FORM
      10-K/A


(Amendment
        No. 2)
 **SECURITIES
        AND EXCHANGE COMMISSION**
 WASHINGTON,
        D.C. 20549
 
 **x** **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
                  31, 2004**
              **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 incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)**1800
                  Northwestern Dr.**
              
              **79912**EL
                  PASO, TX
              
              (zip
                  code)(Address
                  of principal executive offices)
 **(915)
          298-3061**
 (Registrant's
          telephone number including area code, in El Paso, TX)
 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 if the registrant is a well-known seasoned issuer, as defined
        in Rule
        405 of the
        Securities Act.    Yes  ̈ No x
 
 Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Securities Act.     Yes x No  ̈
 
 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  ̈
 
 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 registrant's knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K. x
 
 Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Act).    Yes  ̈ No x
 The
        aggregate market value of the voting stock (based upon the closing price
        of the
        NASDAQ National Market on July 2, 2004 of $2.25) held by non-affiliates of
        the
        registrant on that date was approximately $7,146,205.
 
 The
        number of shares of Class I Common Stock of the registrant outstanding as
        of
        March 8, 2005 was: 7,502,561.
 
 **DOCUMENTS
        INCORPORATED BY REFERENCE**
 *The
        Proxy Statement for the registrant’s 2005 Annual Meeting of Stockholders is
        incorporated by reference into Part III of this Form 10-K*
  
  **EXPLANATORY
        NOTE**
 
 This
        Annual Report on Form 10-K/A is being filed as an amendment to our Annual
        Report on Form 10-K for the fiscal year ended December
        31 ,
        200 4 to
        revise certain disclosures contained in the original
        Form 10-K.
 
 This
        amendment corrects Part II, Item 8 - Financial Statements and Supplementary
        Data, date on Report of Independent Registered Public Accounting
        Firm,  Note
        1,
        second table and paragraph eight of “Principles of Consolidation” .
 
 Elamex
        has a 50.1% investment in Qualcore, S. de R.L. de C.V. (“Qualcore”), a joint
        venture company with GE de Mexico, which is recorded under the equity method.
        In
        its original Form 10-K, the Company did not present Qualcore as a significant
        subsidiary as set forth in Rule 3-09 of Regulation S-X and only included
        a
        summary of unaudited financial information in a footnote disclosure instead
        of
        including separate financial statements for this significant unconsolidated
        subsidiary as an exhibit. This amended Form 10-K corrects the summary of
        financial information of Qualcore to include audited amounts and to attach
        separate audited financial statements of Qualcore.
 
 Qualcore’s
        operations ceased in the third quarter of 2005, and as of the date of this
        amendment most of the machinery and equipment have been sold, the majority
        of
        the employees have been terminated and the building has been substantially
        vacated. The Company wrote down its investment in Qualcore to zero as of
        December 31, 2004, as such management does not believe that any additional
        adjustments are required in its previously issued financial statements. In
        the
        third quarter of 2005, the Company recognized a $2.0 million liability equal
        to
        50.1% in recognition of its guarantee of a portion of the Qualcore plant
        lease,
        stated at the estimated fair value of the remaining life of the lease
        agreement.
 
 Except
        as
        otherwise expressly noted herein, this Amendment No. 2 to Annual Report on
        Form
        10-K/A does not reflect events occurring after the March 31, 2005 filing
        of our
        original annual Report on Form 10-K in any way, except to reflect the changes
        discussed in the amendment. Accordingly, this amendment should be read in
        conjunction with the original filing.
  
  **PART
        II**
  **ITEM
        8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.**
 
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors and Stockholders of Elamex, S.A. de C.V.
 
 We
        have
        audited the accompanying consolidated balance sheets of Elamex, S.A. de C.V.
        and
        subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related
        consolidated statements of operations and comprehensive loss, stockholders’
equity, and cash flows for each of the three years in the period ended December
        31, 2004. These financial statements are the responsibility of the Company's
        management. Our responsibility is to express an opinion on these financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company's internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the
        overall financial statement presentation. We believe that our audits provide
        a
        reasonable basis for our opinion.
 
 In
        our
        opinion, such consolidated financial statements present fairly, in all material
        respects, the financial position of Elamex, S.A. de C.V. and subsidiaries
        as of
        December 31, 2004 and 2003, and the results of their operations and their
        cash
        flows for the three years in the period ended December 31, 2004 in conformity
        with accounting principles generally accepted in the United States of
        America.
 
 As
        discussed in Note 2 to the accompanying consolidated financial statements,
        in
        2002 the Company changed its method of accounting for goodwill and other
        intangible assets to conform to Statement of Financial Accounting Standards
        No.
        142.
 
 Galaz,
        Yamazaki, Ruiz Urquiza, S.C.
 Member
        of
        Deloitte Touche Tohmatsu
 
 
 
 
 Pedro
        Luis Castañeda
 
 March
        21,
        2005,
 November
        21, 2005 with respect to Note 1
 
 Ciudad
        Juárez, Chihuahua, México
  
  **ELAMEX,
        S.A. DE C.V. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(IN
        THOUSANDS OF U.S. DOLLARS)**
 
 
 **December
                  31, 2004**
              
              **December
                  31, 2003****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              2,072
              
              $
              2,299Receivables:Trade
                  accounts receivable, net
              
              
              9,609
              
              
              7,400Other
                  receivables, net
              
              
              512
              
              
              85410,121
              
              
              8,254Inventories,
                  net
              
              
              8,797
              
              
              7,921Income
                  taxes receivable from Accel
              
              
              326
              
              
              579Other
                  taxes receivable
              
              
              15
              
              
              499Prepaid
                  expenses
              
              
              992
              
              
              1,024Total
                  current assets
              
              
              22,323
              
              
              20,576Property,
                  plant and equipment, net
              
              
              26,956
              
              
              39,956Investment
                  and loans to unconsolidated joint venture
              
              
              
              
              
              864Investment
                  in unconsolidated subsidiary in bankruptcy
              
              
              -
              
              
              -Goodwill,
                  net
              
              
              3,707
              
              
              3,707Deferred
                  income taxes
              
              
              621
              
              
              885Other
                  assets, net
              
              
              643
              
              
              1,415$
              54,250
              
              $
              67,403**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Notes
                  payable and current portion of long-term debt
              
              $
              6,628
              
              $
              5,282Note
                  payable, guarantee of unconsolidated joint venture debt
              
              
              1,700Current
                  portion of capital lease obligations
              
              
              1,137
              
              
              1,051Accounts
                  payable
              
              
              7,546
              
              
              6,251Accrued
                  expenses
              
              
              6,251
              
              
              5,999Taxes
                  payable
              
              
              722
              
              
              108Current
                  portion of deferred gain on sale-leaseback
              
              
              184Total
                  current liabilities
              
              
              24,168
              
              
              18,691Long-term
                  debt, excluding current portion
              
              
              -
              
              
              1,827Capital
                  lease obligations, excluding current obligations
              
              
              2,694
              
              
              15,313Deferred
                  gain on sale-leaseback, excluding current portion
              
              
              889Excess
                  of loss in investment and loans to unconsolidated joint
                  venture
              
              
              119Total
                  liabilities
              
              
              27,870
              
              
              35,831Commitments
                  and contingencies
              
              
              -
              
              
              -Stockholders'
                  equity:Preferred
                    stock, no par, 50,000,000 shares authorized, none issued or
                    outstandingCommon
                    stock, 22,400,000 shares authorized, 8,323,161 issued and 7,502,561
                    outstanding
              
              
              37,466
              
              
              37,507Deficit
              
              
              (8,539
              )
              
              (3,388
              )Treasury
                  stock, 542,101 shares at cost
              
              
              (2,547
              )
              
              (2,547
              )Total
                  stockholders' equity
              
              
              26,380
              
              
              31,572$
              54,250
              
              $
              67,403
 
 See
        accompanying notes to the consolidated financial statements
  
 
 **ELAMEX,
        S.A. DE C.V. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002**
 **(IN
        THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE DATA)**
 
 
 **2004**
              
              **2003**
              
              **2002**Net
                  sales
              
              $
              97,587
              
              $
              157,250
              
              $
              134,269Cost
                  of sales
              
              
              74,566
              
              
              139,336
              
              
              120,142Gross
                  profit
              
              
              23,021
              
              
              17,914
              
              
              14,127Operating
                  expenses:General
                  and administrative
              
              
              5,610
              
              
              9,198
              
              
              7,092Selling
              
              
              7,053
              
              
              7,009
              
              
              4,179Distribution
              
              
              10,367
              
              
              9,463
              
              
              4,149Impairment
                  of long lived assets
              
              
              330
              
              
              13,235Goodwill
                  impairment
              
              
              
              
              
              8,120Total
                  operating expenses
              
              
              23,360
              
              
              47,025
              
              
              15,420Operating
                  loss
              
              
              (339
              )
              
              (29,111
              )
              
              (1,293
              )Other
                  (expense) income:Interest
                  expense
              
              
              (2,169
              )
              
              (3,503
              )
              
              (1,774
              )Gain
                  on sale of certain Shelter operations
              
              
              
              
              
              1,680Other,
                  net
              
              
              142
              
              
              852
              
              
              (1,533
              )Total
                  other expense
              
              
              (2,027
              )
              
              (971
              )
              
              (3,307
              )Loss
                  before income taxes, equity in losses of unconsolidated joint venture
                  and
                  cumulative effect of change in accounting principle
              
              
              (2,366
              )
              
              (30,082
              )
              
              (4,600
              )Income
                  tax provision (benefit)
              
              
              1,377
              
              
              2,419
              
              
              (561
              )Loss
                  before equity in losses of unconsolidated affiliates and cumulative
                  effect
                  of change in accounting principle
              
              
              (3,743
              )
              
              (32,501
              )
              
              (4,039
              )Equity
                  in losses of unconsolidated affiliates, net of tax
              
              
              1,408
              
              
              2,107
              
              
              1,125Loss
                  before cumulative effect of change in accounting principle
              
              
              (5,151
              )
              
              (34,608
              )
              
              (5,164
              )Cumulative
                  effect of change in accounting principle, net of tax
              
              
              
              
              
              
              
              
              (853
              )Net
                  loss
              
              $
              (5,151
              )
              $
              (34,608
              )
              $
              (6,017
              )Other
                  comprehensive income, net of income tax
              
              
              
              
              
              
              
              
              379Comprehensive
                  loss
              
              $
              (5,151
              )
              $
              (34,608
              )
              $
              (5,638
              )Net
                  loss per share, basic and diluted before cumulative effect of change
                  in
                  accounting principle
              
              $
              (0.69
              )
              $
              (4.61
              )
              $
              (0.72
              )Cumulative
                  effect of change in accounting principle, net of tax
              
              
              
              
              
              
              
              $
              (0.12
              )Net
                  loss per share, basic and diluted
              
              $
              (0.69
              )
              $
              (4.61
              )
              $
              (0.84
              )Shares
                  used to compute net loss per share, basic and diluted
              
              
              7,502,561
              
              
              7,505,257
              
              
              7,188,431
 See
          accompanying notes to the consolidated financial
          statements
  
 
 **ELAMEX,
        S.A. DE C.V. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004,
        2003
        AND 2002**
 **(IN
        THOUSANDS OF U.S. DOLLARS)**
 
 
 **Common
                  Stock**
              
              **(Deficit)**
              
              
              
              **Accumulated
                  Other**
              
              **Total****Shares
                  Outstanding**
              
              **Amount**
              
              **Retained
                  Earnings**
              
              **Treasury
                  Stock**
              
              **Comprehensive
                  Loss**
              
              **Stockholders'
                  Equity**BALANCE,
                  JANUARY 1, 2002
              
              
              6,866,100
              
              $
              35,060
              
              $
              37,237
              
              $
              (2,518
              )
              $
              (379
              )
              $
              69,400Common
                  stock issued in purchase acquisition
              
              
              923,161
              
              
              2,865
              
              
              
              
              
              
              
              
              
              
              
              2,865Common
                  stock under escrow agreement
              
              
              (278,499
              )
              
              (962
              )
              
              
              
              
              
              
              
              
              
              
              (962
              )Net
                  loss
              
              
              
              
              
              
              
              
              (6,017
              )
              
              
              
              
              
              
              
              (6,017
              )Stock
                  options vested
              
              
              
              
              
              321
              
              
              
              
              
              
              
              
              
              
              
              321Permanent
                  impairment on investment securities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              379
              
              
              379BALANCE,
                  DECEMBER 31, 2002
              
              
              7,510,762
              
              
              37,284
              
              
              31,220
              
              
              (2,518
              )
              
              
              
              
              65,986Treasury
                  stock
              
              
              (8,201
              )
              
              
              
              
              
              
              
              (29
              )
              
              
              
              
              (29
              )Net
                  loss
              
              
              
              
              
              
              
              
              (34,608
              )
              
              
              
              
              
              
              
              (34,608
              )Stock
                  options vested
              
              
              
              
              
              223
              
              
              
              
              
              
              
              
              
              
              
              223BALANCE,
                  DECEMBER 31, 2003
              
              
              7,502,561
              
              
              37,507
              
              
              (3,388
              )
              
              (2,547
              )
              
              
              
              
              31,572Net
                  loss
              
              
              
              
              
              
              
              
              (5,151
              )
              
              
              
              
              
              
              
              (5,151
              )Stock
                  options forfeited, net
              
              
              
              
              
              (41
              )
              
              
              
              
              
              
              
              
              
              
              (41
              )BALANCE,
                  DECEMBER 31, 2004
              
              
              7,502,561
              
              $
              37,466
              
              $
              (8,539
              )
              $
              (2,547
              )
              
              
              
              $
              $
                  26,380
  See
        accompanying notes to the consolidated financial statements  
  **ELAMEX,
        S.A. DE C.V. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002**
 **(IN
        THOUSANDS OF U.S. DOLLARS)**
  **2004**
              
              **2003**
              
              **2002**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (5,151
              )
              $
              (34,608
              )
              $
              (6,017
              )Adjustments
                  to reconcile net loss to net cash provided by (used in) operating
                  activities:Depreciation
                  and amortization
              
              
              3,134
              
              
              6,085
              
              
              4,750Gain
                  on sale of certain Shelter operations
              
              
              
              
              
              (1,680
              )Cumulative
                  effect of change in accounting principle
              
              
              
              
              
              
              
              
              853Provision
                  for doubtful trade accounts receivable
              
              
              111
              
              
              1,294
              
              
              141Goodwill
                  impairment loss
              
              
              
              
              
              8,120Provision
                  for excess and obsolete inventory
              
              
              31
              
              
              
              
              
              1,176Equity
                  in loss of unconsolidated affiliates
              
              
              1,408
              
              
              2,107
              
              
              1,125Permanent
                  impairment on investment securities
              
              
              
              
              
              
              
              
              563Deferred
                  income tax expense (benefit)
              
              
              264
              
              
              1,326
              
              
              (548
              )Losses
                  on disposal-impairment of property, plant and equipment
              
              
              330
              
              
              13,235
              
              
              613Provision
                  for guarantee of unconsolidated joint venture debt
              
              
              1,700Change
                  in operating assets and liabilities, net of effects from deconsolidation
                  of Precision in 2003 and acquisition of Franklin in 2002:Trade
                  accounts receivable
              
              
              (2,320
              )
              
              1,719
              
              
              2,642Other
                  receivables
              
              
              342
              
              
              (901
              )
              
              1,777Inventories
              
              
              (907
              )
              
              1,013
              
              
              (4,167
              )Refundable
                  income taxes
              
              
              737
              
              
              1,117
              
              
              870Prepaid
                  expenses
              
              
              32
              
              
              396
              
              
              (304
              )Other
                  assets
              
              
              772
              
              
              (71
              )
              
              (4,686
              )Accounts
                  payable
              
              
              1,295
              
              
              1,671
              
              
              839Accrued
                  expenses
              
              
              211
              
              
              1,384
              
              
              (1,192
              )Taxes
                  payable
              
              
              614
              
              
              30
              
              
              11Other
                  liabilities
              
              
              
              
              
              
              
              
              (57
              )Net
                  cash provided by (used in) operating activities
              
              
              2,603
              
              
              2,237
              
              
              (1,611
              )Cash
                  flows from investing activities:Purchase
                  of property, plant and equipment
              
              
              (929
              )
              
              (6,433
              )
              
              (6,237
              )Investment
                  in joint venture
              
              
              (425
              )
              
              (1,175
              )
              
              (1,550
              )Cash
                  effects of deconsolidation of affiliates
              
              
              
              
              
              (71
              )Acquisition
                  of Franklin, net of cash acquired
              
              
              
              
              
              
              
              
              (2,753
              )Proceeds
                  from sale of certain Shelter operations
              
              
              
              
              
              1,800Net
                  cash used in investing activities
              
              
              (1,354
              )
              
              (5,879
              )
              
              (10,540
              )Cash
                  flows from financing activities:Proceeds
                  from notes payable and long term-debt
              
              
              
              
              
              1,839
              
              
              7,795Payments
                  on notes payable and long term-debt
              
              
              (481
              )
              
              (3,912
              )
              
              (3,124
              )Principal
                  repayments of capital lease obligations
              
              
              (995
              )
              
              (905
              )
              
              (451
              )Net
                  cash (used in) provided by financing activities
              
              
              (1,476
              )
              
              (2,978
              )
              
              4,220Net
                  decrease in cash and cash equivalents
              
              
              (227
              )
              
              (6,620
              )
              
              (7,931
              )Cash
                  and cash equivalents, beginning of period
              
              
              2,299
              
              
              8,919
              
              
              16,850Cash
                  and cash equivalents, end of period
              
              $
              2,072
              
              $
              2,299
              
              $
              8,919
 See
        accompanying notes to the consolidated financial statements
  
  **ELAMEX,
        S.A. DE C.V. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002**
 **(IN
        THOUSANDS OF U.S. DOLLARS)**
 
 SUPPLEMENTAL
        DISCLOSURES OF CASH FLOW INFORMATION
  **2004**
              
              **2003**
              
              **2002**Interest
                  paid, net of amounts capitalized of $0, $136 and $106 for 2004,
                  2003 and
                  2002, respectively
              
              $
              2,126
              
              $
              2,709
              
              $
              3,826Income
                  taxes paid
              
              $
              1,582
              
              $
              823
              
              $
              393SUPPLEMENTAL
                  SCHEDULE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES:Lease
                  modification, sale -leaseback treatment of production
                  plantProperty,
                  plant and equipment
              
              $
              (10,413
              )Obligations
                  under related party capital lease
              
              $
              11,539Deferred
                  gain on sale-leaseback transaction
              
              $
              1,126Forfeited
                  and vested stock options
              
              $
              (41
              )
              $
              223
              
              $
              321The
                  Company discontinued consolidation of its Metal Stamping Segment
                  (Precision) as of December 19, 2003. In conjunction with the
                  deconsolidation, assets and liabilities removed from the consolidated
                  balance sheet were as follows:Assets
                  removed net of cash
              
              
              
              
              $
              32,198Liabilities
                  removed
              
              
              
              
              
              (32,269
              )Net
                  cash effect of deconsolidation
              
              
              
              
              $
              (71
              )Stock
                  received for employee loan
              
              
              
              
              $
              29The
                  Company purchased Franklin in 2002. In conjunction with the acquisition,
                  the fair value of assets acquired and liabilities assumed were
                  as
                  follows:Fair
                  value of assets acquired
              
              
              
              
              
              
              
              $
              37,569Liabilities
                  assumed
              
              
              
              
              
              
              
              
              (32,913
              )Common
                  stock issued, net of amounts in escrow
              
              
              
              
              
              
              
              
              (1,903
              )Net
                  cash paid
              
              
              
              
              
              
              
              $
              2,753
  
  **ELAMEX,
        S.A. DE C.V. AND SUBSIDIARIES**
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2004,
        2003
        AND 2002
 (IN
        THOUSANDS OF 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 a group of Companies in Mexico and the United States that provide
        manufacturing, packaging and distribution services. The Company provides
        customized manufacturing services in the candy and nut industry. The Company's
        manufacturing machinery and equipment are located in facilities in Ciudad
        Juarez, in Mexico, and in El Paso, Texas in the United States.
 
 On
        December 19, 2003 the Metal Stamping segment, a wholly owned subsidiary,
        Precision Tool, Die and Machine Company ("Precision"), voluntarily filed
        for
        protection under Chapter 11 of the Federal Bankruptcy Code in the U.S.
        Bankruptcy Court to implement a restructuring of its debt. Also, in December
        2003 the Company’s Board of Directors authorized the sale of Precision. As a
        consequence of seeking protection under bankruptcy laws, the Company no longer
        controls Precision’s operations as of December 19, 2003. The Company’s
        investment in Precision was deconsolidated and was recognized in accordance
        with
        the equity method of accounting in 2003. Due to the bankruptcy activity during
        2004, the Company had no significant influence on Precision’s operations and
        changed from the equity method to the cost method with no effect on net
        loss.
 
 In
        July
        2002, the Company acquired the new Food Products segment, which is Mt. Franklin
        Holdings LLC and subsidiaries (“Franklin”). Franklin operates a retail nut and
        foodservice nut packaging and marketing company located in El Paso, Texas,
        and a
        candy manufacturing and packaging facility located in Ciudad Juarez, Mexico
        (see
        Note 3).
 
 The
        Company is a subsidiary of Accel, S.A. de C.V. (Accel), which owns approximately
        57.7% of the Company's issued and outstanding common shares at December 31,
        2004.
 
 BASIS
        OF
        PRESENTATION - These consolidated financial statements and the accompanying
        notes are prepared in U.S. dollars, the functional and reporting currency
        of
        Elamex.
 
 PRINCIPLES
        OF CONSOLIDATION - The consolidated financial statements are prepared in
        accordance with accounting principles generally accepted in the United States
        of
        America (U.S.) and include the accounts of the Company and its wholly-owned
        and
        majority-owned, controlled subsidiaries. All significant intercompany balances
        and transactions are eliminated in consolidation.
 
 Effective
        December 19, 2003, the results of operations of Precision, (Metal Stamping
        Segment) which was previously consolidated are being reported on the cost
        method. This was due to the voluntary petition for reorganization under Chapter
        11 of the U.S. Bankruptcy code.
 
 Unaudited
        financial information for Precision as of and for the years ended December
        31,
        2004 and 2003 is as follows:
 
 2004
              
              2003(In
                  Thousands of U.S. Dollars)Current
                  assets
              
              $
              9,052
              
              $
              13,188Non
                  current assets
              
              
              15,476
              
              
              17,860Current
                  liabilities
              
              
              29,067
              
              
              32,547Net
                  sales
              
              
              65,406
              
              
              72,019Gross
                  margin
              
              
              1,899
              
              
              (1,861
              )Net
                  loss
              
              
              (2,246
              )
              
              (16,709
              )
 
 During
        the fourth quarter of 2003 Precision encountered circumstances that indicated
        that its carrying value may not
 be
        recoverable, as such, the Company engaged an independent company to assist
        in
        the valuation of long-lived assets for impairment. Based on the analysis
        of
        future cash flows of the assets group the Company reported an impairment
        of
        Precision’s long-lived assets of $13.2 million in December 2003. This impairment
        is recorded in the statement of operations as impairment of long-lived
        assets.
  
 
 During
        2003 the Company loaned Precision $1.5 million in the form of a note receivable,
        to meet working capital needs. At December 31, 2004, the Company had notes
        receivable from Precision of $1.5 million.
 
 The
        Company’s share of undistributed equity net of amounts receivable from Precision
        at December 31, 2004 and 2003 was $0.
 
 Elamex
        also has a 50.1% investment in Qualcore, S. de R.L. de C.V., the “Joint
        Venture”, which manufactures plastics parts and metal parts with General
        Electric International Mexico, S.A. de C.V. and General Electric Mexico,
        S.A. de
        C.V. (jointly referred to as “GE Mexico”). Qualcore is jointly managed with GE
        Mexico and the investment in the Joint Venture is recorded under the equity
        method.
 
 Audited
        financial information for Qualcore as of and for the years ended December
        31,
        2004 and 2003 is as follows:
 
 (In
                  Thousands of U.S. Dollars)2004
              
              2003Current
                  assets
              
              $
              6,050
              
              $
              3,473Non
                  current assets
              
              
              3,908
              
              
              9,232Current
                  liabilities
              
              
              17,622
              
              
              11,888Net
                  sales
              
              
              24,126
              
              
              18,798Gross
                  margin
              
              
              (953
              )
              
              (2,067
              )Net
                  loss
              
              
              (6,805
              )
              
              (3,958
              )
 
 During
        2004 and 2003 the Company loaned Qualcore $425 thousand and $1.0 million,
        respectively, in the form of a note receivable to meet working capital needs.
        At
        December 31, 2004 and 2003, the Company had notes receivable from Qualcore
        of
        $2.7 million and $2.3 million, respectively.
 
 The
        Company’s share of undistributed equity (deficiency) net of amounts receivable
        from Qualcore at December 31, 2004 and 2003 was $(19) thousand and $864
        thousand, respectively.
 
 In
        September 2005, GE Mexico’s management and Elamex’s management approved the
        decision to cease the Joint Venture’s operations. In October 2005, most of its
        employees were terminated, except for three individuals that will complete
        the
        final administrative activities of the Joint Venture. The Joint Venture also
        sold most of its machinery and equipment, except for certain low-value assets.
        GE Mexico’s management and Elamex’s management are discussing the future
        operations of the Joint Venture.
 
 
 MANAGEMENT
        ESTIMATES - The preparation of financial statements in conformity with
        accounting principles generally accepted in the U.S. 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 and the reported amounts of revenues and expenses during the
        reporting period. Actual results could differ from these estimates.
  
  2.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 CHANGE
        IN
        ACCOUNTING PRINCIPLE - As of January 1, 2002 the Company adopted Statement
        of
        Financial Accounting Standards No. 142 (“SFAS No. 142”), “Goodwill and Other
        Intangible Assets” which requires, among other things, the discontinuance of
        amortization of goodwill and intangible assets with indefinite lives. In
        addition, the standard includes provisions for the reclassification of certain
        existing recognized intangibles, reclassification of certain intangibles
        out of
        previously reported goodwill and the identification of reporting units for
        purposes of assessing potential impairments of goodwill. SFAS No. 142 also
        required the Company to complete a transitional goodwill impairment test
        six
        months from the date of adoption. The result of the non-amortization provision
        of SFAS No. 142 was a decrease in the net loss of $492 thousand for the year
        ended December 31, 2002.
 
 The
        Company engaged an independent company to assist in the valuation of goodwill
        assigned to Precision. The fair value of the operating entity was determined
        using a discounted cash flow model. Based on the analysis performed the Company
        completed its implementation analysis of goodwill arising from prior
        acquisitions and recorded an impairment charge of $853 thousand in the first
        quarter of 2002, which was recorded as a cumulative effect of change in
        accounting principle.
 
 The
        Company completed its annual impairment test during the first quarter of
        2003
        and reported an impairment of goodwill of $3.6 million. The goodwill affected
        by
        the impairment analysis is that recorded at the time of the acquisition of
        Precision Tool, Die and Machine Co. in 1999. The primary reason
        for the impairment was an increase in required capital expenditures necessary
        to
        replace aging equipment and new capital for business expansion .
        The
        Company has elected to annually test goodwill for impairment during the first
        quarter of the year and whenever an indication of impairment occurs. As a
        consequence of the voluntary petition for reorganization under Chapter 11
        of the
        U.S. Bankruptcy code filed by Precision the Company tested the value of the
        goodwill in December 2003 and determined an additional impairment of goodwill
        of
        $4.5 million for Precision goodwill. After impairment, goodwill remaining
        on the
        books is approximately $3.7 million of goodwill recorded during the third
        quarter of 2002 as a result of the acquisition of Mt. Franklin Holdings (See
        Note 3). The Company completed its annual impairment test of the Franklin
        goodwill in the first quarter of 2004 and determined that there was no
        impairment of goodwill.
 
 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 (“Pesos”), of approximately $199 thousand and $0 thousand at
        December 31, 2004 and 2003, respectively. The Company had approximately $1.9
        million and $2.3 million at December 31, 2004 and 2003, respectively, in
        short-term repurchase agreements, denominated in U.S. dollars, deposited
        in U.S.
        banks.
 
 CONCENTRATION
        OF CREDIT RISK - Financial instruments that potentially subject the Company
        to
        concentrations of credit risk consist of cash and accounts receivable. The
        Company monitors the risk of having deposits in bank in excess of the Federal
        Deposit Insurance Corporation limits and does not anticipate any losses.
        The
        Company performs ongoing credit evaluations of its customers and generally
        does
        not require collateral to support amounts due for the sale of its
        products.
 
 ALLOWANCE
        FOR DOUBTFUL ACCOUNTS - The Company maintains an allowance for doubtful accounts
        based on its best estimate of accounts receivable considered to be
        uncollectible.
 
 An
        analysis of the activity in the allowance for doubtful accounts for the years
        ended December 31, 2004, 2003 and 2002 is as follows:
  **2004**
              
              **2003**
              
              **2002**(In
                  Thousands of U.S. Dollars)Beginning
                  balance
              
              $
              1,275
              
              $
              654
              
              $
              649Additions
                  charged to expense
              
              
              111
              
              
              1,294
              
              
              141Accounts
                  written off
              
              
              (85
              )
              
              (159
              )
              
              (136
              )Precision
                  balance deconsolidated
              
              
              
              
              
              (514
              )Ending
                  balance
              
              $
              1,301
              
              $
              1,275
              
              $
              654
  
  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 remeasurement
        of
        balance sheet amounts are reflected in net income. Included in other, net
        on the
        accompanying consolidated statements of operations are foreign exchange losses
        of $46 thousand, $211 thousand, and $328 thousand for the years ended December
        31, 2004, 2003, and 2002, 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 remeasured at the rates in effect
        at
        the time the relevant transaction was recorded, and all other assets and
        liabilities are remeasured at rates effective as of the end of the related
        periods. Revenues and expenses denominated in other than U.S. dollars are
        remeasured at weighted-average exchange rates for the relevant period the
        transaction was recorded. Assets and liabilities denominated in Pesos are
        summarized as follows in thousands of U.S. dollars at the exchange rate
        published in the Diario Oficial de la Federacion (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:
  **2004**
              
              **2003**(In
                  Thousands of U.S. Dollars)Cash
                  and cash equivalents
              
              $
              199
              
              $Other
                  receivables
              
              
              509
              
              
              854Prepaid
                  expenses and refundable taxes
              
              
              342
              
              
              1,282Other
                  assets, net
              
              
              4
              
              
              5Accounts
                  payable
              
              
              (309
              )
              
              (189
              )Accrued
                  expenses and other liabilities
              
              
              (1,231
              )
              
              (546
              )Net
                  foreign currency position
              
              $
              (486
              )
              $
              1,406
 
 In
        addition, the Company has recorded a net deferred tax liability pursuant
        to
        Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
        Income Taxes (see Note 10). The recorded net deferred tax asset of $621 thousand
        and $885 thousand at December 31, 2004 and 2003 respectively, represent the
        net
        dollar value of amounts provided for temporary differences between the financial
        statement carrying amounts of existing assets and liabilities and their
        respective Mexican and U.S. tax bases.
 
 
 FOREIGN
        EXCHANGE INSTRUMENTS - The Company maintains 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 30 days. The Company had no open hedge contracts at December 31, 2004
        or
        2003.
 
 INVENTORIES
        - Inventories are stated at the lower of cost or market. Cost is determined
        using a moving weighted average. Inventory cost includes material, labor
        and
        overhead. 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 Company charges amounts
        expended for maintenance and repairs to expense and capitalizes expenditures
        for
        major replacements and improvements.
 
 LONG-LIVED
        ASSETS - The Company measures impairment losses on long-lived assets, including
        goodwill, when events and circumstances indicate that the assets might be
        impaired and the undiscounted cash flows estimated to be generated by those
        assets are less than the carrying amounts of those assets. The Company measures
        impairment loss as the difference between the carrying value and the fair
        value
        of the asset.
  
  STOCK-BASED
        COMPENSATION - The Company accounts for the stock option plans under APB
        Opinion
        No. 25, under which compensation cost of $(42) thousand and $223 thousand
        were
        recognized in 2004 and 2003, respectively. No additional compensation expense
        will be expensed in the future in connection with these options. Had
        compensation cost for these plans been determined consistent with SFAS No.
        123,
“Accounting for Stock Based Compensation”, the Company’s net loss and loss per
        share for the year ended December 31, 2004, 2003 and 2002, would have been
        adjusted to the following pro forma amounts:
 
 (In
                  Thousands of U. S. Dollars, Except per Share Data)**2004**
              
              **2003**
              
              **2002**Net
                  loss as reported
              
              $
              (5,151
              )
              $
              (34,608
              )
              $
              (6,017
              )Stock
                  based employee compensation expense included in reported net loss
              
              
              (42
              )
              
              223
              
              
              321Total
                  stock-based employee compensation expense determined under fair
                  value
                  based method
              
              
              46
              
              
              (282
              )
              
              (440
              )Pro
                  forma net loss
              
              $
              (5,147
              )
              $
              (34,667
              )
              $
              (6,136
              )Loss
                  per share Basic and DilutedAs
                  reported
              
              $
              (0.69
              )
              $
              (4.61
              )
              $
              (0.84
              )Pro
                  forma
              
              
              (0.69
              )
              
              (4.62
              )
              
              (0.85
              )
 
 
 BASIC
        AND
        DILUTED NET LOSS PER SHARE - Basic and diluted net loss per share of common
        stock is calculated by dividing net loss by the weighted-average number of
        common shares outstanding for the year. Dilutive stock options for the years
        ended December 31, 2004 and 2003 have not been included in the calculation
        as
        their effect would be antidilutive due to the net loss.
 
 INCOME
        TAXES - The Company accounts for income taxes under the asset and liability
        method, as required by SFAS No. 109. Under the asset and liability method,
        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
        bases. 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. 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.
 Provisions
        for taxes are made based upon the applicable tax laws of Mexico and the United
        States. 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 inflation indexing
        for Mexican tax purposes or exchange rate changes.
 
 REVENUE
        RECOGNITION - For metal stamping and food products, sales are recognized
        at the
        time the order is shipped in satisfaction of customer orders. For contract
        manufacturing, sales are recognized when the order is shipped for manufacturing
        contracts and over the contract period for assembly services. Anticipated
        losses
        on assembly services contracts are charged to operations as soon as they
        are
        determined.
 
 EMPLOYEE
        STATUTORY PROFIT-SHARING - A provision for deferred employee statutory
        profit-sharing in Mexico is computed on income subject to employee statutory
        profit-sharing, which differs from net income, due to certain differences
        in the
        recognition of income and expenses for statutory profit-sharing and financial
        statement purposes. There has been no employee statutory profit-sharing expense
        for the years ended December 31, 2004, 2003, and 2002, respectively.
 
 POST-RETIREMENT
        BENEFITS - Employees in Mexico are entitled to certain benefits upon retirement
        after 15 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.
  
  FINANCIAL
        INSTRUMENTS - The carrying amounts of financial instruments, including cash
        and
        cash equivalents, receivables, accounts payable, accrued expenses, notes
        payable, taxes payable, and amounts due to related parties, approximated
        fair
        value as of December 31, 2004 because of the relatively short maturity of
        these
        instruments. The fair values of floating rate long-term debt are estimated
        to be
        equivalent to their carrying amount based on current market conditions.
 
 ACCRUED
        REBATES - The Company enters into contractual agreements for rebates on certain
        products with its customers. Such amounts are netted against sales and included
        in accrued advertising and promotions based on management estimates at the
        date
        the sales occur.
 
 PREPAID
        SLOTTING ALLOWANCES - Prepaid slotting allowances consist of payments to
        customers for store shelf space and distribution agreements and are amortized
        to
        sales revenue, using the straight line method over the term of the customer
        contract or proportionally with sales recorded, based on the nature of the
        slotting contract. Contracts generally vary in length from one to seven years
        and provide for fixed payments or payments upon achievement of sales benchmarks.
        Prepaid slotting allowances of $652 thousand and $1.3 million are included
        on
        the balance sheet as other assets at December 31, 2004 and 2003
        respectively.
 
 RECENT
        ACCOUNTING PRONOUNCEMENTS **-**
  In
        December 2004, the Financial Accounting Standards Board issued Statement of
        Financial Accounting Standards No. 123 (revised 2004) (“Statement 123(R)”),
“Share-Based Payment”, which revised Statement No. 123, “Accounting for
        Stock-Based Compensation”. This statement supercedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees”. The revised statement addresses the
        accounting for share-based payment transactions with employees and other
        third
        parties, eliminates the ability to account for share-based compensation
        transactions using APB 25, and requires that the compensation costs relating
        to
        such transactions be recognized in the consolidated statement of operations.
        The
        revised statement is effective as of the first interim period beginning after
        June 15, 2005. The Company is allowed to select from three alternative
        transition methods, each having different reporting implications. The Company
        has not completed its evaluation of the methods of adopting Statement 123(R).
        Accordingly, the impact of adoption of Statement 123(R) cannot be predicted
        at
        this time because it will depend on the method of adoption selected and on
        levels of share-based payments granted in the future. However, had the Company
        adopted Statement 123(R) in prior periods, the impact of that standard would
        have approximated the impact of SFAS No. 123 as described in the disclosure
        of pro forma net loss and net loss per share in the stock-based compensation
        accounting policy note included in the consolidated financial statements.
  In
        December 2004, the Financial Accounting Standards Board issued Statement of
        Financial Accounting Standards No. 153 (“Statement 153”), “Exchanges of
        Nonmonetary Assets—an amendment of APB Opinion No. 29”. Statement 153
        amends the guidance in APB Opinion No. 29, “Accounting for Nonmonetary
        Transactions”, based on the principle that exchanges of nonmonetary assets
        should be measured based on the fair value of the assets exchanged. The guidance
        in that Opinion, however, included certain exceptions to that principle.
        Statement 153 amends Opinion 29 to eliminate the exception for nonmonetary
        exchanges of similar productive assets and replaces it with a general exception
        for exchanges of nonmonetary assets that do not have commercial substance.
        A
        nonmonetary exchange has commercial substance if the future cash flows of
        the
        entity are expected to change significantly as a result of the exchange.
        The
        provisions of Statement 153 are effective for nonmonetary asset exchanges
        occurring in fiscal periods beginning after June 15, 2005. The provisions
        of Statement 153 are not expected to have a material effect on the Company’s
        consolidated financial statements.
  In
        November 2004, the Financial Accounting Standards Board (“FASB”) issued
        SFAS No. 151, *Inventory
        Costs—An Amendment of ARB No. 43, Chapter 4* (“SFAS
        151”).  SFAS 151 amends the guidance in ARB No. 43,
        Chapter 4, *Inventory
        Pricing* ,
        to
        clarify the accounting for abnormal amounts of idle facility expense, freight,
        handling costs, and wasted material (spoilage).  Among other provisions,
        the new rule requires that items such as idle facility expense, excessive
        spoilage, double freight, and rehandling costs be recognized as current-period
        charges regardless of whether they meet the criterion of “so abnormal” as stated
        in ARB No. 43.  Additionally, SFAS 151 requires that the
        allocation of fixed production overhead to the costs of conversion be based
        on
        the normal capacity of the production facilities.  SFAS 151 is
        effective for fiscal years beginning after June 15, 2005 and is required to
        be adopted by the Company on January 1, 2006.  The company is
        currently evaluating the effect that the adoption of SFAS 151 will have on
        its consolidated results of operations and financial condition but does not
        expect SFAS 151 to have a material impact.
  
  RECLASSIFICATIONS
        - Certain prior year amounts have been reclassified to conform to the 2004
        financial statement presentation.
 
 
 3.
        ACQUISITIONS AND DISPOSITION OF ASSETS
 
 Effective
        at the close of business on July 4, 2003, the sale of certain assets was
        made to
        TECMA Group LLC, a private contract, shelter and manufacturing services provider
        headquartered in El Paso, Texas. The transaction included the sale of five
        Shelter Services customer contracts, miscellaneous assets and stock of five
        newly created companies. Substantially all Shelter Services operations personnel
        related to these contracts were transferred to the buyer. Elamex received
        approximately $1.8 million in cash. In connection with the disposition the
        Company transferred assets with a book value of $120 thousand to the buyer
        and
        recorded a gain of $1.7 million. The Company incurred other costs of
        approximately $575 thousand associated with the sale, which were included
        in
        operating expenses in the 2003 results of operations.
 
 On
        July
        18, 2002, Elamex USA, Corp. (“Elamex USA”), a wholly owned Delaware subsidiary
        of Elamex, completed the acquisition of Mt. Franklin Holdings, LLC (“Franklin”),
        Franklin Food Products LLC and the merger of Reprop Corporation with and
        into
        Elamex USA. The effective closing date for tax and accounting purposes was
        the
        close of business on June 28, 2002. Franklin operates a retail nut and
        foodservice nut packaging and marketing company, whose operations are located
        in
        El Paso, Texas and a candy manufacturing and packaging facility in Ciudad
        Juarez, Mexico. The purchase price was cash payment of $1,445,040 and 923,161
        restricted shares of the common stock of Elamex. 278,499 of these shares
        were
        contingent and subject to escrow agreements, which required Franklin to reach
        certain income levels through December 31, 2003. Franklin did not reach the
        required income level; therefore the 278,499 shares in escrow will be canceled
        or used for a different purpose.
 
 The
        unaudited proforma combined historical results of the Company, as if Franklin
        had been acquired at the beginning of fiscal 2002, are estimated in the
        following table:
 
 (In
                  Thousands of U.S. Dollars, Except
                  Per Share Data)**December
                  31, 2002**Net
                  sales
              
              $
              151,179Gross
                  profit
              
              
              18,077Net
                  loss
              
              
              (11,090
              )Net
                  loss per share
              
              
              (1.48
              )
 
 The
        above
        pro forma results include adjustments to give effect to intercompany sales,
        depreciation and other purchase price adjustments. The pro forma results
        are not
        necessarily indicative of the operating results that would have occurred
        had the
        acquisition been consummated as of the beginning of the period presented,
        nor
        are they necessarily indicative of future operating results.
 
 
 4.
        INVENTORIES
 
 Inventories
        consist of the following:
  (In
                  Thousands of U.S. Dollars)**2004**
              
              **2003**Raw
                  materials
              
              $
              2,560
              
              $
              1,841Packaging
                  supplies
              
              
              2,446
              
              
              2,140Work-in-process
              
              
              386
              
              
              260Finished
                  goods
              
              
              3,967
              
              
              4,220Sub
                  total
              
              
              9,359
              
              
              8,461Less
                  reserve for excess and obsolete inventory
              
              
              (562
              )
              
              (540
              )Total
              
              $
              8,797
              
              $
              7,921
  
  The
        provision for excess and obsolete inventory is charged against cost of sales.
        An
        analysis of the excess and obsolete inventory reserve for the years ended
        December 31 is as follows:
 
 **2004**
              
              **2003**
              
              **2002**(In
                  Thousands of U.S. Dollars)Beginning
                  balance
              
              $
              540
              
              $
              1,011
              
              $
              25Additions
                  charged to expense
              
              
              31
              
              
              
              
              
              1,176Inventory
                  disposed during the year
              
              
              (9
              )
              
              (151
              )
              
              (190
              )Metal
                  Stamping deconsolidation
              
              
              
              
              
              (320
              )Ending
                  balance
              
              $
              562
              
              $
              540
              
              $
              1,011
 
 
 6.
        PROPERTY, PLANT AND EQUIPMENT
 
 A
        summary
        of property, plant and equipment is as follows:
 
 **2004**
              
              **2003**Estimated
                  useful lives
              
              (In
                  Thousands of U.S. Dollars)(Years)Land
              
              
              
              $
              4,392
              
              $
              7,084Buildings
              
              20
              
              
              23,268
              
              
              31,154Machinery
                  and equipment
              
              3-10
              
              
              12,622
              
              
              12,350Vehicles
              
              5
              
              
              42
              
              
              42Subtotal
              
              
              
              
              
              40,324
              
              
              50,630Less
                  accumulated depreciation
              
              
              
              
              
              (13,368
              )
              
              (10,674
              )Total
              
              
              
              
              $
              26,956
              
              $
              39,956
 
 
 7.
        NOTES
        PAYABLE AND LONG-TERM DEBT
 
 The
        following is a summary of notes payable and long-term debt at December 31,
        2004
        and 2003.
 
 **2004**
              
              **2003**Line
                  of credit with interest-only payments through April 30, 2005 at
                  the bank's
                  prime rate plus 0.75% (6.5% and 4.75% at December 31, 2004 and
                  2003,
                  respectively); collateralized with substantially all assets of
                  Franklin.
                  Unused available credit as of December 31, 2004 is $2.2 million
                  (1)
              
              $
              4,793
              
              $
              4,969Building
                  loan - note payable to a bank due in monthly installments of $34
                  thousand
                  , including interest at the bank's prime rate plus 0.75% (6.0%
                  and 4.75%
                  at December 31, 2004 and 2003) through July 24, 2005; collateralized
                  by
                  substantially all assets of Franklin, net of unamortized loan fees
                  of $2
                  thousand (1)
              
              
              1,835
              
              
              2,140Total
                  notes payable and long term debt
              
              
              6,628
              
              
              7,109Less:
                  Current maturities of notes payable and long-term debt
              
              
              (6,628
              )
              
              (5,282
              )$
              -
              
              $
              1,827
 All
        notes
        payable and long-term debt mature during the year ending December 31, 2005.
 
 (1)
              In
                  connection with the long-term debt and line of credit, Franklin
                  is
                  required to comply with certain financial covenants including minimum
                  tangible net worth. As of December 31, 2004 Franklin was incompliance
                  with
                  such financial covenants. The company is in discussions with the
                  bank to
                  refinance its revolving note payable and its building loan.
  
 
 8.
        LEASES
 
 Prior
        to
        September 16, 2004, the Company financed, via a capital lease arrangement
        with a
        related party, a candy production plant located in Juarez, Mexico. This
        arrangement specified that, at the end of the lease term in November 2010,
        the
        Company would purchase the building at a specified price. On September 16,
        2004,
        the Company and the related party entered into an agreement eliminating the
        purchase commitment. The transaction resulted in a deemed sale and subsequent
        leaseback of the property through the original lease term. At the date of
        the
        lease modification, land and buildings with a net book value aggregating
        $2.4
        million and $8.1 million, respectively, and the related obligation under
        capital
        leases of $11.5 million were removed resulting in a deferred gain of $1.1
        million. The deferred gain is being amortized through the remaining lease
        term
        ending in November 2010. For the year ended December 31, 2004, the amount
        of
        deferred gain recognized amounted to $53 thousand.
 
 The
        Company utilizes certain machinery and equipment and occupies certain buildings
        under both capital and operating lease arrangements that expire at various
        dates
        through 2010, some of which have renewal options for additional periods.
        Rental
        expense under these operating lease agreements aggregated $6.9 million, $6.7
        million, and $7.9 million for the years ended December 31, 2004, 2003, and
        2002,
        respectively.
 
 Future
        minimum lease obligations at December 31, 2004 having an initial or remaining
        term in excess of one year are as follows:
 **Year**
              
              **Capital**
              
              **Operating**(In
                  Thousands of U.S. Dollars)2005
              
              $
              1,397
              
              $
              3,0622006
              
              
              2,776
              
              
              3,1232007
              
              
              
              
              
              3,1062008
              
              
              
              
              
              3,1062009
              
              
              
              
              
              3,106Thereafter
              
              
              
              
              
              9,793Total
                  minimum lease payments
              
              
              4,173
              
              $
              25,296Less
                  amount representing interest at 7.83%
              
              
              (342
              )Present
                  value of minimum lease payments
              
              
              3,831Less
                  current portion
              
              
              (1,137
              )Long-term
                  capital lease obligations
              
              $
              2,694
 
 The
        Company leases manufacturing facilities to unrelated parties under operating
        lease agreements. The Company pays certain taxes on the properties and provides
        for general maintenance.
 
 Rental
        income was $1.7 million, $1.5 million, and $882 thousand for the years ended
        December 31, 2004, 2003, and 2002, respectively. The future minimum rental
        income to be received under these operating leases is $1.7 million in
        2005.
 
 
 9.
        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 value of certain assets less
        certain liabilities (asset tax). Taxes resulting from net income are calculated
        using Mexican tax regulations, which define deductibility of expenses and
        recognize certain effects of inflation.
 
 Effective
        January 1, 1999, a tax rate was enacted in Mexico whereby the corporate tax
        rate
        was 35%. An amount equal to 30% is paid on taxable earnings reinvested in
        the
        Company and 5% on those earnings when they are distributed in the form of
        dividends for the year ended December 31, 2001.
  
  On
        December 1, 2004, certain amendments to the tax and asset tax laws were enacted
        and are effective as of 2005. The most significant amendments are as follows:
        (a) the tax rate will be reduced to 30% in 2005, 29% in 2006 and 28% in 2007
        and
        forward; (b) for purposes of the calculation of income tax, purchases of
        inventory are deductible only after being sold; the tax law previously allowed
        for the immediate deduction of all inventory purchases in the year acquired;
        (c)
        companies must establish a tax basis for their inventory balances as of December
        31, 2004 using the specific costing methods allowed by the amendments to
        the tax
        law; companies may elect to ratably step-up such tax basis of inventories
        over a
        period from 4 to 12 years, as determined in conformity with the respective
        tax
        rules, which include deducting from the tax basis certain items such as
        unamortized tax loss carryforwards; (d) beginning January 1, 2006, paid employee
        statutory profit sharing will be fully deductible for tax purposes; (e) bank
        liabilities and liabilities with foreign entities are deductible in the
        determination of the asset tax taxable base, thereby decreasing the base
        on
        which the asset tax is calculated.
 
 
 The
        tax
        provision differs from the statutory tax rate of 33% in 2004 and 34% for
        2003
        and 35% for 2002 on taxable income as follows:
 
 **2004**
              
              **2003**
              
              **2002**Taxes
                  at Statutory Rate of 33%
              
              
              33.0
              %
              
              34.0
              %
              
              35.0
              %Permanent
                  DifferencesAsset
                  Tax Expense
              
              
              (66.9
              )
              
              (3.1
              )
              
              1.7Foreign
                  Currency Gains/Losses
              
              
              (5.7
              )
              
              (1.2
              )
              
              (35.6
              )Loss
                  of Subsidiary Not RecognizedNon-Deductible
                  Expenses
              
              
              (0.8
              )
              
              
              
              
              (3.0
              )Inflationary
                  Effects
              
              
              28.1
              
              
              1.0
              
              
              10.3Inflationary
                  Effects - Fixed assets
              
              
              15.6
              
              
              0.6
              
              
              8.2Expiration
                  of Tax Loss Carryforwards
              
              
              
              
              
              
              
              
              (7.1
              )Expiration
                  of Asset Tax Credit Carryforwards
              
              
              
              
              
              (1.4
              )
              
              (11.5
              )Expiration
                  of Capital Loss Carryforwards
              
              
              
              
              
              (6.6
              )Effect
                  of Tax Rate Change
              
              
              (7.3
              )
              
              
              
              
              (2.9
              )State
                  Taxes, net of federal benefit
              
              
              
              
              
              0.9
              
              
              0.6Change
                  in Valuation Allowance (Precision)
              
              
              
              
              
              (14.8
              )Change
                  in Valuation Allowance
              
              
              (81.9
              )
              
              (8.8
              )
              
              26.5Goodwill
                  Amortization/Impairment
              
              
              
              
              
              (9.2
              )
              
              (6.3
              )Other
              
              
              27.7
              
              
              0.6
              
              
              (3.7
              )(58.2
              )%
              
              (8.0
              )%
              
              12.2
              %
 
 Income
        tax expense (benefit) consists of:
 
 **CURRENT
                  ASSET TAX**
              
              **CURRENT
                  INCOME TAX**
              
              **DEFERRED
                  INCOME TAX**
              
              **TOTAL**(In
                  Thousands of U.S. Dollars)Mexican
              
              $
              1,582
              
              $
              26
              
              $
              290
              
              $
              1,898U.S.
                  Companies
              
              
              
              
              
              (521
              )
              
              
              
              
              (521
              )Year
                  ended December 31, 2004
              
              $
              1,582
              
              
              (495
              )
              $
              290
              
              $
              1,377Mexican
              
              $
              923
              
              $
              72
              
              $
              2,496
              
              $
              3,491U.S.
                  Companies
              
              
              
              
              
              99
              
              
              (1,171
              )
              
              (1,072
              )Year
                  ended December 31, 2003
              
              $
              923
              
              $
              171
              
              $
              1,325
              
              $
              2,419Mexican
              
              $
              (78
              )
              $
              (485
              )
              $
              1,756
              
              $
              1,193U.S.
                  Companies
              
              
              
              
              
              (67
              )
              
              (1,687
              )
              
              (1,754
              )Year
                  ended December 31, 2002
              
              $
              (78
              )
              $
              (552
              )
              $
              69
              
              $
              (561
              )
  
  The
        tax
        effects of significant temporary differences representing deferred tax assets
        and liabilities are as follows:
 
 **2004**
              
              **2003**(In
                  Thousands of U.S. Dollars)**Deferred
                  Tax Assets:**Asset
                  Tax Credit Carryforward - Mexico
              
              $
              4,620
              
              $
              2,400NOL
                  Carryforwards - Mexico
              
              
              3,094
              
              
              3,594NOL
                  Carryforwards - US
              
              
              5,865
              
              
              3,940Capital
                  Loss - US
              
              
              71
              
              
              71Related
                  Party Interest
              
              
              849
              
              
              849Inventory
              
              
              291
              
              
              291Bad
                  Debts
              
              
              583
              
              
              591Stock
                  Option Plan
              
              
              
              
              
              201Accrued
                  Liabilities
              
              
              46
              
              
              26Guarantee
              
              
              510Subtotal
              
              
              15,929
              
              
              11,963Less:
                  Valuation Allowance - Mexico
              
              
              (7,236
              )
              
              (4,701
              )Less:
                  Valuation Allowance - US
              
              
              (6,839
              )
              
              (5,115
              )Net
                  Deferred Tax Asset
              
              
              1,854
              
              
              2,147**Deferred
                  Tax Liabilities:**Property,
                  plant and equipment
              
              
              (815
              )
              
              (857
              )5%
                  Deferred payment of Taxes - Mexico
              
              
              (365
              )
              
              (335
              )Other
              
              
              (53
              )
              
              (70
              )Total
                  Deferred Tax Liabilities
              
              
              (1,233
              )
              
              (1,262
              )Net
                  Deferred Tax Asset
              
              $
              621
              
              $
              885
 
 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 in the future.
        The valuation allowances of $14.1 million and $9.8 million at December 31,
        2004
        and December 31, 2003, respectively, relate primarily to certain asset tax
        credit and tax net operating loss carryforwards of individual Mexican
        subsidiaries and the entire net deferred tax asset of the US companies. The
        increase in the valuation allowance at December 31, 2004 to $13.6 million
        relates primarily to the expiration of certain asset tax credits and capital
        loss carryforwards of individual Mexican subsidiaries, and the effect of
        reserving the entire net deferred asset tax related to the US companies.
        In
        addition, primarily as a result of the voluntary petition for reorganization
        filed by Precision under Chapter 11 of the U.S. Bankruptcy Code on December
        19,
        2003, the Company’s investment in Precision, reported under the equity method of
        accounting, was reduced by an increase in the valuation allowance against
        Precision’s underlying deferred tax assets of $4.5 million.
 
 An
        analysis of the activity of the valuation allowance for the years ended December
        31, 2004, 2003 and 2002 is as follows:
 
 2004
              
              2003
              
              2002(In
                  thousands of U.S. Dollars)Beginning
                  balance
              
              $
              9,816
              
              $
              7,172
              
              $
              5,972Additions
                  charged to expense (Mexico)
              
              
              2,602
              
              
              2,743
              
              
              1,340Decreases
                  recorded to income (Mexico)
              
              
              (71
              )
              
              (804
              )
              
              (2,558
              )Expiration
                  of capital loss carryforwards (Mexico)
              
              
              
              
              
              (1,992
              )Additions
                  recorded to goodwill (U.S.)
              
              
              
              
              
              
              
              
              2,418Additions
                  charged to expense (U.S. - Precision)
              
              
              
              
              
              4,465Decrease
                  - deconsolidation of Precision
              
              
              
              
              
              (4,465
              )Increase
                  recorded to income (U.S.)
              
              
              1,728
              
              
              2,697Ending
                  Balance
              
              $
              14,075
              
              $
              9,816
              
              $
              7,172
  
  The
        Mexican net asset taxes paid, adjusted for inflation, may be used to offset
        income taxes that exceed the asset tax due for the year, for ten years following
        the payment of the tax. These asset tax carryforwards as of December 31,
        2004
        are $4.6 million and expire on various dates through 2014.
 
 
 At
        December 31, 2004, certain of the Mexican companies had tax net operating
        loss
        carryforwards that can be utilized only by the Mexican company that incurred
        the
        losses. These net operating loss carryforwards, adjusted for inflation, expire
        as follows, if not utilized to offset taxable income:
  **YEAR**
              
              **AMOUNT**(In
                  Thousands of U.S. Dollars)2007
              
              $
              2972010
              
              
              962011
              
              
              7,0112012
              
              
              2,0222013
              
              
              8092014
              
              
              815$
              11,050
 
 The
        majority stockholder has filed a consolidated tax return with Elamex's
        operations since 1995. The tax sharing agreement entered into between the
        majority stockholder, Accel, S.A. de C.V., and Elamex through 1998 provided
        that
        Elamex transfer monthly an amount equal to its estimated tax payment, less
        credits. Beginning in 1999, the Mexican tax law for consolidation required
        Elamex and its subsidiaries to pay amounts directly to the Mexican Tax Authority
        (SHCP) based on their individual tax calculations. The payments are calculated
        as required by the SHCP as if Elamex and subsidiaries were filing a stand-alone
        income tax 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 income tax law, are subject to a 33% income tax, payable by the Company
        on 1.5152 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. The Mexican companies paid
        no
        dividends on common stock in 2004, 2003 and 2002.
 
 10.
        STOCKHOLDERS’ EQUITY
 
 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 30 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.
        In July 2002, the Company issued 923,161 restricted shares of its authorized
        variable capital common stock in connection with the acquisition of Mt. Franklin
        Holdings (see Note 3). 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 this 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 the 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, 2004 and
        2003
        was approximately $1.6 million. The Company anticipates that no additional
        allocation will be made at its annual stockholders' meeting to be held on
        April
        28, 2005. There were no retained earnings available for dividends under Mexican
        law at December 31, 2004 and 2003.
  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 a preemptive right 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 are not
        subject to preemptive rights.
 
 PREFERRED
        STOCK - Pursuant to 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, 2004.
 
 11.
        STOCK
        OPTION PLANS
 
 On
        April
        19, 2002, the shareholders approved the issuance of up to 850,000 Elamex
        stock
        options and authorized the Board of Directors to establish the terms and
        conditions of the grant of the stock options.
 
 On
        July
        19, 2002, the Board of Directors of the Company granted 200,000 stock options
        at
        $2.00 per share and 70,730 stock options at $6.00 per share. During
        the quarter ended September 30, 2004, 200,000 stock options were forfeited
        due
        to the termination of a senior executive. During the second and third quarter
        of
        2003, 38,210 and 25,020, options respectively, were forfeited due to the
        resignation of one of the awarded executives during the second quarter and
        two
        awarded executives during the third quarter.
 The
        following is a summary of option activity for the 3 years ended December
        31,
        2004:
 
 **Options
                  Under Plan**
              
              **Weighted
                  Average Exercise Price**Outstanding
                  atJanuary
                  1, 2002Granted
              
              
              270,730
              
              $
              3.05Outstanding
                  atDecember
                  31, 2002
              
              
              270,730
              
              $
              3.05Forfeited
              
              
              (63,230
              )
              $
              6.00Outstanding
                  atDecember
                  31, 2003
              
              
              207,500
              
              $
              2.14Forfeited
              
              
              (200,000
              )
              $
              2.00Outstanding
                  atDecember
                  31, 2004
              
              
              7,500
              
              $
              6.00
 
 The
        following table summarizes information concerning currently outstanding and
        exercisable options:
 
 **Options
                  Outstanding**
              **Exercise
                  Price**
              **Life
                  in Years**
              **Number
                  Exercisable at December 31, 2004**
              **Stock
                  Price at Grant Date**7,500
              $6.00
              10
              -
              $5.35
  
  The
        fair
        value of each option is estimated on the date of grant using the Black-Scholes
        option pricing model using the following assumptions; risk free interest
        rate of
        2.68%; expected dividend yield of 0.0%; expected life of 5 years and expected
        volatility of 61%.
 
 In
        addition to the above, Franklin, a subsidiary of the Company has an options
        plan
        in shares of the subsidiary. There are 50,000 options outstanding under this
        plan with an exercise price of $12.87. No compensation expense has been recorded
        in connection with this plan. Also, based on an analysis of these options
        using
        the Black-Scholes method, the Company believes the fair value of such options
        is
        zero and no pro forma expense is recorded in connection with these
        options.
 
 12.
        EMPLOYEE BENEFIT PLANS
 
 The
        Company and its subsidiaries sponsor 401(k) defined contribution plans.
        Participants in the plans may contribute up to 10% of their salary for which
        the
        Company provides matching or discretionary contributions. In 2004, 2003 and
        2002, approximately $7 thousand, $120 thousand and $118 thousand, respectively,
        have been charged to expense in connection with these plans.
 
 Prior
        to
        its acquisition by the Company, Franklin had a 401(k) Savings Plan for eligible
        Franklin employees as defined in the plan agreement. The 401(k) Savings Plan
        provides for discretionary matching contributions. For the years ended December
        31, 2004 and 2003 Franklin approved matching contributions of 100% of
        participating employees’ contributions up to a maximum of 6% of each employee’s
        compensation, which were approximately $147 thousand $136 thousand. No matching
        contributions were approved in year 2002, subsequent to the acquisition by
        the
        Company.
 
 
 13.
        SEGMENTS AND GEOGRAPHIC INFORMATION
 
 The
        Company’s reportable segments are 1) Shelter Services, 2) Metal Stamping, and 3)
        Food Services. During the third quarter of 2002 the Company acquired the
        third
        segment, Food Services. The Shelter Services segment provides shelter and
        assembly services in Mexico for non-electronics manufacturing services
        companies. Certain assets and contracts related to Shelter services were
        sold as
        of July 4, 2003 (See note 3). The Metal Stamping segment consists of Precision
        the subsidiary located in Louisville, Kentucky. Precision provides metal
        and
        stamping services primarily to the appliance and automotive sectors and was
        deconsolidated in December 2003 (see Note 1). The Food Services segment,
        Franklin, operates a retail nut and foodservice nut packaging and marketing
        company, located in El Paso, Texas and a candy manufacturing and packaging
        facility in Juarez, Mexico. The accounting policies for the segments are
        the
        same as for Elamex taken as a whole. Corporate expenses are not allocated
        to any
        of the segments and are presented separately. Inter-segment adjustments are
        related primarily to inter-segment sales at cost in the normal course of
        business.
 
 Information
        about the operating segments for the years ended December 31, 2004, 2003
        and
        2002 was as follows:
 **Shelter
                    (1)**
                  **Services**
                
                **Metal
                    (2)**
                  **Stamping**
                
                **Food**
                  **Services**
                
                **Unallocated**
                  **Corporate**
                  **and
                    other**
                
                **Inter-**
                  **segment**
                
                **Total****Year
                    ended December 31, 2004**Net
                    sales
                
                $
                15,230
                
                
                
                
                $
                95,341
                
                
                
                
                $
                (12,984
                )
                $
                97,587Operating
                    Income (loss)
                
                
                131
                
                
                
                
                
                3,223
                
                
                (3,693
                )
                
                
                
                
                (339
                )Net
                    interest expense
                
                
                36
                
                
                
                
                
                2,118
                
                
                15
                
                
                
                
                
                2,169Income
                    (loss) before income taxes and equity inlosses
                    of affiliates
                
                
                219
                
                
                
                
                
                1,105
                
                
                (3,690
                )
                
                
                
                
                (2,366
                )Net
                    (loss) income
                
                
                (1,679
                )
                
                
                
                
                1,105
                
                
                (4,577
                )
                
                
                
                
                (5,151
                )Assets
                
                
                13,422
                
                
                
                
                
                40,932
                
                
                1,427
                
                
                (1,531
                )
                
                54,250Depreciation
                    & Amortization
                
                
                735
                
                
                
                
                
                2,391
                
                
                8
                
                
                
                
                
                3,134Capital
                    expenditures
                
                
                4
                
                
                
                
                
                925
                
                
                
                
                
                
                
                
                929**Year
                    ended December 31, 2003**Net
                    sales
                
                $
                25,677
                
                $
                70,988
                
                $
                75,648
                
                
                
                
                $
                (15,063
                )
                $
                157,250Operating
                    income (loss)
                
                
                (333
                )
                
                (17,231
                )
                
                (292
                )
                
                (11,255
                )
                
                
                
                
                (29,111
                )Net
                    interest expense (income)
                
                
                41
                
                
                754
                
                
                3,071
                
                
                (363
                )
                
                
                
                
                3,503Loss
                    before income taxes and equity inlosses
                    of affiliates
                
                
                1,402
                
                
                (18,304
                )
                
                (2,610
                )
                
                (10,570
                )
                
                
                
                
                (30,082
                )Net
                    loss
                
                
                (1,917
                )
                
                (15,915
                )
                
                (2,610
                )
                
                (14,166
                )
                
                
                
                
                (34,608
                )Assets
                
                
                13,878
                
                
                
                
                
                50,537
                
                
                4,629
                
                
                (1,641
                )
                
                67,403Depreciation
                    and amortization
                
                
                868
                
                
                2,938
                
                
                2,271
                
                $
                8
                
                
                
                
                
                6,085Capital
                    expenditures
                
                
                313
                
                
                4,327
                
                
                1,750
                
                
                43
                
                
                
                
                
                6,433**Year
                    ended December 31, 2002**Net
                    sales
                
                $
                31,677
                
                $
                75,279
                
                $
                33,180
                
                
                
                
                $
                (5,867
                )
                $
                134,269Operating
                    income (loss)
                
                
                499
                
                
                575
                
                
                (264
                )
                
                (2,103
                )
                
                
                
                
                (1,293
                )Net
                    interest expense (income)
                
                
                1
                
                
                815
                
                
                1,672
                
                
                (714
                )
                
                
                
                
                1,774Loss
                    before income taxesand
                    equity inlosses
                    of affiliates
                
                
                260
                
                
                (669
                )
                
                (1,936
                )
                
                (2,255
                )
                
                
                
                
                (4,600
                )Net
                    loss
                
                
                (933
                )
                
                (145
                )
                
                (1,286
                )
                
                (3,653
                )
                
                
                
                
                (6,017
                )Assets
                
                
                18,995
                
                
                47,085
                
                
                50,154
                
                
                28,336
                
                
                (10,069
                )
                
                134,501Depreciation
                    and amortization
                
                
                1,275
                
                
                2,416
                
                
                1,059
                
                
                
                
                
                
                
                
                4,750Capital
                    expenditures
                
                
                286
                
                
                5,075
                
                
                876
                
                
                
                
                
                
                
                
                6,237
 ***(1)*** *Certain
        assets and contracts related to this segment were sold as of July 4,
        2003*
 ***(2)*** *The
        Metal Stamping Segment (Precision) was consolidated through December 19,
        2003.
        As a consequence of voluntary filing for Chapter 11 protection, the investment
        in Precision is now recognized in accordance with the cost
        method.*
 
 
  The
        Company has 10 facilities in the U.S. and Mexico to serve its customers.
        Geographic net sales information reflects the destination of the product
        shipped. Long-lived assets information is based on the physical location
        of the
        asset. The United States accounted for 66.5% and 74.7% of total long-lived
        assets in 2004 and 2003, respectively. Mexico accounted for 33.5% and 25.3%
        of
        total long-lived assets in 2004 and 2003, respectively.
 
 Geographic
        net sales for the years ended December 31, were as follows:
 
 **2004**
              
              **2003**
              
              **2002**(In
                  Thousands of U.S. Dollars)United
                  States
              
              $
              95,887
              
              $
              155,750
              
              $
              133,387Mexico
              
              
              1,700
              
              
              1,500
              
              
              882$
              97,587
              
              $
              157,250
              
              $
              134,269
 
 Geographic
        net property, plant and equipment by location as of December 31, were as
        follows:
 
 **2003**
              
              **2003**(In
                  Thousands of U.S. Dollars)United
                  States
              
              $
              17,917
              
              $
              29,856Mexico
              
              
              9,039
              
              
              10,100$
              26,956
              
              $
              39,956
 
 
 14.
        MAJOR
        CUSTOMERS
 
 Certain
        customers, all located in the United States, accounted for at least 10% of
        the
        Company's total sales during the years ended December 31, as follows:
  
  
 
 **Customer**
              
              **Products
                  and Services**
              
              **2004**
              
              **2003**
              
              **2002**A
              
              Major
                distributor
              
              
              20.4
              %
              
              11
              %B
              
              Metal
                stamping of appliance products
              
              
              
              
              
              21
              %
              
              25
              %C
              
              Metal
                stamping of automotive parts
              
              
              
              
              
              12
              %
              
              19
              %
 
 
 15.
        RELATED PARTY TRANSACTIONS
 
 The
        Company paid for services rendered by Comercial Aerea, of which the chairman
        of
        the board of directors of Elamex is a principal, totaling approximately $31
        thousand, $148 thousand, and $127 thousand during the years ended December
        31,
        2004, 2003, and 2002, respectively.
  The
        Company purchases insurance through an insurance broker of which the chairman
        of
        the board of Elamex is a principal. Premiums paid were approximately $153
        thousand, $337 thousand, and $393 thousand for the years ended December 31,
        2004, 2003, and 2002, respectively.
 
 The
        Company, through its wholly owned subsidiary Confecciones de Juarez
        (“Confecciones”), leases a candy manufacturing building owned by Franklin
        Inmobiliarios, S.A. de C.V. (“Inmobiliarios”), a Mexican company in which the
        chairman of the board has an indirect ownership interest. The building, located
        in Ciudad Juarez, Mexico, is the site on which all of Franklin’s candy
        manufacturing operations are performed. Confecciones passes the cost of this
        lease to Franklin under the terms of a shelter services agreement executed
        on
        July 24, 2000 (“Shelter Contract”). Shelter services companies generally lease
        real properties in the normal course of arranging shelter services for a
        US
        company. This lease agreement was executed on November 22, 2000, which was
        prior
        to the July 1, 2001 date on which Elamex acquired Franklin. On September
        16,
        2004, the Company and the related party entered into an agreement eliminating
        the purchase commitment. The lease modification resulted in a change in the
        lease from a capital lease to an operating lease (see note 8).
 
 The
        rights to collect lease payments from Confecciones have been assigned by
        Inmobiliarios to the bank that financed the building. Franklin made lease
        payments directly to that bank on behalf of Inmobiliarios in the amounts
        of $2.0
        million, $1.9 million and $1.9 million during 2004, 2003 and 2002 respectively.
 
 During
        2004 the Company loaned Qualcore $425 thousand in the form of a note receivable,
        to meet working capital needs. At December 31, 2004 and 2003, the Company
        had
        notes receivable from Qualcore of $2.7 million and $2.3 million,
        respectively.
 
 
 16.
        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 90-days' pay for termination anytime during the first year of
        employment, with an additional 12 days pay for each year of service thereafter
        up to two times minimum wage. 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.
 
 Seniority
        premiums to which employees are entitled upon retirement after 15 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. Included in other
        liabilities is approximately $30 thousand and $20 thousand as of December
        31,
        2004 and 2003, respectively, which fully accrues for these estimated seniority
        obligations.
  
  One
        of
        the Company’s subsidiaries has entered into certain fixed-price commitments to
        purchase raw materials to be used in its manufacturing process over the next
        year. As of December 31, 2004, the aggregate value of these commitments was
        approximately $29.6 million.
 
 On
        February 21, 2005, one of the Company’s customers filed Chapter 11 under the
        United States Bankruptcy Court. The Company received payments of approximately
        $226,000 within ninety days of the filing date that were paid outside of
        terms
        and subject to possible preference action by the Trustee for the bankruptcy
        estate. The payments received relate to 2004 sales and there were no sales
        to
        this customer in 2005. Based on a review of the facts and circumstances,
        management has provided an accrual, in other accrued expenses, of $135,000,
        which is believed to be a reasonable estimate of the probable loss associated
        with this matter.
 
  17.
        GUARANTEES
  In
        November 2002, Financial Accounting Standards Interpretation ("FIN") No.
        45,
        "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
        Indirect Guarantees of Indebtedness of Others" was issued. FIN No. 45 requires
        a
        Company, at the time it issues a guarantee, to recognize an initial liability
        for the fair value of obligations assumed under the guarantee and to expand
        existing disclosure requirements. The Company has entered into contracts
        in the
        normal course of business, which include certain guarantees within the scope
        of
        FIN 45 under which it could be required to make payments to third parties
        upon
        the occurrence or non-occurrence of certain future events.  These
        guarantees primarily include:
  1)
        Qualcore, the joint venture with GE de Mexico, entered into a 12-year lease
        agreement beginning January 2001 for the building that it occupies in Celaya
        Mexico. The monthly lease payments are approximately $94,628 and are guaranteed
        by both Elamex and GE de Mexico. Although the likelihood of funding under
        this guarantee is not
        considered by the Company to be probable, the maximum amount the Company
        may be
        liable for under such guarantee is
        approximately $4.5 million.
 
 2)
        Qualcore also obtained bank financing from Wells Fargo and Eximbank for the
        plastic molding and metal stamping equipment for the Celaya plant in 2001.
        The
        original notes payable totaled $8.4 million with a five-year term and have
        equal
        semi-annual principal payments of $840 thousand plus interest. Guarantors
        include Elamex, S.A. de C.V. and GE Mexico, S.A. de C.V.
 
 The
        guarantors are defined as primary obligors and guarantee the amounts as
        follows:
 For
        Tranche A of $981 thousand.
 a.
              Elamex
                  - 100%
 b.
              GE
                  Mexico - 49.9%
 Both
        parties are liable jointly and severally up to 49.9%.
 
 For
        Tranche B of $2.4 million.
 a.
              Elamex
                  - 50.1%
 b.
              GE
                  Mexico 49.9%
 The
        guarantors’ liability under Tranche B is several, but not joint.
 
 As
        of
        December 31, 2004 the bank debt was approximately $3.4 million and Qualcore
        was
        in default under the loan agreement.
 
 On
        January 1, 2005 the bank executed a forbearance agreement with Qualcore.
        The
        forbearance agreement provides Qualcore with a period of 120 days in which
        the
        bank will not issue a demand for payment of any or all of the outstanding
        debt.
        However, the bank did not waive the existing default. Should Qualcore not
        be
        able to make the payments within the forbearance period, the bank will require
        the guarantors to pay the debt.
 
 The
        maximum liability exposure of Elamex is considered to be 50.1% of the total
        bank
        debt and as of December 31, 2004 Elamex recorded a liability of $1.7 million
        in
        recognition of the probability that it will be obligated to perform under
        this
        guarantee.
  
  18.
        SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) In thousands of U.S. dollars,
        except per share amounts:
 
 **2004
                  Quarters**
              
              **2003
                  Quarters****1st**
              
              **2nd**
              
              **3rd**
              
              **4th**
              
              **1st**
              
              **2nd**
              
              **3rd**
              
              **4th**Net
                  sales
              
              $
              19,780
              
              $
              23,402
              
              $
              25,051
              
              $
              29,354
              
              $
              39,428
              
              $
              41,400
              
              $
              38,455
              
              $
              37,967Gross
                  profit
              
              
              4,634
              
              
              6,044
              
              
              6,012
              
              
              6,331
              
              
              4,674
              
              
              5,366
              
              
              2,338
              
              
              5,536Net
                  (loss) income
              
              
              (1,345
              )
              
              (409
              )
              
              (959
              )
              
              (2,438
              )
              
              (5,436
              )
              
              220
              
              
              (5,739
              )
              
              (23,653
              )Basic
                  and diluted net (loss) income per common share
              
              
              (0.18
              )
              
              (0.05
              )
              
              (0.13
              )
              
              (0.32
              )
              
              (0.72
              )
              
              0.03
              
              
              (0.76
              )
              
              (3.16
              )
   ******
  
 
 **PART
        IV**
 
 **ITEM
        15. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES**
 
 (a)
              1.*Financial
                  Statements*
 
 The
        following financial statements are included herein at Item 8.
 
 Consolidated
        Balance Sheets as of December 31, 2004 and 2003.
 
 Consolidated
        Statements of Operations and comprehensive loss for the years ended December
        31,
        2004, 2003, and 2002.
 
 Consolidated
        Statements of Stockholders’ Equity for the years ended December 31, 2004, 2003,
        and 2002.
 
 Consolidated
        Statements of Cash Flows for the years ended December 31, 2004, 2003, and
        2002.
 
 Notes
        to
        Consolidated Financial Statements.
  Independent
        Auditors’ Report.
 
 2. *Financial
        Statements Schedules*
 
 The
        financial statement schedules required to be included pursuant to this Item
        are
        not included herein because they are not applicable or the required information
        is shown in the financial statements or notes thereto which are incorporated
        by
        reference at subsection 1 of this Item, above.
 
 3. *Exhibits*
 
 Audited
        financial statements of Qualcore, S. de R.L. de C.V. for the years ended
        December 31, 2004, 2003 and 2002.
  
 
 **SIGNATURES**
 
 Pursuant
        to the requirements 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.
 
 ELAMEX,
                  S.A. DE C.V.January
                  6, 2006/S/
                  Richard R. HarshmanDate
              
              Richard
                  R. Harshman, President and Chief Executive Officer
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the registrant and in
        the
        capacities and on the dates indicated.
 
 January
                  6, 2006*/S/
                  Eloy S. Vallina*Date
              
              Eloy
                  S. Vallina, Chairman of the Board of DirectorsJanuary
                  6, 2006*/S/
                  Richard R. Harshman*Date
              
              Richard
                  R. Harshman, President and Chief Executive(Principal
                  Executive Officer)January
                  6, 2006*/S/
                  Sam L. Henry*Date
              
              Sam
                  L. Henry, Senior Vice-President and Chief Financial
                  Officer(Principal
                  Financial Officer)(Principal
                  Accounting Officer)January
                  6, 2006*/S/
                  Eloy Vallina Garza*Date
              
              Eloy
                  Vallina Garza, DirectorJanuary
                  6, 2006*/S/
                  Richard P. Spencer*Date
              
              Richard
                  P. Spencer, DirectorJanuary
                  6, 2006*/S/
                  Martin W. Pitts*Date
              
              Martin
                  W. Pitts, DirectorJanuary
                  6, 2006*/S/
                  Keith Cannon*Date
              
              Keith
                  Cannon, DirectorJanuary
                  6, 2006*/S/
                  Benito Bucay*Date
              
              Benito
                  Bucay, DirectorJanuary
                  6, 2006*/S/
                  Carlos Hernandez*Date
              
              Carlos
                  Hernandez, DirectorJanuary
                  6, 2006*/S/
                  Manuel Muñoz*Date
              
              Manuel
                  Muñoz, DirectorJanuary
                  6, 2006*/S/
                  Fernando Todd*Date
              
              Fernando
                  Todd, Director




**EXHIBIT**










**Qualcore,
      S. de R. L. de C. V. and Subsidiaries**


**(50.1%
      owned by Elamex, S. A. de C. V., and 49.9% owned by General Electric Mexico,
      S.
      A. de C. V.)**





Consolidated
      Financial Statements for the Years Ended December 31, 2004, 2003 and 2002,
      and
      Report of Independent Registered Public Accounting Firm Dated May 24, 2005,
      November 21, 2005 with respect to Note 12







**Qualcore,
      S. de R.L. de C.V. and Subsidiaries**





**Report
      of Independent Registered Public Accounting Firm and Consolidated Financial
      Statements 2004, 2003 and 2002**








**Table
                of contents**
            **Page**Independent
                Auditors’ Report
            1Consolidated
                Balance Sheets
            3Consolidated
                Statements of
                Operations
            4Consolidated
                Statements of Partners’
                Deficit
            5Consolidated
                Statements of Cash Flows
            6Notes
                to Consolidated Financial
                Statements
            7




*Table
          of Contents*


**Report
      of Independent Registered Public Accounting Firm
      to the Board of Directors and Partners of Qualcore, S. de R.L. de
      C.V.**








We
      have
      audited the accompanying consolidated balance sheets of Qualcore, S. de R.
      L. de
      C. V. and subsidiaries (the “Joint Venture”) as of December 31, 2004 and 2003,
      and the related consolidated statements of operations, partners’ deficit, and
      cash flows for each of the three years then in the period ended December 31,
      2004 (all expressed in thousands of U.S. dollars). These financial statements
      are the responsibility of the Joint Venture’s management. Our responsibility is
      to express an opinion on these 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 consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances, but not for the purpose of expressing
      an
      opinion on the effectiveness of the Joint Venture’s internal control over
      financial reporting. Accordingly, we express no such opinion. An audit also
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, 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
      report dated May 24, 2005, we issued a qualified opinion on the 2004
      consolidated financial statements because the Joint Venture had not recorded
      an
      impairment related to its long-lived assets when impairment indicators existed.
      As discussed in Note 12 to the accompanying amended consolidated financial
      statements, the Joint Venture subsequently recognized an impairment loss on
      such
      long-lived assets and included the loss in the accompanying amended 2004
      consolidated financial statements. Accordingly, our present opinion on the
      amended 2004 consolidated financial statements, as expressed herein, is
      different from the report we previously issued dated May 24, 2005.





In
      our
      opinion, the consolidated financial statements present fairly, in all material
      respects, the financial position of the Joint Venture as of December 31, 2004
      and 2003, and the results of their operations and their cash flows for each
      of
      the three years in the period ended December 31, 2004 in conformity with
      accounting principles generally accepted in the United States of
      America.





As
      of
      December 31, 2004 and 2003, the Joint Venture has an accumulated deficit in
      excess of 100% of its total paid-in capital. Under Mexican law, this condition
      allows the Joint Venture’s partners, creditors or other interested parties to
      force the Joint Venture into dissolution. In addition, the Joint Venture i)
      has
      a working capital deficiency of $11,572 and $8,709 as of December 31, 2004
      and
      2003, respectively, ii) incurred a net loss of $6,805, $3,958 and $2,249 for
      the
      years ended December 31, 2004, 2003 and 2002, respectively, iii) has a history
      of recurring losses and iv) has a total partners’ deficit of $7,679, and $874 as
      of December 31, 2004 and 2003, respectively. These factors raise substantial
      doubt about the Joint Venture’s ability to continue as a going concern.
      Initially, the Company had decided upon the sale of its stock. However, as
      discussed in Note 12 to the accompanying consolidated financial statements,
      as
      of September 2005, the Joint Venture’s operations were suspended, which resulted
      in the termination of a majority of the Joint Venture’s employees and the sale
      of the majority of the Joint Venture’s machinery and equipment. Management is
      deciding upon the future operating plans for the Joint Venture.





Galaz,
      Yamazaki, Ruiz Urquiza, S. C.


Member
      of
      Deloitte Touche Tohmatsu








Jorge
      Jaramillo Elías


May
      24,
      2005,


November
      21, 2005 with respect to Note 12





Celaya,
      Guanajuato, Mexico


3
 *Table
          of Contents*


**Qualcore,
      S. de R.L. de C.V. and Subsidiaries**


**(** **50.1%
      owned by Elamex, S.A. de C.V., and 49.9% owned by General Electric Mexico,
      S.A.
      de C.V.)**





**Consolidated
      Balance Sheets**


**As
      of December 31, 2004 and 2003**


**(Thousands
      of U.S. Dollars)**





**Assets****2004**
            
            **2003**Current
                assets:Cash
                and cash equivalents
            
            $
            1,381
            
            $
            339Accounts
                receivable - net
            
            
            2,606
            
            
            1,998Inventories
                - net
            
            
            1,982
            
            
            1,076Prepaid
                expenses
            
            
            81
            
            
            60Total
                current assets
            
            
            6,050
            
            
            3,473Plant
                and equipment - net
            
            
            3,903
            
            
            9,228Deferred
                income taxes
            
            
            
            
            
            294Other
                assets
            
            
            5
            
            
            4Total
            
            $
            9,958
            
            $
            12,999**Liabilities
                and partners’ deficit**Current
                liabilities:Accounts
                payable
            
            $
            3,962
            
            $
            5,145Notes
                payable to joint venture partners
            
            
            7,715
            
            
            4,650Customer
                advances
            
            
            2,000
            
            
            -Current
                portion of long-term debt
            
            
            3,460
            
            
            1,680Accrued
                liabilities
            
            
            485
            
            
            413Deferred
                income taxes
            
            
            -
            
            
            294Total
                current liabilities
            
            
            17,622
            
            
            12,182Long-term
                debt
            
            
            -
            
            
            1,682Labor
                obligations
            
            
            15
            
            
            9Total
                liabilities
            
            
            17,637
            
            
            13,873Commitments
                and contingencies (Note 10)Partners’
                deficit:******Partnership
                capital, 44,834 partnership units issued and outstanding at par value
                of 1
                Mexican peso
            
            
            5,007
            
            
            5,007Additional
                paid-in capital
            
            
            24,746
            
            
            24,746Accumulated
                deficit
            
            
            (37,432
            )
            
            (30,627
            )Total
                partners’ deficit
            
            
            (7,679
            )
            
            (874
            )Total
            
            $
            9,958
            
            $
            12,999





See
      accompanying notes to consolidated financial statements.


4
 *Table
          of Contents*


**Qualcore,
      S. de R.L. de C.V. and
      Subsidiaries**


**(** **50.1%
      owned by Elamex, S.A. de C.V., and 49.9% owned by General Electric Mexico,
      S.A.
      de C.V.)**





**Consolidated
      Statements of Operations**


**For
      the years ended December 31, 2004, 2003 and 2002**


**(Thousands
      of U.S. Dollars)**


**2004**
            
            **2003**
            
            **2002**Revenues:Net
                sales
            
            $
            21,797
            
            $
            18,798
            
            $
            15,422Other
            
            
            2,329
            
            
            -Total
                revenues
            
            
            24,126
            
            
            18,798
            
            
            15,422Costs
                and expenses:Cost
                of sales
            
            
            25,079
            
            
            20,865
            
            
            16,409Selling,
                general and administrative expenses
            
            
            1,014
            
            
            902
            
            
            952Impairment
                of long-lived assets
            
            
            4,155
            
            
            -
            
            
            -Total
                costs and expenses
            
            
            30,248
            
            
            21,767
            
            
            17,361Operating
                loss
            
            
            (6,122
            )
            
            (2,969
            )
            
            (1,939
            )Other
                expenses:Interest
                expense
            
            
            512
            
            
            91
            
            
            401Other
                expense (income) - net
            
            
            47
            
            
            867
            
            
            (91
            )Total
                other expenses
            
            
            559
            
            
            958
            
            
            310Loss
                before income taxes
            
            
            (6,681
            )
            
            (3,927
            )
            
            (2,249
            )Income
                tax expense
            
            
            124
            
            
            31Net
                loss
            
            $
            (6,805
            )
            $
            (3,958
            )
            $
            (2,249
            )





See
      accompanying notes to consolidated financial statements.


5
 *Table
          of Contents*


**Qualcore,
      S. de R.L. de C.V. and
      Subsidiaries**


**(** **50.1%
      owned by Elamex, S.A. de C.V., and 49.9% owned by General Electric Mexico,
      S.A.
      de C.V.)**





**Consolidated
      Statements of Partners’ Deficit**


**For
      the years ended December 31, 2004, 2003 and 2002**


**(Thousands
      of U.S. Dollars)**




**Partnership
                Capital**
            
            **Additional**
            
            
            
            **Total****Paid-in**
            
            **Accumulated**
            
            **Partners’****Units**
            
            **Amount**
            
            **Capital**
            
            **Deficit**
            
            **Deficit**Balance,
                January 1, 2002
            
            
            44,834
            
            $
            5,007
            
            $
            24,746
            
            $
            (24,420
            )
            $
            5,333Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            (2,249
            )
            
            (2,249
            )Balance,
                December 31, 2002
            
            
            44,834
            
            
            5,007
            
            
            24,746
            
            
            (26,669
            )
            
            3,084Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            (3,958
            )
            
            (3,958
            )Balance,
                December 31, 2003
            
            
            44,834
            
            
            5,007
            
            
            24,746
            
            
            (30,627
            )
            
            (874
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            (6,805
            )
            
            (6,805
            )Balance,
                December 31, 2004
            
            
            44,834
            
            $
            5,007
            
            $
            24,746
            
            $
            (37,432
            )
            $
            (7,679
            )





See
      accompanying notes to consolidated financial statements.




6
 *Table
          of Contents*


**Qualcore,
      S. de R.L. de C.V. and
      Subsidiaries**


**(** **50.1%
      owned by Elamex, S.A. de C.V., and 49.9% owned by General Electric Mexico,
      S.A.
      de C.V.)**





**Consolidated
      Statements of Cash Flows**


**For
      the years ended December 31, 2004, 2003 and 2002**


**(Thousands
      of U.S. Dollars)**





**2004**
            
            **2003**
            
            **2002**Cash
                flows from operating activities:Net
                loss
            
            $
            (6,805
            )
            $
            (3,958
            )
            $
            (2,249
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                activities:Depreciation
                and amortization
            
            
            1,248
            
            
            1,217
            
            
            1,167Loss
                on sale of machinery and equipment
            
            
            -
            
            
            5
            
            
            -Loss
                on disposal of machinery andequipment
            
            
            -
            
            
            169
            
            
            -Labor
                obligations
            
            
            3
            
            
            5
            
            
            -Impairment
                loss
            
            
            4,155
            
            
            -
            
            
            -Changes
                in operating assets and liabilities:Accounts
                receivable - net
            
            
            (608
            )
            
            2,329
            
            
            670Inventories
                - net
            
            
            (906
            )
            
            (337
            )
            
            277Due
                from related parties
            
            
            
            
            
            
            
            
            12Prepaid
                expenses and other assets
            
            
            (22
            )
            
            (60
            )
            
            332Accounts
                payable
            
            
            (1,183
            )
            
            1,227
            
            
            (143
            )Customer
                advances
            
            
            2,000
            
            
            -
            
            
            -Accrued
                liabilities and labor obligations
            
            
            75
            
            
            275
            
            
            (1,431
            )Due
                to related parties
            
            
            -
            
            
            (107
            )
            
            107Net
                cash (used in) provided by operating activities
            
            
            (2,043
            )
            
            765
            
            
            (1,258
            )Cash
                flows from investing activities:Acquisitions
                of plant and equipment
            
            
            (78
            )
            
            (347
            )
            
            (472
            )Proceeds
                from the sale of plant and equipment
            
            
            -
            
            
            10
            
            
            -Net
                cash used in investing activities
            
            
            (78
            )
            
            (337
            )
            
            (472
            )Cash
                flows from financing activities:Proceeds
                from notes payable to Joint Venturepartners
            
            
            3,163
            
            
            2,050
            
            
            3,100Payments
                of notes payable
            
            
            -
            
            
            (900
            )
            
            -Payments
                of long-term debt
            
            
            -
            
            
            (1,678
            )
            
            (1,680
            )Net
                cash provided by (used in) financing activities
            
            
            3,163
            
            
            (528
            )
            
            1,420Cash
                and cash equivalents:Net
                increase (decrease) for the year
            
            
            1,042
            
            
            (100
            )
            
            (310
            )Beginning
                of year
            
            
            339
            
            
            439
            
            
            749End
                of year
            
            $
            1,381
            
            $
            339
            
            $
            439Supplemental
                disclosure of cash flow information:Cash
                paid during the year for:Interest
            
            $
            -
            
            $
            169
            
            $
            401Income
                taxes
            
            $
            124
            
            $
            31
            
            $
            -





See
      accompanying notes to consolidated financial statements.


7
 *Table
          of Contents*


**Qualcore,
      S. de R.L. de C.V. and
      Subsidiaries**


**(** **50.1%
      owned by Elamex, S.A. de C.V., and 49.9% owned by General Electric Mexico,
      S.A.
      de C.V.)**





**Notes
      to Consolidated Financial Statements**


**December
      31, 2004, 2003 and 2002**


**(Thousands
      of U.S. Dollars)**








**1.**
            **Nature
                of business and basis of presentation**





***Nature
      of business,*** -
      Qualcore, S. de R.L. de C.V. and subsidiaries (the “Joint Venture”) consists of
      Mexican companies incorporated under the laws of Mexico on August 17, 1998.
      The
      Joint Venture was formed between Elamex, S.A. de C.V. (Elamex), General Electric
      International Mexico, S.A. de C.V. and General Electric Mexico, S.A. de C.V.
      (jointly referred to as GE Mexico) to produce plastic molding and stamped metal
      components primarily for companies located in the United States of America
      (U.S.), except for Elamex, which has operations located in Mexico. Elamex
      contributed its plastic molding and stamped metal operations to the Joint
      Venture in exchange for a 50.1% interest. GE Mexico contributed approximately
      $3,500 in exchange for its 49.9% interest. All manufacturing and administrative
      services, as well as other professional services, are provided by Plásticos y
      Troquelados, S.A. de C.V. (PYTSA), a subsidiary of the Joint Venture. All of
      the
      Joint Venture manufacturing machinery and equipment are located in facilities
      in
      Mexico.





The
      Joint
      Venture is a limited liability company, which combines the aspects of a
      partnership and a corporation. Joint venture partners are liable only to the
      extent of their capital contributions, but participatory interests are
      represented by participation units that are not freely negotiable.





***Basis
      of presentation*** - At
      December 31, 2004 and 2003, the Joint Venture has an accumulated deficit in
      excess of 100% of its total paid-in capital. Under Mexican law, this condition
      allows the Joint Venture’s partners, creditors or other interested parties to
      force the Joint Venture into dissolution. In addition, the Joint Venture i)
      has
      a working capital deficiency of $11,572 and $8,709 at December 31, 2004 and
      2003, respectively, ii) incurred a net loss of $6,805, $3,958 and $2,249 for
      the
      years ended December 31, 2004, 2003 and 2002, respectively, iii) has a history
      of recurring net losses and iv) has a partners’ deficit of $7,679 and $874 at
      December 31, 2004 and 2003, respectively. These factors raise substantial doubt
      about the Joint Venture’s ability to continue as a going concern. Initially,
      management was discussing plans to sell the Joint Venture’s stock. However, as
      of September 2005, the Joint Venture’s operations were suspended, which resulted
      in the termination of a majority of the Joint Venture’s employees and the sale
      of the majority of the Joint Venture’s machinery and equipment. See further
      discussion in Note 12. Management is currently deciding upon the future
      operating plans for the Joint Venture. The financial statements do not include
      any adjustments that might result from the outcome of this
      uncertainty.





The
      Joint
      Venture maintains its books and records in U.S. dollars and prepares financial
      statements in accordance with accounting principles generally accepted in the
      United States of America (U.S. GAAP) for the application of the equity method
      by
      the Joint Venture partners.





***Principles
      of consolidation*** **** -
      The
      accompanying consolidated financial statements are prepared in accordance with
      accounting principles generally accepted in the United States. The consolidated
      financial statements include those of Qualcore, S. de R.L. de C.V. and its
      99%
      owned subsidiary Plásticos y Troquelados de Celaya, S.A. de C.V. All material
      intercompany balances and transactions have been eliminated in
      consolidation.








**2.**
            **Significant
                accounting policies**





A
      summary
      of the significant accounting policies used in the preparation of the
      accompanying financial statements follows:





***Cash
      equivalents*** - The
      Joint Venture considers all highly-liquid debt instruments purchased with a
      maturity of three months or less to be cash equivalents.


8
 *Table
          of Contents*


***Accounts
      receivable*** - The
      Joint Venture reviews accounts receivable balances and determines whether an
      allowance for potential uncollectible accounts is necessary.





***Foreign
      currency translation*** -
      Transactions denominated in foreign currencies are recorded at the rate of
      exchange in effect at the date of the transactions. Monetary assets and
      liabilities denominated in foreign currencies are converted into U.S. dollars,
      the functional currency of the Joint Venture, at the rate of exchange in effect
      at the balance sheet date; the effect of changes in exchange rates is recorded
      in the results of operations.





***Inventories*** -
      Inventories are stated at the lower of cost or market value. Cost is determined
      using the first-in, first-out (FIFO) method.





***Concentration
      of credit risk -*** For the
      years ended December 31, 2004, 2003 and 2002, the Joint Venture has one major
      customer that accounted for 83%, 86% and 76%, respectively of total sales and
      50% and 60% of its accounts receivable at December 31, 2004 and 2003,
      respectively. However, the Joint Venture typically receives payment on a timely
      basis from this customer. The Joint Venture believes that any other potential
      credit risk is adequately covered by the allowance for doubtful
      accounts.





***Plant
      and equipment*** - Plant
      and equipment are recorded at acquisition cost, net of accumulated depreciation
      and amortization. Cost includes major expenditures for improvements and
      replacements, which extend useful lives or increase capacity and interest costs
      associated with significant capital additions. Routine maintenance costs are
      expensed as incurred. Depreciation and amortization are calculated using the
      straight-line method, based on the estimated useful lives of the related assets,
      as follows:





**Useful****Life****(Years)**Leasehold
                improvements
            4Machinery
                and equipment
            3-10




***Valuation
      of long-lived assets -*** The
      Joint
      Venture periodically evaluates the carrying value of long-lived assets held
      for
      use when events or circumstances indicate that the carrying amount of the asset
      may not be recoverable. The carrying value of a long-lived asset held for use
      is
      considered to not be recoverable when the anticipated separately identified
      undiscounted cash flows from the asset are less than the carrying value of
      the
      asset. In that event, an impairment loss is recognized based on the amount
      by
      which the carrying value exceeds the fair value of the long-lived asset.





During
      the four quarter of 2004, the Joint Venture identified certain conditions as
      indicators of asset impairment, including a substantial decline in its
      operations and evidence of a decrease in the market value of such long-lived
      assets, based on the Joint Venture’s consideration of the sale of such
      long-lived assets, which ultimately took place during 2005 at a market value
      below the carrying value of the assets at December 31, 2004. Accordingly, the
      Joint Venture assessed the recoverability of such assets using undiscounted
      cash
      flow projections, which indicated that such long-lived assets were not
      recoverable. The Joint Venture recorded ****** an
      impairment loss of $4,155 during the fourth quarter of 2004. Management
      determined the asset impairment charges by comparing the actual market price
      of
      the equipment against the carrying values of the long-lived assets.





***Income
      taxes*** -
      The
      Joint Venture recognizes deferred income tax and statutory employee
      profit-sharing assets and liabilities for the future consequences of temporary
      differences between the financial statement carrying amounts of assets and
      liabilities and their respective income tax or employee statutory profit-sharing
      bases, measured using enacted rates. The effects of changes in the statutory
      rates are accounted for in the period that includes the enactment date. Deferred
      income tax assets are also recognized for the estimated future effects of tax
      loss carryforwards and asset tax credit carryforwards. Deferred income tax
      and
      statutory employee profit-sharing assets are reduced by any benefits that,
      in
      the opinion of the management, more likely than not will not be realized.





***Labor
      obligations*** - In
      accordance with Mexican Labor Law, the Joint Venture provides seniority premium
      benefits to its employees under certain circumstances. These benefits consist
      of
      a one-time payment equivalent to 12 days wages for each year of service (at
      the
      employee’s most recent salary, but not to exceed twice the legal minimum wage),
      payable to all employees with 15 or more years of service, as well as to certain
      employees terminated involuntarily prior to the vesting of their seniority
      premium benefit.


9
 *Table
          of Contents*


The
      Joint
      Venture also provides statutorily mandated severance benefits to its employees
      terminated under certain circumstances. Such benefits consist of a one-time
      payment of three months wages plus 20 days wages for each year of service
      payable upon involuntary termination without just cause.





Costs
      associated with these benefits are provided for based on actuarial computations
      using the projected unit credit method.





***Revenue
      recognition*** -
      Revenues and related costs are recognized upon transfer of ownership, which
      generally coincides with the shipment of products to customers in satisfaction
      of orders.





***Use
      of estimates*** - The
      preparation of financial statements in conformity with U.S. GAAP requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Although management believes the estimates
      and assumptions used in the preparation of these financial statements were
      appropriate in the circumstances, actual results could differ from those
      estimates and assumptions.







***New
      accounting standards*** -In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 153, "Exchanges of
      Nonmonetary Assets - an amendment of APB Opinion No. 29", to eliminate the
      exception for nonmonetary exchanges of similar productive assets and replaces
      it
      with a general exception for exchanges of nonmonetary assets that do not have
      commercial substance. SFAS No. 153 is effective for nonmonetary assets exchanges
      occurring in fiscal periods beginning after June 15, 2005. The Joint Venture
      does not anticipate that the adoption of this statement will have a material
      effect on its consolidated financial position or results of operations.




In
      May
      2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial
      Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150
      establishes standards for how an issuer classifies and measures certain
      financial instruments with characteristics of both liabilities and equity.
      SFAS
      No. 150 requires that certain financial instruments be classified as liabilities
      that were previously considered equity. The provisions of SFAS No. 150 are
      effective for financial instruments entered into or modified after May 31,
      2003,
      and for pre-existing instruments, was effective beginning January 1, 2004,
      except for mandatorily redeemable financial instruments. For mandatorily
      redeemable financial instruments, this statement is effective for new or
      existing contracts for fiscal periods beginning after December 15, 2004. The
      adoption of SFAS No. 150 did not have a material impact on the Joint Venture’s
      financial position, results of operations or cash flows, and as the Joint
      Venture does not have any mandatorily redeemable financial instruments, it
      does
      not anticipate that the adoption of that provision of SFAS No. 150 will have
      a
      material impact on the Joint Venture’s financial position, results of operations
      or cash flows.





In
      December 2003, the FASB revised SFAS No. 132(R), “Employers’ Disclosures about
      Pensions and Other Postretirement Benefits”. SFAS No. 132(R) retain the
      disclosure requirements contained in the original standard but requires
      additional disclosures describing the types of plan assets, investment strategy,
      measurement dates, plan obligations, cash flows and net periodic benefit cost
      of
      defined benefit pension plans and other defined benefit postretirement plans.
      The additional disclosure requirements were applicable for these 2004 financial
      statements. The adoption of this statement did not materially affect the
      disclosures in the accompanying consolidated financial statements.





In
      January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable
      Interest Entities” (“FIN 46”). In December 2003, FIN 46 was replaced by FASB
      Interpretation No. 46 (revised December 2003), “Consolidation of Variable
      Interest Entities” or FIN 46(R). FIN 46(R) clarifies the application of
      Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to
      certain entities in which equity investors do not have the characteristics
      of a
      controlling financial interest or do not have sufficient equity at risk for
      the
      entity to finance its activities without additional subordinated financial
      support from other parties. FIN46(R) requires an enterprise to consolidate
      a
      variable interest entity if that enterprise will absorb a majority of the
      entity’s expected losses, is entitled to receive a majority of the entity’s
      expected residual returns or both. The Joint Venture has immediately applied
      the
      provisions of FIN 46(R) to all variable interest entities created after December
      31, 2003. For all other entities, the Joint Venture will begin to apply the
      provisions of FIN 46(R) as of January 1, 2005. The Joint Venture did not have
      any variable interest entities created after December 31, 2003 and does not
      anticipate that the adoption of FIN 46(R) will have a material impact on its
      financial position, results or operations or cash flows.


10
 *Table
          of Contents*


In
      March
      2004, the Emerging Issues Task Force (“EITF”) confirmed as a consensus EITF
      Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its
      Application to Certain Investments” (“EITF 03-1”). The objective of this Issue
      is to provide guidance on determining when an investment is considered impaired,
      whether that impairment is other-than-temporary, and the measurement of an
      impairment loss. The guidance also includes accounting considerations subsequent
      to the recognition of another-than-temporary impairment and requires certain
      disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. In September 2004, the FASB issued FASB Staff
      Position (“FSP”) EITF Issue 03-1-1 that delays the effective date for the
      measurement and recognition guidance included in EITF 03-1. The disclosures
      required by EITF 03-1 have not been deferred and were effective as of December
      31, 2004.





In
      November 2003, the EITF confirmed as a consensus EITF Issue No. 03-10,
“Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered
      to
      Consumers by Manufacturers” (“EITF 03-10”). EITF 03-10 addresses the accounting
      for manufacturer sales incentives offered directly to consumers, including
      manufacturer coupons. The Joint Venture’s accounting policies related to vendor
      coupons and reimbursements are in accordance with the requirements of EITF
      03-10. The adoption of this pronouncement had no material impact on the Joint
      Venture’s results of operations, financial position or cash flows in the
      reported periods.





In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs - an amendment of
      ARB No. 43, Chapter 4”, or SFAS No. 151. SFAS No. 151 amends the guidance in ARB
      No. 43, Chapter 4, “Inventory Pricing” to clarify the accounting for abnormal
      amounts of idle facility expense, freight, handling costs, and wasted material
      (spoilage). Among other provisions, the new rule requires that items such as
      idle facility expense, excessive spoilage, double freight, and re-handling
      costs
      be recognized as current-period charges regardless of whether they meet the
      criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151
      requires that the allocation of fixed production overhead to the costs of
      conversion be based on the normal capacity of the production facilities. The
      Joint Venture does not believe that the adoption of this pronouncement will
      have
      a material impact on the Joint Venture’s results of operations, financial
      position or cash flows.








**3.**
            **Accounts
                receivable**





**2004**
            
            **2003**Trade
            
            $
            1,857
            
            $
            1,680Recoverable
                value-added taxes
            
            
            764
            
            
            3362,621
            
            
            2,016Less
                - allowance for doubtful accounts
            
            
            (15
            )
            
            (18
            )$
            2,606
            
            $
            1,998





11
 *Table
          of Contents*





An
      analysis of the activity in the allowance for doubtful accounts for the years
      ended December 31, 2004, 2003 and 2002 is as follows:





**2004**
            
            **2003**
            
            **2002**Beginning
                balance
            
            $
            18
            
            $
            30
            
            $
            -Additions
                charged to expense
            
            
            -
            
            
            -
            
            
            30Write-off
                of unrecoverable accounts
            
            
            (3
            )
            
            (12
            )Ending
                balance
            
            $
            15
            
            $
            18
            
            $
            30








**4.**
            **Inventories**





**2004**
            
            **2003**Finished
                goods
            
            $
            409
            
            $
            231Raw
                materials
            
            
            1,585
            
            
            9291,994
            
            
            1,160Less
                - reserve for obsolescence
            
            
            (12
            )
            
            (84
            )$
            1,982
            
            $
            1,076





The
      provision for excess and obsolete inventory is charged against cost of sales.
      An
      analysis of the changes to the reserve for obsolescence on inventory for the
      years ended December 31, 2004, 2003 and 2002 is as follows:





**2004**
            
            **2003**
            
            **2002**Beginning
                balance
            
            $
            84
            
            $
            84
            
            $
            238Additions
                charged to expense
            
            
            -
            
            
            -
            
            
            -Inventory
                disposed of during the year
            
            
            (72
            )
            
            -
            
            
            (154
            )Ending
                balance
            
            $
            12
            
            $
            84
            
            $
            84








**5.**
            **Plant
                and equipment**





**2004**
            
            **2003**Leasehold
                improvements
            
            $
            136
            
            $
            136Machinery
                and equipment
            
            
            8,379
            
            
            12,4578,515
            
            
            12,593Less
                - accumulated depreciation and amortization
            
            
            (4,612
            )
            
            (3,365
            )$
            3,903
            
            $
            9,228





Depreciation
      expense was $1,248, $1,217 and $1,167 for the years ended December 31, 2004,
      2003 and 2002, respectively.








**6.**
            **Notes
                payable and long-term debt**





At
      December 31, 2004 and 2003, the Joint Venture had the following bank loans
      to
      third parties and U.S. dollar denominated notes payable to Joint Venture
      partners:


12
 *Table
          of Contents*





**2004**
            
            **2003**Bank
                loans, bearing interest at 1.625% over six-month LIBOR (4.4% and
                1.4% at
                December 31, 2004 and 2003, respectively), principal and interest
                payable
                in semiannual payments of $840, guaranteed by the Joint Venture
                partners
            
            $
            3,460
            
            $
            3,362Notes
                payable to Joint Venture partners
            
            
            7,715
            
            
            4,650Total
                debt
            
            
            11,175
            
            
            8,012Less
                - Current portion of long-term debt
            
            
            (3,362
            )
            
            (1,680
            )Interest
                payable to bank loans
            
            
            (98
            )
            
            -Notes
                payable to Joint Venture partners due on demand
            
            
            (7,550
            )
            
            (4,650
            )Interest
                payable to Joint Venture partners
            
            
            (165
            )
            
            -Long-term
                debt
            
            $
            -
            
            $
            1,680





The
      bank
      loans referred to above contain restrictive covenants, which require the Joint
      Venture to maintain certain financial ratios and restricts the payment of
      dividends, granting of loans and obtaining additional financings. As of December
      31, 2004 the Joint Venture was not in compliance with these covenants and was
      in
      default under the loan agreement.





On
      January 1, 2005 Wells Fargo HSBC Trade Bank, N.A. (“Wells Fargo”) executed a
      forbearance agreement with the Joint Venture. The forbearance agreement provides
      the Joint Venture with a period of 120 days in which Wells Fargo will not issue
      a demand for payment of any or all of the outstanding debt. However, Wells
      Fargo
      did not waive the existing default. Should the Joint Venture not be able to
      make
      the payments within the forbearance period, Wells Fargo will require the
      guarantors to pay the debt. Accordingly, the debt has been classified as current
      in the accompanying 2004 consolidated balance sheet.








**7.**
            **Labor
                obligations**





Net
      periodic expenses associated with labor obligations was $3 in 2004 and $5 in
      2003. The associated accrued liability was $15 at December 31, 2004 and $9
      at
      December 31, 2003.








**8.**
            **Partners’
                deficit**





Under
      the
      bylaws of the Joint Venture and Mexican law, the partners’ capital of the Joint
      Venture must consist of fixed capital and may have, in addition thereto,
      variable capital. Partners holding shares representing variable capital may
      require the Joint Venture, 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 Joint Venture’s shares as approved by
      the board of directors for the latest fiscal year prior to the redemption date.
      At December 31, 2004 and 2003, the Joint Venture has not issued any of its
      authorized variable capital. Although the variable capital is redeemable by
      the
      terms described above, such shares would be classified as a component of
      partners’ equity in the consolidated balance sheet.





Management
      believes the variable capital represents permanent capital because the timing
      and pricing mechanisms through which a partner would exercise the option to
      redeem are such that a partner, from an economic standpoint, would not exercise
      this option. At the time a partner is required to give notice of redemption,
      the
      partner 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 partner in an immediate public
      sale.


13
 *Table
          of Contents*





Mexican
      law requires that at least 5% of the Joint Venture’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
      capital dividend, until the amount of such fund equals 20% of the Joint
      Venture’s historical capital. No legal reserve fund allocation is required due
      to the net losses incurred by the Joint Venture.








**9.**
            **Balances
                and transactions with related
                parties**





Transactions
      with related parties for the years ended December 31, 2004, 2003 and 2002 are
      as
      follows:





**2004**
            
            **2003**
            
            **2002**Interest
                expense
            
            $
            165
            
            $
            20
            
            $
            90Notes
                payable
            
            
            2,900
            
            
            2,050
            
            
            2,600Due
                to Joint Venture partners
            
            
            -
            
            
            111
            
            
            90





At
      December 31, 2004 and 2003, the Joint Venture had U.S. dollar denominated notes
      payable to its Joint Venture partners, as discussed in Note 6.








**10.**
            **Commitments
                and contingencies**





***Leases*** - The
      Joint Venture leases a building under an operating lease that expires in 2012.
      Minimum rentals due under the lease are adjusted annually based on the Mexican
      inflation rate and are as follows:





Year
                ending December 31:2005
            
            $
            1,1352006
            
            
            1,1352007
            
            
            1,1352008
            
            
            1,1352009
            
            
            1,135Thereafter
            
            
            3,410Total
                minimum lease payments required
            
            $
            9,085





Rent
      expense for the years ended December 31, 2004, 2003 and 2002 was $1,135 for
      each
      year.





The
      monthly lease payments are guaranteed by both of the Joint Venture partners.





***Litigation*** - The
      Ministry of Finance and Public Credit, in exercise of its rights, carried out
      a
      review of the Joint Venture to verify its compliance with foreign trade tax
      obligations. As a result of this review, on September 9, 2004 the tax
      authorities assessed taxes of Ps. $22,457 against the Joint Venture. However,
      the Joint Venture filed a motion for reversal of such resolution. On February
      14, 2005, the Local Legal Office of Celaya issued a resolution annulling the
      above tax assessment and ordering the Local Tax Audit Office of Celaya to issue
      a properly supported resolution. As of May 24, 2005, this resolution had not
      yet
      been issued by the Local Tax Audit Office.





**11.**
            **Income
                and asset taxes**





Current
      income tax expense for the year ended December 31, 2004 was $37, and deferred
      income tax expense, represented by the change in the valuation allowance for
      recoverable tax on assets paid, for the years ended December 31, 2004 and 2003,
      was $87 and $31, respectively. The Joint Venture generated a net tax loss
      carryforward for the year ended December 31, 2002, and recorded a full valuation
      allowance for the value of the net deferred tax asset, resulting in no current
      or deferred income tax expense for the Joint Venture.




14
 *Table
          of Contents*





At
      December 31, 2004 and 2003, the components of deferred income tax assets and
      liabilities were as follows:





**2004**
            
            **2003**Current
                deferred tax assets:Accrued
                liabilities
            
            $
            613
            
            $
            61Valuation
                allowance
            
            
            (19
            )
            
            -Total
                current deferred tax assets
            
            
            594
            
            
            61Current
                deferred tax liabilities:Inventories
            
            
            (594
            )
            
            (355
            )Total
                current deferred tax liabilities
            
            
            (594
            )
            
            (355
            )Net
                current deferred tax liability
            
            $
            -
            
            $
            (294
            )Noncurrent
                deferred tax assets:Net
                operating loss carryforwards
            
            $
            7,535
            
            $
            8,329Asset
                tax
            
            
            128
            
            
            -Plant
                and equipment
            
            
            45Valuation
                allowance
            
            
            (7,708
            )
            
            (7,599
            )Total
                noncurrent deferred tax assets
            
            
            -
            
            
            730Noncurrent
                deferred tax liabilities:Plant
                and equipment
            
            
            -
            
            
            (436
            )Net
                deferred tax liabilities
            
            
            -
            
            
            (436
            )Net
                noncurrent deferred tax asset
            
            $
            -
            
            $
            294








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 in the future.
      The valuation allowance as of December 31, 2004, 2003 and 2002 was $7,727,
      $7,599 and $7,268, respectively, and relates primarily to the lack of evidence
      regarding the future utilization of net operating losses and recoverable tax
      on
      assets paid.





An
      analysis of the activity of the valuation allowance for the years ended December
      31, 2004, 2003 and 2002 is as follows:





**2004**
            
            **2003**
            
            **2002**Beginning
                balance
            
            $
            7,599
            
            $
            7,268
            
            $
            8,160Additions
                charged to income tax expense
            
            
            128
            
            
            331Decreases
                charged against income tax expense
            
            
            
            
            
            
            
            
            (892
            )Ending
                balance
            
            $
            7,727
            
            $
            7,599
            
            $
            7,268





The
      effective rate for the years ended December 31, 2004, 2003, and 2002 differs
      from the Mexican statutory income tax rate as follows:





**2004**
            
            **2003**
            
            **2002**Statutory
                rate
            
            
            33.0
            %
            
            34.0
            %
            
            35.0
            %Effect
                of permanent differences, mainlynon-deductible
                expenses
            
            
            -0.7
            %
            
            -4.8
            %
            
            0.0
            %Impairment
                of long-lived assets
            
            
            -20.5
            %
            
            0.0
            %
            
            0.0
            %Inflationary
                effects
            
            
            -3.1
            %
            
            -6.4
            %
            
            -1.6
            %Change
                in valuation allowance
            
            
            -7.7
            %
            
            -15.5
            %
            
            -33.4
            %Other
            
            
            -2.9
            %
            
            -8.1
            %
            
            0.0
            %-1.9
            %
            
            -0.8
            %
            
            0.0
            %




15
 *Table
          of Contents*


***Dividend
      tax*** -
      Partners’ equity, except restated paid-in capital and tax retained earnings,
      will be subject to a dividend tax, payable by the Joint Venture, in the event
      of
      distribution. In 2004, 2003 and 2002, the rate was 33%, 34% and 35%,
      respectively; it will decrease to 30% in 2005 and subsequently one percentage
      point each year until reaching 28% in 2007. Any income tax paid on such
      distribution may be credited against future income tax payable by the Joint
      Venture in the year in which the dividend tax is paid and in the following
      two
      years.





***Statutory
      income tax rate*** - On
      December 1, 2004, certain amendments to the ISR and IMPAC Laws were enacted
      and
      are effective as of 2005. The most significant amendments are as follows: (a)
      the ISR rate will be reduced to 30% in 2005, 29% in 2006, and 28% in 2007 and
      thereafter; (b) for ISR purposes, cost
      of
      sales will be deducted instead of inventory purchases in the period and,
      if
      applicable, related conversion costs ;
      (c)
      companies may elect in 2005 to ratably increase
      taxable income over a
      period from four to 12 years by
      the
      tax value of inventories on hand as of December 31, 2004 determined in conformity with the respective tax rules, which include deducting
      any previous tax basis of inventories and any unamortized tax loss
      carryforwards, and the
      tax basis of such inventories may be deducted as sold ;
      (d) as
      of 2006, paid employee statutory profit sharing will be fully deductible for
      ISR
      purposes; (e) bank liabilities and liabilities with foreign entities are now
      included in the determination of the IMPAC taxable base.





***Asset
      tax*** - The
      Joint Venture is also subject to an asset tax, which is similar to an
      alternative minimum tax, under Mexican tax law. The asset tax is calculated
      by
      applying 1.8% to the Joint Venture asset position, as defined in the law, and
      is
      payable to the extent it exceeds income taxes payable for the same period.
      Asset
      taxes paid may be used to offset future income taxes payable in the following
      10
      years if certain conditions in the tax law are met.





***Carryforwards*** - At
      December 31, 2004, the Joint Venture has net operating loss carryforwards,
      which
      are available to offset future taxable income, and asset tax credits, which
      are
      available to offset future income taxes payable, as follows:





**Year**
            
            **Net****Operating****Loss****Carryforwards**
            
            **Asset****Tax****Credits**
            
            **Year
                of****Expiration**1998
            
            $
            1,512
            
            $
            -
            
            
            20081999
            
            
            373
            
            
            -
            
            
            20092000
            
            
            6,021
            
            
            -
            
            
            20102001
            
            
            13,838
            
            
            -
            
            
            20112002
            
            
            1,685
            
            
            -
            
            
            20122003
            
            
            3,482
            
            
            41
            
            
            20132004
            
            
            -
            
            
            87
            
            
            2014$
            26,911
            
            $
            128





The
      amounts presented above have been adjusted for Mexican inflation as permitted
      by
      Mexican tax law.





***Statutory
      employee profit sharing*** -
      Statutory employee profit sharing was determined by applying the statutory
      rate
      of 10% to the profit sharing base determined in accordance with the applicable
      law.





**12.**
            **Subsequent
                events**





a.
            As
                of September 2005, the Joint Venture’s management approved the decision to
                cease the Joint Venture’s operations. In October 2005, most of its
                employees were terminated, except for three individuals that will
                complete
                the final administrative activities of the Joint Venture. The Company
                is
                still quantifying the termination expenses. The Joint Venture also
                sold
                most of its machinery and equipment, except for certain low-value
                assets.
                Management is discussing the future operations of the Joint
                Venture.





b.
            In
                September 2005, the tax authorities, in full exercise of their rights,
                reassessed the tax mentioned in Note 10 for the amount of Ps. $23,227.
                Management and legal counsel believes that the Joint Venture has
                meritorious defenses against the assertion of the
                claim.





16
 *Table
          of Contents*




c.
            As
                of June 15, 2005, GE Mexico purchased the outstanding debt of the
                Joint
                Venture with Wells Fargo, on which the Joint Venture had defaulted,
                as
                discussed in Note 6. The debt was purchased at a discounted price
                of
                approximately $2.5 million. The Joint Venture will pay GE with the
                proceeds of the sale of long-lived assets as discussed in 12.a
                above.





d.
            On
                May 24, 2005, the Joint Venture previously issued consolidated financial
                statements as of and for the year ended December 31, 2004, which
                did not
                include the recognition of impairment losses on its long-lived assets
                for
                which impairment indicators existed. The accompanying consolidated
                financial statements represent the reissuance of the previous consolidated
                financial statements in order to recognize such impairment, which
                amounted
                to $4,155 and is included in the results for the year ended December
                31,
                2004.






*
      * * *
      *


17