elamex
           effective December 31, 1996); (ii) under Mexican tax laws, inflation
           and currency exchange rate adjustments are required for income tax
           purposes; and (iii) changes in valuation reserves for assets tax
           carryforwards that may expire unused, due mainly to changes in
           Mexican tax law which occurred during 1996, and the expectation, in
           1995, that previously reserved net operating loss carryforwards could
           be realized in future years due to permission from Mexican taxing
           authorities to file consolidated tax returns effective in 1995.

       The income tax provision includes the following:

<TABLE>
<CAPTION>
                                                              1996         1995         1994
                                                              ----         ----         ----
<S>                                                       <C>             <C>           <C> 

              Current tax provision                      $       79,303      363,000     742,902
              Deferred tax provision                          2,495,776    1,364,000     -
                                                              ---------    ---------     -------

                 Total provision for income taxes          $  2,575,079    1,727,000     742,902
                                                              =========    =========     =======
</TABLE>

       Total income taxes paid were $352,000, $379,000, and $449,000 in December
31, 1996, 1995, and 1994, respectively.


                                       33

<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)
 
(7)    INCOME TAXES, CONTINUED

       The tax effect of significant temporary differences representing deferred
tax assets and liabilities is as follows:
<TABLE>
<CAPTION>
                                                                                    1996                1995
                                                                                    ----                ----
<S>                                                                          <C>                    <C>
              Current deferred tax assets:

                 Assets tax carryforwards                                    $      1,410,364            981,623
                 Net operating loss carryforwards                                   5,014,846          4,181,765
                 Other, net                                                           222,448            249,960
                                                                                  -----------         ----------
                                                                                    6,647,658          5,413,348

              Valuation allowance                                                    (458,747)           -
                                                                                   -----------        ----------
                        Net current deferred tax assets                             6,188,911          5,413,348

              Current deferred tax liabilities:
                 Inventories                                                       (7,193,934)        (5,413,348)
                 Other                                                               (374,760)             -
                                                                                  -----------          ----------
                        Net current deferred tax (liability)                  $    (1,379,783)             -
                                                                                   ===========        ==========

              Non-current deferred tax assets -

                 Assets tax carryforwards                                     $           -               77,292

              Non-current deferred tax liabilities -
                 Property, plant and equipment, principally

                    due to differences in useful lives                             (2,480,399)        (1,441,699)
                                                                                    ---------          ---------

                        Net non-current deferred tax liability                $    (2,480,399)        (1,364,407)
                                                                                   ==========          =========
</TABLE>

        A valuation allowance is provided when it is more likely than not that
           some portion or all of the deferred tax assets will not be realized.
           A reserve for certain deferred asset tax carryforwards of $458,747
           has been provided at December 31, 1996. During the year ended
           December 31, 1996, a reserve was recorded as a result of tax planning
           activities related to tax reforms that provided increased net
           operating losses, but could also result in possible loss of assets
           tax carryforwards.

       The assets tax paid, adjusted for inflation, may be used to offset income
           taxes that exceed the assets tax due for the year, for ten years
           following the payment of the tax. These assets tax carryforwards as
           of December 31, 1996 expire as follows, if not previously utilized to
           offset income taxes:

                           1999                    $       82,000
                           2000                           110,000
                           2001                            67,000
                           2002                           173,000
                           2003                           266,000
                           2004                           241,000
                           2005                           432,000
                           2006                            39,000
                                                       ----------
                                                     $  1,410,000
                                                       ==========


                                       34

<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(7)    INCOME TAXES, CONTINUED

       At  December 31, 1996, certain of the Mexican companies within the
           consolidated group had tax net operating loss carryforwards that can
           be utilized only by the Mexican company which incurred the losses.
           These net operating loss carryforwards may be adjusted for inflation.
           These tax net operating loss carryforwards, as adjusted for
           inflation, expire as follows, if not previously utilized to offset
           taxable income:

                           2002                           1,600,000
                           2003                           1,926,000
                           2004                           7,571,000
                           2005                             953,000
                           2006                           2,700,000
                                                        -----------
                                                      $  14,750,000
                                                        ===========

       The Company received authorization to file a consolidated tax return with
           its majority stockholder commencing in 1995. Effective for 1995, a
           tax sharing agreement entered into between the majority stockholder,
           Accel S.A. de C.V., and Elamex whereby Elamex agrees to transfer
           monthly an amount equal to its estimated payment, less credits, which
           would be required by the Mexican tax authority calculated as if they
           were filing a separate return for such year. The majority stockholder
           further agrees to reimburse Elamex for use of any of Elamex's tax
           benefits at the time Elamex would otherwise realize the benefit.

       Dividends paid by Mexican companies which exceed earnings and profits, as
           defined by the Mexican tax law, are subject to a 34% income tax,
           payable by the Company, on 1.515 times the amount in excess of
           earnings and profits. Dividends paid which do not exceed earnings and
           profits are not currently subject to Mexican tax to either the
           Company or the stockholder. No dividends on common stock were paid by
           the Mexican companies in 1996, 1995, or 1994.

(8)    REDEEMABLE STOCK - PREFERRED AND COMMON

       Effective December 9, 1993, the stockholders of Kronos, Inc. and 
            Kronoservices, S.A. de C.V. restructured their operations. As part
            of the restructuring, Kronoservices changed its name to Elamex,
            S.A. de C.V. and transferred the operations of Kronos,  Inc. to
            Elamex, S.A. de C.V. during 1993 and 1994. A change in ownership
            did not occur and these transactions were recorded at historical
            carrying amounts.

       An  agreement was entered into as part of the December 9, 1993
           restructuring whereby Elamex was required, if and when its
           minority-held common stock was distributed to individuals, to
           repurchase up to 1,060,197 shares of common stock upon the death,
           disability or, under certain conditions, upon an involuntary
           termination of certain individuals. This agreement was formalized and
           revised on March 9, 1995 whereby Elamex was obligated to repurchase
           these shares of minority-held common stock over the next six years.
           The repurchase of these redeemable shares was accelerated and by
           September 1995, all minority held stock was purchased by
           Internacional for $4,018,444, including redemption premiums. The
           purchase of the minority held stock was paid for by a loan from
           Elamex to Internacional of $1,300,016 and a capital contribution from
           Accel to Internacional of $2,718,428.


                                         35

<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)

(9)    STOCKHOLDERS' EQUITY

       COMMON STOCK

       As  part of the merger transaction between Elamex Internacional and
           Elamex on October 1, 1995, the stock of Elamex, S.A. de C.V. was
           canceled and replaced by 5,000,000 shares issued to Internacional's
           stockholders proportionate to their ownership interest;
           Internacional's stock was canceled. The merged corporation was
           organized under the laws of Mexico as a SOCIEDAD ANUMINA DE CAPITAL
           VARIABLE.

       On  December  15,  1995,  the  stockholders  of Elamex,  S.A. de C.V., 
            at a special  stockholders  meeting,  approved an amendment and 
            restatement of the bylaws of Elamex,  S.A. de C.V. which  included
            the following:  (i)  elimination of par value of all shares;  (ii)
            a transfer  of all the  variable  capital of Elamex,  S.A.  de C.V. 
            to fixed  capital (5,000,000  shares);  (iii)  authorization for
            issuance of up to 3,000,000 shares of common stock  constituting
            fixed capital (for the offering),  unsold shares of 600,000 were
            subsequently  canceled;  (iv)  authorization of 15,000,000 shares 
            constituting  variable capital (which will be held by Elamex,  S.A.
            de C.V. as treasury stock and is expected to be sold, from time to
            time, at the market price  prevailing at such time as authorized by
            the Board of Directors); (v) and a provision  requiring a motion at
            each annual  stockholders'  meeting to allow the stockholders to
            designate up to 15% of each year's net profits as reserved for
            repurchase and  cancellation  of  publicly-traded  common shares
            outstanding.

       On  April 18, 1996, at the annual stockholders' meeting, the Company's
           stockholders voted to designate $897,406 of 1995's net profits as
           reserved for repurchase and cancellation of publicly-traded common
           shares outstanding.

       Effective March 19, 1996, the Company completed a public offering of
           2,400,000 shares of Class I, no par value, common stock for proceeds
           of approximately $18,700,000, net of expenses of approximately
           $2,800,000. The shares are traded on the NASDAQ National Market. The
           common stock outstanding after the offering is 7,400,000 shares. Upon
           completion of the offering, Accel remained as the majority
           stockholder; accordingly, Accel has the ability to elect a
           substantial majority of the Company's directors, subject to certain
           limitations, and will continue to control the Company.

       Changes in common stock outstanding are as follows:

          COMMON STOCK

                                                 Shares           Amount

          Balance at December 31, 1993         4,240,796    $  13,552,031
                                                ---------       ----------

          Balance at December 31, 1994          4,240,796       13,552,031

          Cash capital contribution               -              2,718,428
          Redemption of common stock           (4,240,796)     (16,270,459)
          Common stock issued                   5,000,000       16,270,459
                                                ---------       ----------

          Balance at December 31, 1995          5,000,000       16,270,459

          Common stock issued                   2,400,000       18,740,009
                                                ---------       ----------

          Balance at December 31, 1996          7,400,000    $  35,010,468
                                                =========       ==========

                                         36

<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(9)    STOCKHOLDERS' EQUITY, CONTINUED

       COMMON STOCK

       Under the bylaws and Mexican law, the capital stock of Elamex, S.A. de
           C.V. must consist of fixed capital and may have, in addition thereto,
           variable capital. Stockholders holding shares representing variable
           capital common stock may require the Company, with a notice of at
           least three months prior to December 31 of the prior year, to redeem
           those shares at a price equal to the lesser of either (i) 95% of the
           market price, based on the average of trading prices in the stock
           exchange where it is listed during the thirty trading days preceding
           the end of the fiscal year in which the redemption is to become
           effective or (ii) the book value of the Company's shares as approved
           at the meeting of stockholders for the latest fiscal year prior to
           the redemption date. At December 31, 1996, the Company has not issued
           any of its authorized variable capital common stock. Although the
           variable capital common stock is redeemable by the terms described
           above, such shares would be classified as a component of
           stockholders' equity in the consolidated balance sheets. Management
           believes the variable common stock represents permanent capital
           because the timing and pricing mechanisms through which a stockholder
           would exercise the option to redeem are such that a stockholder, from
           an economic standpoint, would not exercise this option. At the time a
           stockholder is required to give notice of redemption, the stockholder
           will not be able to know at what price the shares would be redeemed
           and would not expect the present value of the future redemption
           payment to equal or exceed the amount which would be received by the
           stockholder in an immediate public sale.

       Under Mexican Law, dividends must be declared in pesos. If dividends are
           declared in the future, the Company's intent is to pay the dividends
           to all stockholders in U.S. dollars, as converted from pesos as of
           the date of record, unless otherwise instructed by the stockholder.

       Mexican Law requires that at least 5% of the Company's net income each
           year (after profit sharing and other deductions required by law) be
           allocated to a legal reserve fund, which is not thereafter available
           for distribution, except as a stock dividend, until the amount of
           such fund equals 20% of the Company's historical capital stock. The
           legal reserve fund at December 31, 1996 and 1995 was approximately
           $329,000 (2,125,000 pesos) and $29,800 (229,000 pesos), respectively.
           The Company anticipates an additional allocation will be made at its
           annual stockholders' meeting in April 1997 of approximately $396,000
           (3,152,000 pesos). Retained earnings available for dividends under
           Mexican law at December 31, 1996 was $14,524,341 (114,099,000 pesos).
           However, debt agreements place certain restrictions on the payment of
           dividends (note 5).

       COMMON STOCK PURCHASE RESTRICTIONS AND PREEMPTIVE RIGHTS

       Any person who seeks to acquire ownership of 15% or more of the total
           outstanding shares of the Company's common stock must receive written
           consent from the Company's Board of Directors. Should shares in
           excess of 15% be acquired without permission, the purchaser will be
           subject to liquidated damages which will be used by the Company to
           repurchase stock in excess of the 15% ownership limitation. In
           addition, in the event that the Company issues additional shares,
           existing stockholders will have preemptive rights to subscribe for
           new shares, except when shares are issued in connection with a merger
           or for the conversion of convertible debentures. The 15,000,000
           shares of variable capital authorized on December 15, 1995 are not
           subject to preemptive rights.


                                         37

<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(9)    STOCKHOLDERS' EQUITY, CONTINUED

       PREFERRED STOCK

       As  part of the December 15, 1995 amendment and restatement of the
           Company's bylaws, the Company's Board of Directors, at its
           discretion, can issue up to an aggregate of 50,000,000 shares of
           preferred stock in one or more series. The Board may attach any
           preferences, rights, qualifications, limitations, and restrictions to
           the shares of each series issued, including dividend rights and
           rates, conversion rights, voting rights, terms of redemption, and
           liquidation preferences. The shares may be issued at no par value or
           at a par value determined by the Board of Directors. No shares of
           preferred stock have been issued as of December 31, 1996.

(10)   EXECUTIVE PHANTOM STOCK PLAN

       During 1995, the Company adopted an Executive Phantom Stock Plan (the
           "Plan") which offers certain key executives of the Company and
           related entities long-term incentives in addition to their current
           compensation. Participants receive benefits expressed in shares of
           common stock, but which are not actual shares of common stock
           ("Phantom Stock Shares"). A Participant may exercise the right to
           receive payment for Phantom Stock Shares two years after the
           determination date (as defined in the Plan); however, such shares
           expire after ten years. Upon termination of employment for cause,
           Phantom Stock Shares and accrued dividends and interest are
           forfeited.

       The Company will keep a record of the amount of Phantom Stock Shares held
           by each Participant. Each Participant will be credited with dollar
           amounts equal to dividends paid on issued and outstanding common
           stock, and such amounts accrue interest at the short-term money
           market rate published by the Chase Manhattan Bank, N.A. The Plan
           provides that the number of Phantom Stock Shares awarded be
           determined by a committee of the Board of Directors charged with
           administering the Plan and the aggregate number of Phantom Stock
           Shares awarded for any year shall in no event exceed 10% of the
           number of the Company's issued and outstanding common shares as of
           the end of such year. As of December 31, 1996, there were eight
           participants in the Plan, 22,687 Phantom Stock Shares had been issued
           and the Company recognized an obligation under the Plan of
           approximately $218,000.


                                         38

<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(11)   MAJOR CUSTOMERS

       The Company has agreements which provide for the sale of its assembly
           services and turnkey manufacturing at established prices. The
           Company's business is dependent on one- to five-year agreements which
           are subject to termination or renewal.

       Certain customers accounted for significant percentages of the Company's
           total sales during the periods ended as follows:

                                                                 DECEMBER 31

          CUSTOMER    PRODUCTS AND SERVICES                  1996   1995   1994
          --------    ---------------------                  ----   ----   ----

              A       Printed circuit boards and final
                      assembly                                18%     18%    17%

              B       Flexible and rigid circuit boards/

                      component assembly                      16%     23%    24%

              C       Printed circuit boards and cables       14%     16%    16%

              D       PBX/switchboards and fiber optic

                      cable connections                       11%      7%     6%


       Although the Company does not anticipate any significant changes with
           respect to sales to these customers, the termination of any of these
           agreements could have a material effect on the Company's financial
           position and results of operations.

(12)   RELATED PARTY TRANSACTIONS

       The Company engages in various transactions in the ordinary course of
           business with certain stockholders and other related parties. A
           summary of significant related party transactions follows:

                As part of the reorganization and recapitalization discussed in
               note 8, the Company issued approximately $2,045,000 of
               subordinated debentures to certain stockholders of the Company in
               1993. The principal was subject to acceleration under certain
               circumstances, including a public offering of the Company's
               common stock. As a result, these subordinated debentures were
               paid-off during the first quarter of 1996 with the net proceeds
               of the public offering.

                The Company leased a manufacturing facility from a stockholder,
               which resulted in rent expense of approximately $88,000,
               $234,000, and $238,000 at December 31, 1996, 1995, and 1994,
               respectively.

                During May 1996, the Company exercised an option to purchase
               from a related party two manufacturing facilities, located in
               Torreon and Chihuahua, Mexico. In management's opinion, the
               purchase price of approximately $3,100,000 represents the fair
               market value as determined by an independent appraiser. The
               Company has a manufacturing operation at the Torreon facility and
               intends to establish an operation at the Chihuahua facility.

                                         39

<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)

(12)      RELATED PARTY TRANSACTIONS, CONTINUED

                The Company leases three manufacturing facilities from companies
               which are owned by a related party. Included in rent expense are
               rental payments under these leases of approximately $900,000,
               $833,000, and $968,000 during December 31, 1996, 1995, and 1994,
               respectively.

                Elamex de Torreon, S.A. de C.V., a Mexican company owned by
               affiliates of Elamex, exclusively provides assembly services
               under the direction of Elamex to a customer of Elamex. Under a
               manufacturing contract between Elamex and the Mexican company,
               the Mexican company is required to submit its budget annually to
               the Board of Directors of Elamex for approval. At December 31,
               1996, 1995, and 1994, the Mexican company had sales to Elamex of
               $1,618,000, $1,835,000, and $2,679,000, respectively. Elamex had
               a payable to the Mexican company of $62,000 and $54,000, at
               December 31, 1996 and 1995, respectively.

                A U.S. corporation, owned by certain executives and senior
               management of the Company, exclusively provides professional
               services to Elamex. Under the service agreement, the U.S.
               corporation is obligated to submit its annual budget to the Board
               of Directors of Elamex for approval. At December 31, 1996, 1995,
               and 1994, this company provided services to Elamex for
               $2,852,000, $2,208,000, and $2,336,000, respectively. Elamex had
               payables to this company of $212,000 and $102,000 at December 31,
               1996 and 1995, respectively.

                The Company paid consulting fees, consisting of tax advice and
               return preparation, and other administration services, of
               approximately $213,000, $280,000, and $191,000 during December
               31, 1996, 1995, and 1994, respectively, to companies which are
               related parties.

                The Company purchases insurance through an insurance broker that
               is a related party. Premiums paid approximated $306,000,
               $175,000, and $362,000 for the years ended December 31, 1996,
               1995, and 1994, respectively.

(13)   COMMITMENTS AND CONTINGENCIES

       The Company is a party to various claims, actions and complaints, the
           ultimate disposition of which, in the opinion of management, will not
           have a material adverse effect on the operations or financial
           position of the Company.

       The Mexican Federal Labor Law requires a severance payment for all
           permanent employees that are terminated by the employer. This payment
           is calculated on the basis of ninety days pay for termination anytime
           during the first year of employment, with an additional twelve days
           pay per year for each year of service thereafter. While most of the
           Company's Mexican assembly labor is hired under temporary labor
           contracts during the first two months of employment, the labor force
           is changed to permanent labor contracts after this period. The
           Company has agreements with many of its contract-assembly customers
           which require that the customers pay the severance costs incurred in
           the event that assembly contracts are terminated prior to their
           scheduled completion. In management's opinion, any severance costs
           incurred upon the termination of any manufacturing contracts would
           not be material.


                                         40

<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)

(13)   COMMITMENTS AND CONTINGENCIES, CONTINUED

       Seniority premiums to which employees are entitled upon retirement after
           fifteen years or more of service, in accordance with the Mexican
           Federal Labor Law, are recognized as expense during the year in which
           services are rendered, based on actuarial computations. Included in
           other liabilities is approximately $212,000 and $182,000 as of
           December 31, 1996 and 1995, respectively, which fully accrues for
           these estimated seniority obligations. No significant seniority
           payments have been made through December 31, 1996.

       At  December 31, 1996, the Company has an obligation to purchase
           inventory held by suppliers valued at approximately $1,300,000.

(14)   NET INCOME PER SHARE (UNAUDITED)

       PRO FORMA INFORMATION AND SUPPLEMENTARY NET INCOME PER SHARE

       The following is pro forma data for the year ended December 31, 1996 as
           if the receipt of proceeds from the public offering occurred
           effective January 1, 1996. The financial data, as adjusted, assumes
           that net proceeds of approximately $18,700,000 were used to retire
           outstanding debt of approximately $15,900,000, and that interest on
           the debt was not incurred during 1996. Pro forma amounts have not
           been audited. Pro forma net income per share is computed assuming
           7,322,221 shares of common stock is the weighted average number of
           shares outstanding at December 31, 1996.

<TABLE>
<CAPTION>
                                                              For the Year ended
                                                              December 31, 1996
                                                                 (UNAUDITED)
                                                        -----------------------------
                                                        ACTUAL         AS ADJUSTED
                                                        ------         -----------
<S>                                                  <C>               <C>
      Total other income (expense)                   $      136,435          469,271
      Income before income taxes                     $   10,502,550       10,835,386
      Net income                                     $    7,927,471        8,147,143
      Weighted average common shares outstanding          6,880,548        7,322,221
      Net income per common share                    $         1.15             1.11
</TABLE>

                                         41

<PAGE>


                      ELAMEX, S.A. de C.V. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                                (In U.S. Dollars)


(15)    SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
             (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                               1996 QUARTERS                           1995 QUARTERS
                               --------------------------------------     ------------------------------------
                                    1ST       2ND        3RD     4TH        1ST      2ND        3RD        4TH
                                    ---       ---        ---     ---        ---      ---        ---        ---
<S>                            <C>         <C>        <C>      <C>        <C>     <C>        <C>        <C>

Net sales                      $ 25,337    30,925     30,496   32,161     24,947  24,131     23,981     24,484
Gross profit                      3,853     5,243      5,399    4,187      3,609   3,626      3,414      4,322
Net income                        1,445     2,018      2,320    2,144 (c)    906   2,061      1,974      1,268

Net income per common
   share (a), (b)              $   0.27     0.27       0.31     0.29        0.17     0.39      0.38       0.25
</TABLE>


     (a) For 1995, net income per share of common stock is calculated by
         dividing net income by the number of common shares outstanding at each
         quarter end, after deducting the amounts attributable to the rights of
         senior securities.

     (b) For 1996, net income per share of common stock is calculated by
         dividing net income by the weighted average number of common shares
         outstanding at each quarter end.

     (c) The income tax provision decreased in the fourth quarter due to more
         favorable inflation/devaluation gain/loss on tax loss carryovers than
         previously projected.


                                        42
<PAGE>

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

         Not applicable

ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT

         The names,  ages and  positions of the Director and  executive 
         officers of the Company as of March 3, 1997 are as follows:

     NAME                       AGE                            POSITION
     ----                       ---                            --------
Eloy S. Vallina                  59    Chairman of the Board of Directors
Federico Barrio                  60    Vice Chairman of the Board of Directors

Jesus Alvarez-Morodo             50    Vice Chairman of the Board of 
                                         Directors Officer and Secretary
HEctor M. Raynal                 43    President, Chief Executive Officer 
                                         and Director
Timothy A. Graves                43    Vice President-Sales and Marketing
David R. Crawford                60    Vice President-Manufacturing Operations
Wayne Rout                       53    Vice President-Materials
Jesus E. Vallina                 48    Director
Rafael Vallina                   37    Director
Eduardo L. Gallegos              55    Director
Robert J. Whetten                54    Director
Jerry Neely                      60    Director
Antonio Elias                    48    Director
Charles H. Dodsont               66    Director
Tomas de Leon                    43    Statutory Auditor




ELOY S. VALLINA

     Mr. Vallina has been Chairman of the Board of Accel and its  predecessor,
Grupo Chihuahua, S.A. de C.V., since its inception in 1979. Mr.  Vallina has
continued as Chairman of Ponderosa Industrial, S.A. de C.V. since  its spin-off
by Grupo Chihuahua. He is also chairman of Kleentex Corp., and  an Advisory
Director of Norwest Bank El Paso. Mr. Vallina was Chairman of  Banco Comercial
Mexicano, later Multibanco Comermex, one of Mexico's largest  commercial banks
at that time, from 1971 until its expropriation in 1982. He  graduated with a
B.A. in Business Administration from the Instituto  TecnolUgico y de Estudios
Superiores de Monterrey.

FEDERICO BARRIO

     Mr. Barrio has been Vice Chairman of the Board of Elamex and its
predecessor companies, or has held the functionally equivalent position, for 23
years and was a founding stockholder of the Elamex business. He is a partner in
Constructora Lintel, a major developer of industrial and commercial buildings
in Ciudad Juarez, and he has been Constructora Lintel's President since 1983.
He has also been an Advisory Director of Norwest Bank El Paso since 1991. He
has a B.S. in Industrial Engineering from the Chihuahua Technological Institute
and an M.B.A. degree from the University of Chihuahua. Mr. Barrio was former
Dean of Juarez Technological Institute and has 27 years of experience in
industrial development and general contracting.

                                       43

<PAGE>

JESUS ALVAREZ-MORODO

     Mr. Alvarez-Morodo has been Vice Chairman of the Board of Elamex since
1995 and President and CEO of Accel since 1992. He has been a director of
Elamex since 1990. Mr. Alvarez-Morodo has held various positions with Accel,
and its predecessor, Grupo Chihuahua and its subsidiaries since 1982, including
Vice President from 1989 to 1992. He graduated from the Universidad
Iberoamericana with a B.S. in Electromechanical Engineering and from the Sloan
School of Management, M.I.T. with an M.S. degree in Management.

HECTOR M. RAYNAL

     Mr. Raynal  has been  President  and Chief  Executive  Officer of Elamex
since  January,  1995. In 1994 he was the Director  General of  Pondercel  S.A.
de C.V., a pulp and paper  manufacturer.  From 1990 to 1994  Mr. Raynal 
directed the paper unit at Pondercel,  and served as a director,  vice
president and secretary of Pondercel's U.S. marketing subsidiary. Mr. Raynal 
has held  various  positions  with  Accel and Grupo  Chihuahua  since  1983. 
He  received a B.S.  and M.S.  in Electrical Engineering and an M.B.A from
Stanford University.

TIMOTHY A. GRAVES

     Mr. Graves has been Vice President-Sales and Marketing of Elamex since
1993. From 1989 to 1993 he was Vice President of Sales and Marketing/Program
Manager at Comptronix Corp. He received a B.S. in Corporate Finance from the
University of Alabama. Mr. Graves has 13 years of experience in contract
electronics manufacturing.

DAVID R. CRAWFORD

     Mr. Crawford has been Vice President Manufacturing Operations of Elamex
since August 1995. From 1987 to 1995 he was Director of Operations of the Allen
Bradley Business Unit Electronic Components, a subsidiary of Rockwell
International Corporation. Mr. Crawford has 36 years of experience in
electronic assembly and components manufacturing from major manufacturing
companies in the area. He received a B.S. from Purdue University.

WAYNE ROUT

     Mr. Rout  has been Vice  President-Materials  for  Elamex  since  1988. 
Mr. Rout  has 29 years of  experience  in manufacturing and materials.  Mr.
Rout has a B.S. degree from Brigham Young University.  Mr. Rout holds the
APICS, NAPM and IMMS certifications.

JESUS E. VALLINA

     Mr. Vallina has been Director of Public Relations of Accel and its
predecessor,  Grupo Chihuahua,  for the past 21 years.  He is President of 
Constructora  Inmobiliaria  Las Americas,  S.A. de C.V., and a Director of
Kleentex Corp. He is also an Advisory  Director of Norwest Bank El Paso.  Mr.
Vallina is a graduate of the University of Texas at El Paso, where he received
a degree in Business Administration. Mr. Vallina is the brother of Eloy Vallina
and  cousin of Rafael Vallina.

RAFAEL VALLINA

     Mr. Vallina has been President of Implyex Corp. since 1990, and President
of Tableros y Chapas del Norte since 1992. He is also President of Triplay
Maderas y Derivadas, and of Kintitsu. He has been a director of Elamex

                                              44

<PAGE>

since 1994. Mr. Vallina is a Certified Public Accountant with a degree from the
Instituto TechnolUgico y de Estudios Superiores de Monterrey. Mr. Vallina is a
cousin of Eloy Vallina and Jesus Vallina.

EDUARDO L. GALLEGOS

     Mr. Gallegos has been with Accel and its predecessor, Grupo Chihuahua, for
24 years. He has been President of Esvamex, S.A. de C.V. since 1985. Mr.
Gallegos graduated as a Certified Public Accountant from the Instituto
TecnolUgico y de Estudios Superiores de Monterrey, and has studied at the
American Management Association, Stanford Alumni Association, Advanced
Management College and Instituto de AdministraciUn CientIfica de las Empresas.

ROBERT J. WHETTEN

     Mr. Whetten  has been a Director of Elamex since 1994.  He was President 
and Chief  Executive  Officer of Norwest Bank El Paso.  Mr. Whetten  has 21
years of banking  experience in the United States and Latin America.  He
received a B.A. in Finance  and a Master of Public  Administration  from 
Brigham  Young  University.  Mr.  Whetten  has been on a leave of absence while
completing a mission service for his church in a foreign country.

ANTONIO L. ELIAS

     Mr. Elias has been the Senior Vice President,  Advanced  Projects Group,
at Orbital Sciences  Corporation  ("OSC") since  1989.  Mr.  Elias  joined  OSC
in 1986 as Chief  Engineer,  becoming  Vice  President  for  Engineering  in
1988 and Corporate  Vice President in 1989.  From 1980 to 1986 he was Assistant 
Professor of Aeronautics  and  Astronautics  at the Massachusetts  Institute of
Technology.  Mr. Elias obtained a B.S., M.S.,  E.A.A. and Ph.D. in Aeronautics
and Astronautics from the Massachusetts Institute of Technology.

JERRY W. NEELY

     Mr. Neely is Director and Chairman of the Executive  Committee of Smith 
International,  Inc. Mr. Neely retired as President / Chairman in 1988. He held
several  positions at Smith  International,  Inc. from 1966 to 1988. He serves
on the Boards of Norris Cancer  Hospital and All Coast Forest  Products,  is a
Trustee of The  University of Southern  California, Past Chairman of Petroleum 
Equipment  Supplies  Association and Past Chairman of The Young  Presidents 
Organization.  Mr. Neely received a B.S. in Industrial Management/Business
Administration from the University of Southern California.

CHARLES H. DODSON

     Mr. Dodson was owner of Elamex for 17 years in addition to being Chairman
of the Board and Chief Executive Officer. Mr. Dodson has remained a Director of
Elamex since its acquisition by Accel. He has also been Vice President of Nafta
Ventures, Inc. since 1994.

TOMO S DE LEUN

     Mr. de LeUn has been Elamex's  statutory  auditor  since 1988. He has also
been a partner in KPMG Co rdenas  Dosal, S.C.  since  1988.  Mr. de LeUn is a
member of the  Mexican  Institute  of Public  Accountants  and has  obtained  a
public accounting degree from the Universidad Iberoamericana in Mexico City.


                                      45

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

         During the year ended December 31, 1996, Elamex paid, either directly
or through a related company, MTI Services Corporation ("MTI"), an aggregate of
$1,129,192 to all of its Directors and officers as a group for services in all
capacities and an additional $139,600 in respect of a discretionary compensation
plan. During such year, the Company, through MTI, set aside or accrued an
aggregate of $9,499 to provide pension, retirement or similar benefits for its
directors and officers pursuant to existing plans, consisting solely of a 401(k)
plan for its U.S.-based officers and Directors.

         Twenty-nine of the Company's executives and senior managers who are
citizens or residents of the United States are employees of MTI, a U.S.
corporation owned by such executives, and provide services to MTI under a
contract between MTI and Elamex. The purpose of this arrangement is to provide
to U.S. resident employees U.S. dollar-denominated salaries and U.S.-style
employee benefits. Under such contract, the Company pays to MTI an amount equal
to the salary and benefits provided to such executives by MTI.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock at March 21, 1997 by (i) each person who
is known to the Company to own beneficially more than 5% of the outstanding
Common Stock of the Company, (ii) each director individually and (iii) all
directors and executive officers as a group.

              NAME AND ADDRESS OF       NUMBER OF SHARES      PERCENT OF TOTAL
               BENEFICIAL OWNER        BENEFICIALLY OWNED     ---------------- 
               ----------------        -------------------   

Accel, S.A. de C.V.                        3,777,500            51.05%
Avenida Zarco No. 2401
31020 Chihuahua, Chih. Mexico

Eloy S. Vallina (1)                        3,777,500             51.05
Avenida Zarco No. 2401
31020 Chihuahua, Chih. Mexico

Delaware Management                          440,100              5.95
One Commerce Square, 40th Floor
Philadephia, PA

------
(1) Mr. Vallina directly owns 142,010,600 shares, or 48.26%, of the outstanding
    voting common stock of Accel. In addition, Mr. Vallina controls companies
    that hold 28,751,680 shares, or 9.77%, of the outstanding voting common
    stock of Accel.

ITEM 13.  CERTAIN TRANSACTIONS

         The Company was formed on the Effective Date in the merger transaction
described below. The Company has been operated by substantially the same
investors since its purchase in May 1990; however, the organizational structure
has changed during this period. The Company consists of the former Elamex
Internacional, whose assets and liabilities were merged with and into Elamex,
S.A. de C.V. on the Effective Date.

     Effective December 9, 1993, the stockholders of Kronos, Inc.  ("Kronos")
and its subsidiaries and the stockholders of  Kronoservices,  S.A. de C.V.,
which were  substantially  the same persons and entities,  restructured the
operations of those companies.  Kronoservices,  S.A. de C.V. changed its name
to Elamex,  S.A. de C.V., which was chosen as a name easily identified by
customers and already  associated  with the operations of related  

                                    46

<PAGE>

companies.  As of  December 31,  1993, the operations  of  Kronos, 
constituting  substantially  all  of  its  assets,  were  transferred  to 
Elamex,  S.A.  de  C.V. Substantially all remaining Kronos assets were
transferred in 1994.

         Prior to November 16, 1993, Accel held 55% of the common stock of
Elamex Internacional, and the Selling Stockholder held the other 45%. Such
stockholders and, indirectly, a company controlled by Messrs. Barrio and Dodson,
the two founders of the Elamex business, each held preferred stock in Kronos, an
80%-owned subsidiary of Elamex Internacional. Kronos was the intermediate
holding company for the Elamex business. As of November 16, 1993, the
stockholders, in effect, canceled all of the preferred stock and $1.1 million of
accumulated dividends and redemption premiums in exchange for additional common
stock and, in addition, two of the stockholders received $2.0 million of
five-year Subordinated Debentures bearing interest at 7% per annum. At the same
time, the Elamex corporate structure was modified by, in effect, replacing
Kronos with Elamex, S.A. de C.V., a Mexican directly held subsidiary of Elamex
Internacional, which was the issuer of such Subordinated Debentures. Using a
portion of the net proceeds of the public offering the Subordinated Debentures
were recently prepaid. Elamex Internacional was merged with and into Elamex,
S.A.

de C.V. on October 1, 1995.

         As part of the November 16, 1993 transaction, Accel and Fonlyser, S.A.
de C.V. (the "Selling Stockholder") entered into a stockholders' agreement (the
"Stockholders' Agreement") providing that each would be required, in effect, to
make a bid to buy the shares of Common Stock held by the other, with the party
submitting the higher bid being required to buy the low bidder's shares at such
high bid price, and the low bidder being required to sell all of its shares at
such price, subject to certain limitations. In anticipation of the Company's
recent public offering, Accel and the Selling Stockholder entered into an
agreement (the "Modification Agreement"), pursuant to which they agreed to waive
their respective rights under the Stockholders' Agreement and to terminate such
agreement. In addition, Accel agreed not to sell any shares of Common Stock in
the public offering and to permit the Selling Stockholder to sell its shares
offered herein. Accel and the Selling Stockholder further agreed that the
Selling Stockholder would make available to the underwriters for the public
offering the entire amount of shares required for the underwriters'
over-allotment option, and that the Selling Stockholder would also sell to
Accel, at book value, the number of shares of Common Stock required for Accel to
maintain ownership of approximately 51% of the shares outstanding. Accel also
agreed to take all actions necessary to see that Elamex redeems within thirty
days of the public offering $250,498 of Subordinated Debentures then held by the
Selling Stockholder. Accordingly, the Selling Stockholder (i) sold to Accel, at
book value, the number of shares of Common Stock then held by it and not offered
in the public offering and required for Accel to maintain ownership of
approximately 51% of the shares outstanding, and (ii) thereafter, set aside and
provided the entire amount of shares then held by it and required for the
Underwriters' over-allotment option. The over-allotment option was subsequently
exercised in the amount of 100,000 shares.

         On March 9, 1995, Elamex, S.A. de C.V. entered into an agreement
whereby it was obligated to purchase, or cause to be repurchased, over a six
year period, 1,060,197 shares of its Common Stock from a company controlled by
Messrs. Barrio and Dodson for an aggregate purchase price of approximately $3.8
million (to be adjusted by 8.5% per annum). In July and September, 1995, Elamex
Internacional purchased all such shares for approximately $4.0 million, or $3.79
per share. After giving effect to the change in the amount of outstanding shares
of Elamex, S.A. de C.V. effected in connection with the merger of Elamex
Internacional with and into Elamex, S.A. de C.V., such purchase price would have
been $4.02 per share.

         Elamex, S.A. de C.V. and Mossberg are parties to a manufacturing
contract pursuant to which Elamex has agreed to manufacture shotgun components
and safe deposit boxes. The manufacture of firearms and their components are
highly regulated activities in Mexico that may not be conducted by companies
with non-Mexican ownership. In order to comply with Mexican regulations, Elamex
de Torreon acts as a subcontractor to Elamex for this contract. Elamex de
Torreon is owned by Bielas, Ensambles y Articulos Reciclables, S.A. de C.V.
("Bielas"), whose stock is held by members of the Board of Directors who are
citizens of Mexico. Elamex de Torreon, which holds a permit from the Mexican
Department of National Defense to manufacture the shotgun components, 

                                        47


<PAGE>

performs the manufacturing required under the Mossberg contract, including 
the provision of facilities and employees, under contract to Elamex which 
supervises the work performed by Elamex de Torreon. The manufacturing 
facility used by Elamex de Torreon is owned by Elamex de Delicias, S.A. de 
C.V. and leased to Elamex de Torreon. The initial term of the lease has 
approximately 6 years to run with an option exercisable by the lessee to 
extend for 4 additional years, while the Mossberg contract runs for 
approximately two years from the date hereof. Elamex pays Elamex de Torreon 
its out-of-pocket costs to fulfill the contract (I.E., the cost of rent under 
the lease and the compensation of employees) plus up to 2%. The stockholders 
of Elamex de Torreon have agreed not to interfere with performance of the 
foregoing arrangements, or permit them to be modified, in either case without 
Elamex's consent, so long as the Mossberg contract is in effect. Elamex de 
Delicias, S.A. de C.V has granted Elamex, and Elamex has granted to Mossberg, 
an option to purchase the manufacturing facility where the Mossberg contract 
is performed from Elamex de Delicias, S.A. de C.V for a price determined by 
appraisers appointed by each party to represent fair market value. The 
options expire on the expiration of the lease.

         In addition, on September 30, 1995, Elamex entered into an agreement
with Bielas, a company whose stock is held by five members of the Company's
Board of Directors: Messrs. Eloy Vallina, Jesus Vallina, Gallegos, Barrio and
Alvarez-Morodo. The agreement provides that Elamex will acquire the stock of
Elamex de Torreon for $10,000 if: (i) the law prohibiting non-Mexican ownership
of firearms manufacturers is repealed; (ii) the Department of National Defense
authorizes acquisition of Elamex de Torreon by Elamex; or (iii) the Mossberg
contract is terminated. This option is subject to a prior option, made on
January 15, 1994 and granted by Elamex, Bielas, and several affiliated
companies, to Mossberg, under which Mossberg has the option to purchase the
shares of Elamex de Torreon for $10,000.

         Accel is the parent corporation of both Elamex and Esvamex, S.A. de
C.V. ("Esvamex"). Esvamex and Elamex are parties to a consulting agreement of
indefinite duration under which Esvamex provides administrative, accounting, tax
and financial services to Elamex. In return, Elamex pays Esvamex $15,833.33
monthly subject to renegotiation as circumstances may require. The Company
believes that this amount is the fair market value of the services it receives
from Esvamex.

         At the time he became President and Chief Executive Officer of the
Company, Mr. Raynal moved from Ciudad Chihuahua to Ciudad Juarez. At that time,
the Company guaranteed a $150,000 loan to Mr. Raynal by a bank, the proceeds of
which were used to purchase a home in Ciudad Juarez.

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

         (a)   Financial Statements

                (i)  The consolidated balance sheets of Elamex, S.A. de C.V.
                     and its subsidiaries as of December 31, 1996 and 1995
                     and the related consolidated statements of earnings,
                     stockholders' equity and cash flows for each of the
                     years in the three-year period ended December 31, 1996
                     are filed in Item 8 of this report.

                (ii) Financial statement schedule, valuation and qualifying
                     accounts and reserves and report thereon included on
                     pages 49 and 50.

                                        48


<PAGE>

         (b)      The following exhibits are filed as part of this report:

<TABLE>
<CAPTION>

     EXHIBIT                                                   DESCRIPTION
     NUMBER                                                    -----------
     -----
<S>               <C>
        3         Estatutos Sociales (By-Laws) of the Registrant (including English translation).*

      10.1        Modification Agreement Between Fonlyser,  S.A. and Accel, S.A. de C.V., with a translation in English,
                  and subsequent modification letter, with a translation in English.*

      10.2        Credit Agreement with Confia,  S.A., with a summary in English, and renewal letter, with a translation
                  in English.*
      10.3        Revolving Credit Agreement with Comerica Bank.*

      10.4        Contract for the Opening of Credit with Bancomer,  S.A., with a summary of subsequent modifications in
                  English.*
      10.5        Tax Sharing Agreement between Accel, S.A. de C.V. and Elamex S.A. de C.V.*
      10.6        Lease of Elamex de Juarez Plant #3, with a translation in English.*
      10.7        Lease of Elamex de Juarez Plant #4, with a translation in English.*
      10.8        Lease of Elamex de Juarez Plant #5, with a translation in English.*

      10.9        Lease of Elamex de Juarez Plant #9.*
      10.10       Lease of Elamex de Nuevo Laredo Plant.*
      10.11       Lease of Elamex de Torreon Plant.*
      10.12       Executive Phantom Stock Plan.*

       21         Subsidiaries of the Registrant.*

       99         Financial statement schedule, valuation and qualifying
                  accounts and reserves and report thereon included on pages 49
                  and 50.
</TABLE>

* Filed as an exhibit to the Company's Registration Statement on Form S-1, file
  No. 333-01768

         (c) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.


                                49

<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Elamex, S.A. de C.V.:

Under date of February 27, 1997, we reported on the consolidated balance sheets
of Elamex, S.A. de C.V. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
which are included in Item 8 of the 1996 annual report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule in the Form 10-K. This consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.

In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

                 KPMG Peat Marwick LLP

El Paso, Texas
February 27, 1997

                               50


<PAGE>

                                                                   Exhibit 99

ELAMEX & SUBSIDIARIES

Valuation and qualifying accounts and reserves

<TABLE>
<CAPTION>

Column A                      Column B                     Column C             Column D              Column E
--------------------------    --------------------------------------------------------------------------------------
<S>                           <C>                <C>              <C>          <C>                    <C>
                                  Balance        Charged to       Charged to                             Balance
                                 Beginning        Cost and          Other                                at End
                                  of Year         Expenses         Accounts     Deductions               of Year

ALLOWANCE FOR DOUBTFUL ACCOUNTS 
For the year ended:
        December 31, 1996                  149             527                              151  (a)            525
                                                                              -
        December 31, 1995                  194                                                   (a)            149
                                                           160                -             205
        December 31, 1994                   47                                                   (a)            194
                                                           294                -             147



ALLOWANCE FOR MATERIAL OBSOLESCENCE 
For the year ended:
        December 31, 1996                1,471             427                                                1,898
                                                                              -               -
        December 31, 1995                  863                                                                1,471
                                                           608                -               -
        December 31, 1994                  215                                                                  863
                                                           648                -               -

</TABLE>
--------------------------
 (a) Uncollectible accounts written off


                                           51


<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, thereunto duly authorized, in Ciudad Juarez,
Chihuahua, Mexico on March 21, 1997.

                                                    ELAMEX, S.A. de C.V.

                                                 By:   /s/ JORGE  TORRES
                                                      ------------------
                                                          Jorge Torres
                                        TREASURER (PRINCIPAL FINANCIAL OFFICER)


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on May 7, 1996 by the following persons on
behalf of the registrant in the capacities indicated.

<TABLE>
<CAPTION>

            SIGNATURE                                 TITLE                             DATE
            ---------                                 -----                             ----
<S>                             <C>                                               <C>

       /s/ ELOY S. VALLINA       Chairman of the Board of Directors                March 21, 1997
      -------------------- 

         Eloy S. Vallina

       /s/ FEDERICO BARRIO       Vice Chairman of the Board of Directors           March 21, 1997
      --------------------

         Federico Barrio

    /s/ JESUS ALVAREZ-MORODO     Vice Chairman of the Board of Directors           March 21, 1997
    --------------------------

      Jesus Alvarez-Morodo

      /s/ HECTOR M. RAYNAL       President, Chief Executive Officer and Director    March 21, 1997
      --------------------
                                 (Principal Executive Officer)

        Hector M. Raynal

      /s/ JESUS E. VALLINA       Director                                           March 21, 1997
     ---------------------- 

        Jesus E. Vallina

     ______________________      Director                                           March 21, 1997

         Rafael Vallina

     /s/ EDUARDO L. GALLEGOS     Director                                           March 21, 1997
    ------------------------

       Eduardo L. Gallegos

      ______________________     Director                                          March 21, 1997

        Robert J. Whetten
</TABLE>

                               52

<PAGE>

<TABLE>
<S>                             <C>                                               <C>
         /s/ JERRY NEELY         Director                                          March 21, 1997

           Jerry Neely

      ______________________     Director                                          March 21, 1997

        Charles H. Dodson

        /s/ ANTONIO ELIAS        Director                                          March 21, 1997

          Antonio Elias

</TABLE>


                               53