SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

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



                   For the fiscal year ended December 31, 1997


                        COMMISSION FILE NUMBER: 0-27992

                              ELAMEX, S.A. DE C.V.
             (Exact name of Registrant as specified in its charter)

               MEXICO                                Not Applicable
      (State or other jurisdiction         (I.R.S.Employer Identification No.)
  of incorporation or organization)


     Avenida Insurgentes No. 4145-B Ote.                32340
     Cd. Juarez, Chihuahua Mexico City,               (Zip code)
  (Address of principal executive offices)


                                 (915) 774-8252
       (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

                       Class I Common Stock, no par value
                      Name of exchange on which registered
                             NASDAQ National Market

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes __X__ No _

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of March 3, 1998 was: $23,255,400.

The number of shares of Class I Common Stock of the registrant outstanding as of
March 3, 1998 was: 7,373,500

                      DOCUMENTS INCORPORATED BY REFERENCE

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of 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


<PAGE>

                                     PART I
References  in this form 10-K to "Elamex" or the "Company" are to Elamex,S.A. de
C.V.and its  subsidiaries, collectively,and references to "Elamex, S.A. de C.V.
"are solely to Elamex,S.A. de C.V. In this form 10-K,  references to "$" and
"U.S.dollars"are to United States dollars and references to "Ps$" and "Pesos"
are to Mexican pesos.

Item 1.  Business

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

         Elamex's  OEMs  customers are  primarily  U.S. and Canadian  companies,
mainly  in the  electronics  industry,  as  well  as in  the  electromechanical,
avionics and medical  industries.  The  Company's  revenues are in United States
("U.S.")  dollars  and  financing  is  obtained  in the same  currency  based on
contracts  with its U.S. and Canadian  customers  providing  for payment in U.S.
Dollars. The Company's headquarters and certain of its manufacturing  facilities
are located  within  nine miles of the U.S.  border,  the El Paso  International
Airport,  and rail truck depots in El Paso, Texas.  Elamex currently operates or
directs  operations  in  21  manufacturing  facilities.   The  Company  prepares
financial  statements in U.S.  Dollars in  conformity  with  Generally  Accepted
Accounting  Principles  applicable in the U.S. ("U.S.  GAAP") and also maintains
certain financial  information in conformity with Generally Accepted  Accounting
Principles applicable in Mexico ("Mexican GAAP").

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

Industry Background

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

                                       2
<PAGE>



benefits of SMT, especially those relating to cost reduction,  were passed along
to customers.  The Company  believes  these  benefits have helped to sustain the
double-digit percentage growth rate of the electronics industry into the 1990s.

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

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

         The contract  manufacturing  industry is characterized by a high degree
of  customer  and  market   concentration.   According  to  the   Institute  for
Interconnecting and Packaging Electronic Circuits ("IPC"),  approximately 42% of
the  contract  manufacturing  industry's  sales  in 1997  were  to the  computer
industry.  While the Company does not currently perform a significant  amount of
manufacturing for the computer  industry,  it has found that margins on computer
products are generally  lower than for other products the Company  manufactures.
The Company  believes  that the two largest  customers  of the average  contract
manufacturer   account  for  in  excess  of  45%  of  sales  for  such  contract
manufacturer.

         The  industry  is  also  expected  to  grow  significantly.  Technology
Forecasters,  Inc.  estimates  that U.S.  and  Canadian  demand for  electronics
contract  manufacturing  will  grow from  expenditures  of  approximately  $27.2
billion  in 1996 to  approximately  $104.2  billion by 2001,  an average  annual
growth rate of approximately  31%, and that the worldwide  electronics  contract
manufacturing  industry will grow from  expenditures of $59.8 billion in 1996 to
approximately   $178  billion  by  2001,  an  average   annual  growth  rate  of
approximately  24%. As indicated by IPC, market trends served by The Electronics
Manufacturing  Service Industry ("EMSI"),  growth in communication  technologies
will  continue to generate  new  products  that will help  generate  growth from
markets outside the computer  industry.  In addition to growth directly relating
to the  electronics  industry,  the Company  believes  that  further  growth for
contract  manufacturing  will  come from an  increasing  need for OEMs to reduce
product time to market and to manage more complex product  designs,  inventories
and component procurements.

                                       3
<PAGE>


Manufacturing Services

         Elamex is a contract  manufacturer in the electronics industry, as well
as the electromechanical, avionics and medical industries. Elamex's work for the
electronics  and avionics  industries  includes the assembly of printed  circuit
boards with SMT,  SMT on flexible  boards,  and the  assembly and testing of SMT
boards and other  technologies.  The  Company's  work for the  electromechanical
industry  includes the  manufacture  of such  electrical  devices as switchboard
components,  outlet strips, smoke detectors,  automatic timer switches and other
devices that are not based on complex electronic  circuitry,  fiber optic cables
and  connectors,  and the  refurbishment  of  telephones.  Elamex's work for the
medical industry includes assembly surgery sets and medical products  packaging.
Many of these operations are conducted in special clean rooms.

         Approximately  28% of  Elamex's  net  sales in 1997 were  derived  from
assembly projects, in which Elamex provides  manufacturing  services,  while the
customer retains responsibility for parts procurement and, in some cases, direct
management of Elamex's employees.  Turnkey projects,  which accounted for 72% of
Elamex's  net sales during 1997,  are those in which Elamex is  responsible  for
manufacturing and delivering the completed product. All turnkey projects involve
manufacturing  and  assembly  services  and  materials  procurement.   In  these
projects,  Elamex buys raw materials from U.S. and worldwide suppliers, and then
performs the required  assembly work using those raw materials.  The majority of
the finished  products are returned to the United States and the import duty, if
any, is paid only on the value added during  assembly  plus the value of foreign
content.  When finished  products are delivered  from the United States to other
countries,  the  customer  pays the import duty,  if any,  imposed by such other
country.  Under The North America Free Trade Agreement ("NAFTA"),  most products
produced by Elamex are duty-free into the United States.

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

         Approximately  73% of Elamex's net sales for 1997 were derived from the
manufacture  of electronic  products.  Over the last three  decades,  continuous
advances  have  been  made  in  the  design  of  electronic  components  and  in
interconnection  technologies.  Prior to the 1980s,  manufacturers developed the

                                       4
<PAGE>


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

         Elamex  customizes  its assembly lines for each customer by assigning a
separate workforce, team leaders,  supervisors,  production engineers,  managers
and quality  control  personnel to each project.  Elamex analyzes the customer's
proposed production process,  including the original process if applicable,  and
proposes  improvements  whenever possible.  Assembly lines are customized to the
customer's needs before  manufacturing  begins.  Elamex and the customer jointly
determine the size of an assembly line. The customer  generally provides some of
the equipment,  particularly for specialized testing and other customer-specific
work, while Elamex provides the assembly  services and generic  equipment.  Some
customers  provide  materials  used  in the  production  process,  while  others
contract  for  turnkey  projects  involving  procurement.   Final  manufacturing
inspection  may be  performed at the  customer's  plant or by Elamex in "dock to
stock" arrangements.  Additionally,  many products manufactured by Elamex are in
the early stages of their product life cycle and, therefore, may require ongoing
design or engineering  changes.  Responsiveness to customers,  particularly with
respect to engineering  changes once  manufacturing has commenced,  is a crucial
component of Elamex's manufacturing approach.

         The  Company's  business  is  materially  dependent  on its  ability to
manufacture  products of uniformly  high  quality.  The Company has  established
quality processes under International Standards Organization  certification 9002
("ISO  9002"),  is Quality  Standard  9000 ("QS 9000")  compliant,  and military
specifications  of  the  U.S.  Department  of  Defense  and  Good  Manufacturing
Practices certifications.  Where appropriate,  Elamex also works to achieve this
objective using specialized "pick and place" automated  equipment.  To implement
and maintain these quality goals,  Elamex employs a large staff of  professional
engineers.

Customers and Markets

         The  Company  has  attempted  to  balance  its  marketing  efforts  and
manufacturing  services between OEMs of industrial and professional products and
those of consumer electronics products.  Elamex customers are a diverse group of
United States,  Canadian and  multinational  OEMs.  Contracts with Elamex's five
largest customers for 1997 accounted for approximately 58% of Elamex's committed
contract revenues. Approximately 19%, 14% and 10% of the Company's net sales for
1997 were  derived  from  sales to a  manufacturer  of home  appliance  consumer
products, a manufacturer of PBX telecommunication equipment,  switchboards,  and
fiber-optic  cable  connections,   and  a  manufacturer  of  consumer  products,
respectively.  Approximately 18%, 16% and 14% of the Company's net sales in 1996
were derived from sales to a manufacturer of home appliance consumer products, a
flexible and rigid circuit  boards/component  assembly  customer,  and a printed
circuit boards & cables OEM, respectively. Approximately 23%, 18% and 16% of the

                                       5
<PAGE>


Company's  net sales for 1995 were  derived  from sales to, a flexible and rigid
circuit  boards/component  assembly  customer,  a manufacturer of home appliance
consumer  products,  and a printed  circuit  boards & cables OEM,  respectively.
Certain of the Company's  contracts contain pricing mechanisms that are based on
the Company's costs.

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

         The U.S.  Department of Defense has qualified Elamex for  manufacturing
military  and  aerospace  specification  products.  To  serve a  larger  base of
customers in Europe as well as in the United  States,  Elamex has been certified
under ISO 9002, one of the highest total quality control standards in the world,
and is QS 9000 compliant at all of its facilities where Elamex manages the labor
force.

Sales and Marketing

         The Company has pursued the  diversification of its market segments and
customer  base and sought  relationships  with  leading  OEMs in the  markets it
serves.  The  Company's  principal  sources of new business  originate  from the
growth of existing  relationships,  referrals  and direct sales  through  senior
management  and  direct  sales  personnel.  Sales  personnel,  supported  by the
executive staff,  identify and attempt to develop  relationships  with potential
OEM customers who meet a certain profile,  which includes  financial  stability,
industry  leadership,  need for  technology and  assembly-driven  manufacturing,
anticipated unit volume growth and long-term relationship potential. Elamex also
conducts seminars to introduce  potential  customers to the benefits of contract
manufacturing in Mexico.  In addition to the efforts of its sales force,  Elamex
may pursue the growth through selective acquisitions.

Competition

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

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


                                       6
<PAGE>


Effect of NAFTA

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

Backlog

         The  Company's  order  backlog at December  31, 1997 was  approximately
$187.9 million,  compared to order backlog at December 31, 1996 of approximately
$157.9  million.  Backlog  consists of firm  purchase  orders,  commitments  and
forecasts  which are to be filled  within  the next 12  months.  However,  since
orders and commitments may be rescheduled, increased or canceled, backlog is not
necessarily a meaningful indicator of future financial performance.

Suppliers

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

Raw Materials

         Raw materials consist of electronic  commodities,  including integrated
circuits, transistors and other solid state elements, printed circuit boards and
other circuit elements,  as well as components for electromechanical and medical
assembly,  many of which are provided by customers.  Virtually all raw materials
supplied  by Elamex are  purchased  in Asia and the U.S.,  with the larger  part
coming from the U.S. Elamex believes that it is not materially  dependent on any
one supplier or group of  suppliers;  it purchased  less than 5% of its supplies
from its largest vendor in 1997.  Certain  vendors operate at full capacity from
time to time and allocate their products among  customers.  Elamex believes that
larger companies generally command larger allocations;  however,  because of its
large-scale purchases of these products,  Elamex also believes that it sometimes
has greater bargaining power for particular  products than its customers do even
though it may be smaller.



                                       7
<PAGE>


Employees

         Elamex had 5,251  employees  at December  31,  1997,  of which 256 were
employees  subcontracted from Elamex de Torreon.  There are 21 active facilities
currently used by Elamex in its manufacturing operations.  Three hundred seventy
nine  employees  in  four  facilities  are  covered  by  collective   bargaining
agreements;  all other  employees  of the  Company  at the  remaining  seventeen
facilities are not.  Elamex believes that its labor relations are good in all of
its facilities.

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

Environmental Compliance

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

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

Exchange Rates

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

                                       8
<PAGE>



<TABLE>
<CAPTION>
       YEAR ENDED DECEMBER 31,              HIGH(1)        LOW(1)    AVERAGE (2)  PERIOD END(1)
       -----------------------              -------        ------    -----------  ------------
<S>                                         <C>           <C>           <C>           <C>
1990                                        Ps$2.95       Ps$2.68       Ps$2.84       Ps$2.95
1991                                           3.07          2.95          3.01          3.07
1992                                           3.14          3.06          3.08          3.12
1993                                           3.16          3.02          3.11          3.11
1994                                           5.00          3.11          3.35          5.00
1995                                           8.05          5.00          6.44          7.69
1996                                           8.05          7.33          7.60          7.86
1997                                           8.24          7.78          7.93          8.13
1998 (through February 27)                     8.56          8.11          8.13          8.56
------------------
<FN>
SOURCE:  Ciemex-Wefa Group
(1)      Monthly rates at market close.
(2)      Average of monthly rates.
</FN>
</TABLE>

Item 2.  Properties

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


<TABLE>
<CAPTION>

    LOCATION            SQUARE FEET                       ACTIVITY                                    LEASED/OWNED
    --------            -----------                       --------                                    ------------
<S>                     <C>             <C>                                                           <C>
Cd. Juarez              28,311          Industrial Bag, Packaging Material Manufacturing              Leased
Cd. Juarez              80,280          Electronic Equipment Assembly and Electronic Circuit Mfg.     Leased(1)
Cd. Juarez              90,848          Electronic Circuit Manufacturing                              Leased
Cd. Juarez              45,351          Battery Chargers                                              Leased
Cd. Juarez              58,841          Medical Product Assembly                                      Owned(2)
Cd. Juarez              50,000          Medical Product Assembly                                      Owned
Cd. Juarez              43,034          Avionics Product Assembly                                     Owned
Cd. Juarez              64,866          Electromechanical Product Assembly                            Leased(1)
Cd. Juarez              54,754          Auto Part Assembly                                            Leased(3)
Cd. Juarez              67,038          Electronic Equipment Assembly                                 Owned
Cd. Juarez              40,263          Telephone Repair                                              Leased
Cd. Juarez              94,145          Plastic Injection Molding                                     Leased
Chihuahua               47,834          Smoke Alarm Assembly                                          Owned(4)
Delicias                54,507          Electronic Circuit Manufacturing                              Leased
Nuevo Laredo            60,658          Telephone Repair and Auto Part Assembly                       Owned
Nuevo Laredo            43,917          Telephone Repair                                              Leased(1)
Guadalajara             10,000          Testing of Electronic Semiconductors                          Leased
Torreon                 55,845          Assembly of Shotgun Parts                                     Owned
Tijuana                 55,647          Electromechanical Product Assembly                            Leased
Tijuana                 13,778          Electromechanical Product Assembly                            Leased
Monterrey               22,098          Electromechanical Product Assembly                            Leased
Praxedis                11,517          Electromechanical Product Assembly                            Leased
                  =============
   Total             1,093,532
                  =============
------------------
<FN>
(1) Leased  from a company  controlled  by  Federico  Barrio,  a Director of the
 Company.
(2) A  customer  who  leases  this  facility  has an  option  under the lease to
 purchase the facility at fair market value.
(3) Facility currently being sublet to a third party.
(4) Facility currently leased to a third party.
</FN>
</TABLE>


                                       9
<PAGE>


Item 3.  Legal Proceedings

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

Item 4.  Submission of Matters to a Vote of Security Holders

     On April 24,  1997 the  stockholders  of Elamex,  S.A. de C.V. at a general
ordinary  annual  stockholders  meeting  approved:  (i) the  business  report on
Elamex,  S.A. de C.V. for 1996 fiscal  year;  (ii) the  presentation  of audited
financial  statements  as of December  31, 1996 and the report by the  statutory
auditor;  (iii) the proposal for application of Net Income; (iv) the election of
Board of Directors, Secretary and Statutory Auditor; and (v) the ratification of
the appointment of KPMG Peat Marwick LLP as independent auditors of Elamex, S.A.
de C.V. for the fiscal year ending December 31, 1997.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         The Company's Class I Common Stock,  no par value ("Common  Stock") has
been traded on The NASDAQ  National  Market  under  symbol ELAMF since March 20,
1996. The following  table sets forth,  for the period stated,  the high and low
closing  sales  prices for the Common  Stock as reported on the NASDAQ  National
Market Systems.
<TABLE>
<CAPTION>
                                             CLOSING SALES PRICE
PERIOD                                       HIGH           LOW
<S>                                         <C>             <C>
March 20, 1996 - March 31, 1996              9  1/8         8 7/8
April 1, 1996 - June 30, 1996               10  3/8         8 7/8
July 1, 1996 - September 30, 1996            9  7/8         8
October 1, 1996 - December 31, 1996         10  1/2         8 7/8


January 1, 1997 - March 31, 1997            11  3/4         9
April 1, 1997 - June 30, 1997                9  3/4         7 1/2
July 1, 1997 - September 30, 1997           12  1/4         9 1/2
October 1, 1997 - December 31, 1997         11  3/8         7 1/2
</TABLE>

         The Company currently intends to follow a policy of retaining earnings,
if any,  for use in the  development  of  business  and to finance  growth.  The
Company has never paid cash dividends on its Common Stock and has no plans to do
so in the  foreseeable  future.  Certain of the  Company's  existing bank credit
lines  impose  limitations  on the  amount of  dividends  that  Elamex  may pay.
Specifically,  one limits the amount of dividends that may be declared,  without
the consent of the  lender,  to the prior  year's net  profits.  Another  credit
agreement permits payment of dividends only if the Company has complied with all
of its covenants and other obligations under such credit agreement.  As of March
13, 1998, there were  approximately  1,009  beneficial  holders of the Company's
Common Stock.

                                       10
<PAGE>


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

TAXATION OF DIVIDENDS

United States Federal Income Taxes

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

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

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

         Distributions of additional  Common Stock to United States holders with
respect to their  pre-distribution  holdings of Common Stock (old Common  Stock)
that are  made as part of a pro rata  distribution  to all  stockholders  of the
Company  generally  will not be subject to U.S.  federal income tax (except with
respect to cash  received in lieu of  fractional  shares of Common  Stock).  The
basis of the Common  Stock so received  will be  determined  by  allocating  the
United States  holders'  adjusted  basis in the old Common Stock between the old
Common Stock and the Common Stock so received.

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

Mexican Income Taxes

         Mexican  income tax law  requires  that Mexican  corporations  must pay
income tax on taxable  income for each fiscal year.  Mexican  corporations  must
maintain  an account  called the Cuenta de Utilidad  Fiscal Neta or  "previously
taxed net earnings account" ("CUFIN",  from the Spanish initials).  In its CUFIN
the Mexican  corporation  records the balance of the tax profits  from  previous

                                       11
<PAGE>

years,  on which income tax has already been paid plus  dividends  received from
Mexican  corporations.The  CUFIN account  balance is subject to restatement  for
inflation.

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

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

Item 6.  Selected Financial Data

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

         The following table sets forth selected consolidated  financial data of
the Company as of and for each of the years ended December 31, 1993, 1994, 1995,
1996, and 1997.  Each of the Company's  fiscal quarters is comprised of 13 weeks
and ends on a Sunday,  except for the first quarter,  which starts on January 1,
and the fourth  quarter  which ends on December  31. This table is  qualified by
reference to and should be read in conjunction with the  Consolidated  Financial
Statements, related Notes thereto and other financial data included elsewhere in
this Form 10-K.

         The selected  consolidated  financial  data  presented  below under the
captions  "Income  Statement Data" for each of the years in the five-year period
ended December 31, 1997 and "Balance Sheet Data" as of December 31, 1993,  1994,
1995,  1996,  and 1997,  set forth below,  have been  derived from  consolidated
financial  statements of Elamex, S.A. de C.V. and subsidiaries,  which financial
statements  have been audited by KPMG Peat Marwick  LLP,  independent  certified
public  accountants.  The consolidated  financial  statements as of December 31,
1997,  and  1996,  and for each of the  years  in the  three-year  period  ended
December 31, 1997, and the report thereon,  are included  elsewhere in this Form
10-K.


                                       12
<PAGE>


         These historical results are not necessarily  indicative of the results
to be expected in the future.

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                        1993         1994         1995         1996         1997
                                                               (In thousands, except per share amounts)
<S>                                                  <C>          <C>          <C>         <C>          <C>
INCOME STATEMENT DATA:
Net sales.....................................       $70,244      $84,816      $97,544     $118,919     $131,772
Gross profit..................................         9,524       10,210       14,972       18,683       17,683
Operating income..............................         2,617        2,748        8,788       10,366        8,956
Other income (expense)........................         (821)        (460)        (852)          136        1,326
Income tax provision (1)......................           622          743        1,727        2,575        2,898
Net income....................................        $1,173       $1,545       $6,209       $7,927       $7,383
Net income (loss) per share (2)...............       $(0.03)        $0.23        $1.20        $1.15        $1.00
EBITDA (4)....................................         4,613        4,703       11,206       13,315       13,965
BALANCE SHEET DATA:
Current assets................................       $19,659      $23,360      $30,586      $38,955      $45,399
Property, plan and equipment, net.............        22,582       22,684       24,023       28,611       28,503
Total assets..................................        43,259       46,783       55,110       67,976       74,645
Short-debt and current maturities of
long-term debt................................        12,017        2,830        5,257          564          496
Long-term debt excluding  current maturities..         8,603       16,176       15,212          923          654
Total stockholders' equity....................       $13,336      $14,495      $23,196      $49,864      $57,032
----------------------
<FN>
(1)  The 1993 amount  includes the  cumulative  effect of a change in accounting
     principle  amounting  to  $375,000  resulting  from  the  adoption  of  the
     Financial Accounting Standards Board's Statement of Financial Standards No.
     109 Accounting For Income Taxes ("FAS 109") in 1993.
(2)  1997 and 1996 net  income  per share of  Common  Stock  was  calculated  by
     dividing  net  income by the  weighted  average  number of shares of common
     stock  outstanding  which was  approximately  7.4  million  and 6.9 million
     shares,  respectively.  1995 and  previous  years'  net income per share of
     Common Stock was  calculated by dividing net income by the number of common
     shares  outstanding as of the Effective  Date,  5,000,000,  after deducting
     amounts attributable to the rights of senior securities.
(3)  Does not include redeemable Preferred Stock and redeemable Common Stock
     as of December 31, 1993, and 1994 of $3,406 and $3,792, respectively.
(4)  EDITDA as defined under "Liquidity and Capital Resources."
</FN>
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation

Introduction

General

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

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


                                       13
<PAGE>

Exchange Rates; Inflation

         The Company's  results of operations are generally  affected by changes
in the exchange rate between Pesos and U.S.  dollars as follows:  In the case of

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

         On October 26, 1996,  the Mexican  government  signed a pact with labor
and  business  representatives  called the  Alliance  for  Economic  Growth (the
"Alliance").  The Alliance  defines a  macroeconomic  policy designed to support
Mexico's  economic  recovery and promote future growth.  By its provisions,  the
minimum wage rate was to increase by 17% effective December 1996. Also, over the
12 months following execution of the Alliance,  utility charges were to increase
an average of approximately  20%. Under the Alliance the Mexican  government has
attempted  to boost the economy by  providing  tax  incentives  for new business
investments,  while utilizing wage and price controls to contain  inflation.  As
part of the Alliance the Mexican  government has committed to maintaining a free
flotation system for the Peso in the international currency markets.
The Alliance also calls for development of social and rural programs.

         Throughout the course of 1997, the pact made in the "Alliance" has been
honored.  Utility  charges  increased  in 1997 by an average of 16%. The minimum
wage was  increased  by 14.27% on January 1, 1998 as  published  on December 23,
1997 in the "Official Daily Gazette".

Certain Accounting Policies

         Direct  manufacturing  contract costs related to initial  manufacturing
layout  and setup  for new  contracts  ("Initial  Manufacturing  Expenses")  are
expensed in the current period when such costs are not  considered  significant.
When such costs are considered  significant,  the portion of such costs expended
for capital  equipment are capitalized and are amortized using the straight-line
method during the length of the applicable contract.  No manufacturing  contract
costs have been  capitalized  for the year ended  December 31, 1997 and 1996. In
addition,  labor  costs  required  to  achieve  normal  productivity  levels are
expensed in the period incurred.  Commencing in 1995, the Company also adopted a
policy of not  engaging in futures  contracts  with the purpose of hedging  U.S.
dollar/Peso revenues or costs, with the exception of regular treasury operations
to cover operating requirements for up to 30 days.

Statutory Employee Profit Sharing

         All Mexican companies are required to pay their employees,  in addition
to their agreed  compensation  benefits,  profit sharing in an aggregate  amount
equal to 10% of net income,  calculated for employee profit sharing purposes, of
the individual  corporation employing such employees.  All of Elamex's employees
are  employed  by its  subsidiaries,  each  of  which  pays  profit  sharing  in
accordance  with its  respective  net income for profit  sharing  purposes.  Tax
losses do not affect employee profit sharing.  Statutory employee profit sharing
expense is reflected in the Company's cost of goods sold and selling, general

                                       14
<PAGE>



and  administrative  expenses,  depending  upon the function of the employees to
whom  profit  sharing   payments  are  made.  The  Company's  net  income  on  a
consolidated  basis as shown in the Consolidated  Financial  Statements is not a
meaningful  indication  of net income of the Company's  subsidiaries  for profit
sharing purposes or of the amount of employee profit sharing.

         Statutory  employee  profit sharing was $38,410 or an effective rate of
0.37% of income before taxes, for the year ended December 31, 1997,  compared to
$159,731 or an  effective  rate of 1.52% of income  before  taxes,  for the year
ended  December 31, 1996 and  $120,474 or an  effective  rate of 1.52% of income
before taxes, for the year ended December 31, 1995.

RESULTS OF OPERATIONS

GENERAL

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

<TABLE>
<CAPTION>
                                                   PERCENTAGE OF NET SALES
                                                   YEAR ENDED DECEMBER 31,

                                                  1995      1996       1997
                                                  ----      ----       ----
                                                   %         %          %
<S>                                              <C>       <C>        <C>
Net sales                                        100.0     100.0      100.0
Cost of sales                                     84.7      84.3       86.6
Gross profit                                      15.3      15.7       13.4
Selling, general and administrative                6.3       7.0        6.6
expenses
Operating income                                   9.0       8.7        6.8
Other income (expense)                           (0.9)       0.1        1.0
Income before taxes                                8.1       8.8        7.8
Income tax provision                               1.8       2.2        2.2
Net income                                         6.4       6.7        5.6
</TABLE>

1997 COMPARED TO 1996

NET SALES  increased 11% to $131.8  million in 1997 from $118.9 million in 1996.
The increase was attributable to increased dollar volume of assembly and turnkey
sales to existing customers, the purchase of Eurotech (see "Acquisitions"), and,
to a lesser extent, an expansion of business from new customers in 1997.

GROSS  PROFIT  decreased  by $1.0  million,  or 5.4%,  to $17.7  million in 1997
compared to $18.7  million for the prior year.  Gross profit as a percentage  of
net sales  ("gross  margin")  decreased  to 13.4% in 1997 from 15.7% in 1996 due
primarily to general Mexican inflation  pressures and Peso  appreciation  during
the first six months of 1997.

SELLING,  GENERAL AND ADMINISTRATIVE EXPENSES increased 5.0% to $8.7 million, or
6.6% of net sales,  for the year ended  December 31,  1997,  as compared to $8.3
million,  or 7.0% of net  sales,  for the year ended  December  31,  1996.  This
increase resulted in part from an increase in the  administrative  manufacturing
infrastructure and wage inflation without peso depreciation.

                                       15
<PAGE>


         Of the  Company's  aggregate  cost of sales and  selling,  general  and
administrative  expenses in 1997,  approximately  28.1% were  incurred in Pesos,
compared to approximately 30.3% in 1996.

OPERATING  INCOME  decreased  by 13.6% to $9.0  million,  or 6.8% of net  sales,
during the year ended  December  31,  1997 from  $10.4  million,  or 8.7% of net
sales,  during  the year  ended  December  31,  1996,  as a result  of the above
factors. The most significant of which were inflationary  pressures without peso
depreciation  as  described  under  "Gross  Profit"  and  "Selling,  General and
Administrative Expenses" above.

OTHER INCOME (EXPENSE).  Interest and other expenses  increased to $1.3 million,
or 1.0% of net sales, for the year ended December 31, 1997, from $0.1 million or
0.1% of net sales, for the year ended December 31, 1996. This increase  resulted
principally  from the interest  gained due to excess of cash flows,  decrease of
expense from debt, and a gain of $0.5 million from the sale of a building.

1996 COMPARED TO 1995

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

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

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

         Of the  Company's  aggregate  cost of sales and  selling,  general  and
administrative  expenses  in 1996,  approximately  30.3% was  incurred in Pesos,
compared  to  approximately  29.7%  in  1995.  This  decrease  was  due  to  the
devaluation  of the Peso  during  1995 and the  change in sales mix  during  the
period.

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

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


                                       16
<PAGE>


INCOME TAX; ASSETS TAX

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

         Previously  paid assets tax,  adjusted  for  inflation,  may be used to
offset  income  taxes that  exceed the assets tax due for the year for ten years
following the payment of the tax. In addition, the Mexican company that incurred
the losses can utilize tax net operating loss carryforwards.  The amounts of the
Company's  asset tax and net operating loss  carryforwards  at December 31, 1997
and 1996 are set forth in Note 7 to the Consolidated Financial Statements.

         The Mexican asset tax is a 1.8% tax on assets,  computed by recognizing
certain  effects of  inflation,  and by reducing the asset base by the amount of
certain  liabilities.  The asset tax operates like an alternative minimum tax in
the U.S.

         The  Company's  effective  tax rate was  13.8% in 1993,  32.5% in 1994,
21.8% in 1995, 24.5% in 1996 and 28.2% in 1997.

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

LIQUIDITY AND CAPITAL RESOURCES

         The  Company's  working  capital  (defined as inventory  plus trade and
other accounts receivable,  minus accounts payable) needs remained substantially
leveled for the year. At December 31, 1997,  the Company had working  capital of
$24.6 million  compared to $23.3 million at December 31, 1996. This increase was
due to a net effect on reduction in  inventories  and accounts  payable,  and an
increase in receivables associated with an increase in sales.

         For the year ended December 31, 1997, the company had net cash provided
by operating  activities of $13.7  million which  consists of net income of $7.4
million plus  depreciation  and  amortization  of $4.1 million,  deferred income
taxes of $2.8 million,  decrease of  inventories of $3.7 million and accrued and
other  liabilities of $1.6 million  offset by a decrease in accounts  payable of
$4.5 million and other miscellaneous reductions.

         In  1997  EBITDA  was  $13.9  or  10.6%  of  net  sales,   and  capital
expenditures were $7.8 million. EBITDA in 1997 increased 4.5% over 1996. In 1996
EBITDA was $13.3 million.  EBITDA is defined by the Company as net income before
interest,  income taxes,  depreciation and amortization.  EBITDA is presented in


                                       17
<PAGE>

this  discussion  of  liquidity  and  capital  resource  because  it is a widely
accepted financial indicator of the Company's ability to incur and service debt.
However,  EBITDA should not be  considered in isolation as a substitute  for net
income  or cash  flow  data  prepared  in  accordance  with  generally  accepted
accounting principles or as measure of the Company's profitability or liquidity.
In  addition,  this  measure of EBITDA  might not be  comparable  to measures as
defined and reported by other companies.

The Company had the  following  lines of credit and  outstanding  borrowings  at
December 31, 1997:

<TABLE>
<CAPTION>
                                                                Amount       Interest
Lender of Class of Securities              Type               Outstanding      Rate         Maturity Date
-----------------------------              ----               -----------      ----         -------------
<S>                            <C>                           <C>               <C>      <C>
Comerica Bank                  $10 million Line of Credit          -           9.00%    May 1, 1999
Bank of America                $10 million Line of Credit          -           8.81%    December 15, 1999
Confia, S.A.                   $2 million Line of Credit           -           9.31%    June 25, 1998
Norwest Bank El Paso           $5 million Line of Credit           -           8.25%    December 6, 2002
AT&T Capital                   Capital Lease                       $245,825    3.50%    January 9, 2000
GE Financial                   Capital Lease                        904,827    7.92%    December 15, 1999
                                                            ----------------
       Total                                                     $1,150,652
                                                            ================
</TABLE>

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

         The Company has entered into a certain  capital  lease  transaction  to
lease  machinery  and  equipment  with an original  cost of  approximately  $1.7
million and the related  accumulated  depreciation  of $280,000 at December  31,
1997. The future minimum  rental  payments under this equipment  lease and other
capital leases are $553,626 in 1998,  $578,263 in 1999 and $103,672 in 2000. See
Note  6  to  the  Consolidated  Financial  Statements  for  further  information
regarding operating lease commitments.

ACQUISITIONS

         On July 1, 1997,  the Company  completed the  acquisition  of a Mexican
plastic molding and metal stamping plant based in Cd. Juarez, Mexico, through an
asset based transaction.  This acquisition expands the Company's plastic molding
injection   capacity  and  adds  metal   stamping   and  powder  coat   painting
capabilities.  The plastic operation  generated sales of $3.1 million during the
six months ended December 31, 1997.

         As mentioned  in the "Notes to  Consolidated  Financial  Statements,"in
January 1998,  the Company  agreed to purchase  2,525,000  shares of Series A 9%
Cumulative  Convertible  Preferred Stock  ("Preferred  Stock") of Optimag,  Inc.
("Optimag"),   a  California   corporation.   Optimag  was  formed  to  develop,
manufacture,   and  market  optical  inspection  stations  and  electrical  test
equipment to  companies  that produce  disk drive  heads,  magnetic  media,  and
optical  heads and optical  media.  The company  expects to advance $2.5 million

                                       18
<PAGE>



during 1998 by acquiring  Preferred  Stock.  Approximately  $1.3 million will be
expensed  during fiscal year 1998 as research and  development.  Elamex  expects
Optimag to have profitable operations in 1999.

MAJOR CUSTOMERS

         During  the  thirteen  weeks  ended  on  September  28,  1997  the last
significant shipments were made to two of the Company's major customers. For the
year ended 1996,  these customers  accounted for 16% and 14% of total sales. For
the year ended 1997,  sales to these  customers  represented  9% and 6% of total
sales.  The reduction of revenue from these two customers was compensated by the
start up of new projects and increased sales to existing customers.

YEAR 2000 ISSUE

         The  Company  has  conducted  a  comprehensive  review of its  computer
systems to identify  the systems that could be affected by the "Year 2000" issue
and is developing  an  implementation  plan to resolve the issue.  The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Year 2000 is a problem if the Company's
programs that have  time-sensitive  software  recognizes a date using "00"as the
year 1900 rather then the year 2000. This could result in a major system failure
or  miscalculations.  The Company presently believes that, with modifications to
existing software and converting to new software,  that currently is in process,
the Year 2000 problem  will not pose  significant  operational  problems for the
Company's  computer  systems as so  modified  and  converted.  The  Company  has
purchased  and is in the  process of  implementing  a new  Enterprises  Resource
Planning  software by JDEdwards  which  encompasses  the Finance,  Distribution,
Manufacturing  and  Advanced   Scheduling/Planning  areas  which  is  Year  2000
compliant.  This system was purchased in order to enhance the performance of the
previously  mentioned areas, as well as, the information provided for managerial
decisions and customer satisfaction.

FORWARD LOOKING COMMENTS

         This form 10-K includes  forward-looking  statements that involve risks
and  uncertainties,  including,  but not limited to, risks  associated  with the
company's  future  growth  and  profitability,  the  ability  of the  Company to
continue to increase  sales to existing  customers  and to new customers and the
effects of competitive and general economic conditions.


                                       19
<PAGE>



Item 8. Financial Statements and Supplementary Data


INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of Elamex, S. A. de
C.V.  and  subsidiaries  as of  December  31,  1997 and  1996,  and the  related
consolidated  statements of earnings,  stockholders'  equity, and cash flows for
each of the years in the  three-year  period  ended  December  31,  1997.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Elamex, S.A. de C.V.
and  subsidiaries  as of December  31,  1997 and 1996,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1997, in conformity  with  accounting  principles  generally
accepted in the United States of America.



                              KPMG Peat Marwick LLP


El Paso, Texas
February 25, 1998


                                       20
<PAGE>



<TABLE>
<CAPTION>

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

                           Consolidated Balance Sheets
                                (In U.S. Dollars)

                                                                                           December 31,

                         Assets                                                       1997                1996
                                                                                      ----                ----

Current assets:
<S>                                                                             <C>                    <C>
    Cash and cash equivalents                                                   $  13,597,581          6,269,825
    Receivables (note 5):
       Trade accounts, less allowance for doubtful accounts
          of $450,480 in 1997 and $525,029 in 1996                                 14,343,265         13,944,948
       Other receivables, net                                                       1,872,747          2,047,019
                                                                                  -----------        -----------
          Total receivables                                                        16,216,012         15,991,967
                                                                                  -----------        -----------
    Investment security                                                             2,080,000            -
    Inventories, net (note 3)                                                      12,696,705         16,200,149
    Prepaid expenses                                                                  809,109            492,933
                                                                                  -----------        -----------
              Total current assets                                                 45,399,407         38,954,874

Property, plant and equipment, net (notes 4 and 5)                                 28,503,121         28,610,719
Other assets, net                                                                     742,644            410,460
                                                                                  -----------        -----------
                                                                                $  74,645,172         67,976,053
                                                                                   ==========         ==========

Liabilities and Stockholders' Equity

Current liabilities:
    Accounts payable                                                            $   4,337,223          8,886,613
    Accrued expenses                                                                3,854,638          2,292,682
    Current obligations of capital leases (note 6)                                    496,190            564,216
    Taxes payable                                                                   1,306,126          1,286,132
    Deferred income taxes (note 7)                                                  3,581,899          1,379,783
    Due to related parties (note 12)                                                   45,480             86,743
                                                                                  -----------        -----------

              Total current liabilities                                            13,621,556         14,496,169

Capital lease obligations, excluding current obligations (note 6)                     654,462            923,273
Other liabilities                                                                     258,988            212,403
Deferred income taxes (note 7)                                                      3,078,486          2,480,399
                                                                                  -----------        -----------

              Total liabilities                                                    17,613,492         18,112,244
                                                                                  -----------        -----------

Stockholders' equity (notes 8 and 9):
    Preferred stock, authorized 50,000,000 shares, none
       issued or outstanding                                                          -                  -
    Common stock, authorized 22,400,000 shares, 7,400,000
       issued and, 7,381,500 and 7,400,000 shares outstanding
       at December 31, 1997 and 1996, respectively                                 35,010,468         35,010,468
    Retained earnings                                                              22,236,212         14,853,341
    Treasury stock, 18,500 shares at cost                                            (215,000)             -
                                                                                  -----------        -----------

              Total stockholders' equity                                           57,031,680         49,863,809
                                                                                  -----------        -----------

Commitments and contingencies (notes 6, 9 and 13)                                     -                  -
                                                                                $  74,645,172         67,976,053
                                                                                   ==========         ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


                                       21
<PAGE>



<TABLE>
<CAPTION>

                      ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
                       Consolidated Statements of Earnings
                               (In U. S. Dollars)

                                                                         Years ended December 31,

                                                                    1997               1996              1995
<S>                                                          <C>                    <C>               <C>
Net sales                                                    $  131,771,731         118,918,913       97,543,581
Cost of sales                                                   114,088,518         100,236,384       82,571,960
                                                                -----------         -----------       ----------
       Gross profit                                              17,683,213          18,682,529       14,971,621
                                                               ------------        ------------       ----------

Operating expenses:
    General and administrative                                    7,977,783           7,630,870        5,560,356
    Selling                                                         749,739             685,544          622,811
                                                             --------------      --------------     ------------
       Total operating expenses                                   8,727,522           8,316,414        6,183,167
                                                              -------------       -------------      -----------
       Operating income                                           8,955,691          10,366,115        8,788,454
                                                              -------------        ------------      -----------

Other income (expense):
    Interest income                                                 680,673             255,362          965,341
    Interest expense                                               (223,207)           (944,003)      (2,359,451)
    Other, net                                                      868,051             825,076          541,799
                                                              -------------        ------------     ------------

       Total other income (expense)                               1,325,517             136,435         (852,311)
                                                              -------------        ------------     ------------

       Income before income taxes                                10,281,208          10,502,550        7,936,143

    Income tax provision (note 7)                                 2,898,337           2,575,079        1,727,000
                                                              -------------       -------------      -----------

       Net income                                            $    7,382,871           7,927,471        6,209,143
                                                              =============       =============      ===========


       Net income per common share                           $         1.00                1.15             1.20

Weighted average shares outstanding                               7,395,532           6,880,548        5,000,000




<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


                                       22
<PAGE>

<TABLE>
<CAPTION>


                       ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                               (In U. S. Dollars)


                                                                                                            Total
                                         Shares           Common           Retained   Treasury          Stockholders'
                                      Outstanding          Stock           Earnings     Stock               Equity

<S>                                    <C>             <C>                 <C>            <C>            <C>
Balances at December 31,
    1994                                4,240,796      $ 13,552,031          943,165       -             14,495,196

Net income                                -                 -              6,209,143       -              6,209,143

Cash capital contribution                 -               2,718,428          -             -              2,718,428
Redemption of common
    stock                              (4,240,796)      (16,270,459)         -             -            (16,270,459)
Issuance of common stock                5,000,000        16,270,459          -             -             16,270,459
Accretion of redemption
    premium on redeemable
    common stock                          -                 -               (226,438)      -               (226,438)
                                       -----------      -----------       ----------- ------------      ------------

Balances at December 31,
    1995                                5,000,000        16,270,459        6,925,870       -             23,196,329

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

Proceeds from sale of-
    common stock, net                   2,400,000        18,740,009           -            -             18,740,009
                                        ---------        ----------     ------------- ------------       ----------

Balances at December 31,
    1996                                7,400,000        35,010,468       14,853,341       -             49,863,809

Net income                                -                 -              7,382,871       -              7,382,871

Purchase of common stock                  (18,500)           -                 -          (215,000)        (215,000)
                                      -----------        ----------     ------------- ------------       -----------

Balances at December 31,
    1997                                7,381,500      $ 35,010,468       22,236,212      (215,000)      57,031,680
                                        =========        ==========       ==========  ============       ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


                                       23
<PAGE>



<TABLE>
<CAPTION>
                      Consolidated Statements of Cash Flows
                               (In U. S. Dollars)

                                                                                    Years ended December 31,

                                                                            1997             1996             1995
                                                                            ----             ----             ----

Cash flows provided by operating activities:
<S>                                                                  <C>                  <C>             <C>
    Net income                                                       $   7,382,871        7,927,471       6,209,143
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Depreciation and amortization                                  4,141,694        2,948,887       2,417,583
          Allowance for doubtful trade accounts receivable                 (74,549)         376,400         (45,103)
          Allowance for excess and obsolete inventory                     (180,178)         426,358         608,777
          Deferred income taxes, net                                     2,800,203        2,495,775       1,364,407
          Gain on disposal of property, plant and equipment               (330,711)        -                 (2,414)
          Change in assets and liabilities:
              Trade accounts receivable                                   (323,768)         539,370      (3,040,022)
              Other receivables                                            174,272       (1,215,279)        (63,526)
              Inventories                                                3,683,622       (5,268,325)     (3,093,396)
              Prepaid expenses                                            (316,176)         193,833        (438,953)
              Other assets                                                (332,184)        (224,071)         39,396
              Accounts payable                                          (4,549,390)       1,751,670         (99,007)
              Accrued expenses, related parties, and
                 taxes payable                                           1,540,687          901,562         723,468
              Other liabilities                                             46,585           30,439         (33,486)
                                                                     -------------    -------------     -----------

                    Net cash provided by operating
                        activities                                      13,662,978       10,884,090       4,546,867
                                                                        ----------       ----------       ---------

Cash flows used by investing activities:
    Purchase of investment security                                     (2,080,000)         -               -
    Purchase of property, plant and equipment                           (3,897,517)      (7,221,541)     (3,572,668)
    Purchase of plastics operating assets                               (3,868,903)         -               -
    Proceeds from disposal of property, plant and equipment              4,063,035           -               16,771
                                                                       ------------     -----------      -----------

                    Net cash used by investing activities               (5,783,385)      (7,221,541)     (3,555,897)
                                                                       -----------      -----------       ---------

Cash flows provided (used) by financing activities:
    Net increase (decrease) in notes payable                               -             (2,000,000)      2,000,000
    Proceeds from issuance of long-term debt                               -                -             8,394,341
    Repayment of long-term debt                                            -            (17,722,233)     (8,366,666)
    Principal repayments of capital lease obligations                     (620,158)        (565,555)       (564,988)
    Proceeds from financing of equipment through capital
       leases                                                              283,321        1,306,427         -
    Purchase of treasury stock                                            (215,000)         -               -
    Proceeds from capital contributions                                    -                -             2,718,428
    Redemption of redeemable common stock                                  -                -            (4,018,444)
    Proceeds from sale of stock, net                                       -             18,740,009           -
                                                                      -------------    ------------      ----------

                    Net cash provided (used) by financing
                        activities                                        (551,837)        (241,352)        162,671
                                                                      ------------     ------------      ----------

Net increase in cash and cash equivalents                                7,327,756        3,421,197       1,153,641

Cash and cash equivalents, beginning of year                             6,269,825        2,848,628       1,694,987
                                                                       -----------      -----------       ---------

Cash and cash equivalents, end of year                               $  13,597,581        6,269,825       2,848,628
                                                                        ==========      ===========       =========

<FN>

See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


                                       24
<PAGE>




                      ELAMEX, S.A. DE C.V. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          December 31, 1997 and 1996
                                (In U.S. Dollars)



(1)    Organization and Basis of Presentation

       Company Background

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

The  Company  is a  subsidiary  of Accel,  S.A.  de C.V.  ("Accel")  which  owns
     approximately 51% of the Company's issued and outstanding  common shares at
     December 31, 1997. As presented in these financial statements,  the Company
     was formed effective  October 1, 1995 (the "Effective  Date") by means of a
     merger transaction between the predecessor to Elamex and its parent holding
     company, Elamex Internacional,  S.A. de C.V. ("Internacional").  The merger
     was  accounted  for in a manner  similar to a pooling of  interests  due to
     common control of the merged entities.  As part of the merger  transaction,
     the stock of Elamex,  S.A.  de C.V.  was  canceled  and  replaced by shares
     issued to  Internacional's  stockholders  proportionate  to their ownership
     interest. Internacional's stock was subsequently canceled.

       Basis of Presentation

These financial statements and accompanying  notes are prepared in U.S. dollars,
     the functional and reporting currency of Elamex. The consolidated financial
     statements include the financial position at December 31, 1997 and 1996 and
     results of operations for the three years ended December 31, 1997 of:

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

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

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

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

These consolidated   financial   statements  are  prepared  in  accordance  with
     accounting  principles  generally accepted in the United States of America.
     All material intercompany transactions have been eliminated.


                                       25
<PAGE>



(1)    Organization and Basis of Presentation, Continued

       Management Estimates

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

(2)    Summary of Significant Accounting Policies

       Cash and Cash Equivalents

       The Company  considers all highly liquid debt instruments and investments
           purchased  with an original  maturity  of three  months or less to be
           cash   equivalents.   Cash  includes   deposits  in  Mexican   banks,
           denominated in Mexican pesos, of approximately $357,000 and $957,000,
           at December 31, 1997 and 1996, respectively, and deposits denominated
           in U.S. dollars of approximately  $595,000 and $2,801,000 at December
           31,  1997 and 1996,  respectively,  in U.S.  banks.  The  Company had
           approximately  $12,645,000  and  $2,512,000 of short-term  repurchase
           agreements,  denominated in U.S. dollars, deposited in U.S. banks and
           offshore  branches of Mexican  banks at  December  31, 1997 and 1996,
           respectively.

       Foreign Currency Translation

       The functional  currency of the Company is the U.S. dollar,  the currency
           of the primary  economic  environment in which the Company  operates.
           Gains and losses on foreign currency  transactions and translation of
           balance  sheet  amounts  are  reflected  in net  income.  Included in
           "other, net" on the accompanying  consolidated statements of earnings
           are foreign  exchange  gains  (losses) of  $(55,517),  $437,845,  and
           $238,545  for the years ended  December  31,  1997,  1996,  and 1995,
           respectively.  Assets and  liabilities of the Company are denominated
           in U.S.  dollars  except  for  certain  amounts as  indicated  below.
           Certain balance sheet amounts (primarily inventories, property, plant
           and equipment, accumulated depreciation, prepaid expenses, and common
           stock)  denominated in other than U.S.  dollars are translated at the
           rates in effect at the time the relevant transaction was recorded and
           all other assets and liabilities are translated at rates effective as
           of the end of the related periods.  Revenues and expenses denominated
           in  other  than  U.S.  dollars  are  translated  at  weighted-average
           exchange rates for the relevant  period the transaction was recorded.
           Assets and liabilities denominated in pesos are summarized as follows
           in U.S.  dollars  at the  translation  rate  published  in the Diario
           Oficial de la 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:
<TABLE>
<CAPTION>

                                                                                         1997                1996
                                                                                         ----                ----
         <S>                                                                        <C>                  <C>
         Cash and cash equivalents                                                    $ 356,848             957,000
         Other receivables                                                              690,906           1,634,700
         Prepaid expenses                                                               248,609             218,142
         Other assets, net                                                               80,249              26,064
              Accounts payable                                                         (376,168)         (1,542,331)
              Accrued expenses and other liabilities                                 (2,547,084)         (2,206,667)
                                                                                     -----------         -----------

              Net foreign currency position                                         $(1,546,640)           (913,092)
                                                                                     ===========         ===========
</TABLE>

                                       26
<PAGE>



(2)    Summary of Significant Accounting Policies, Continued

       Foreign Currency Translation, Continued

       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 (SFAS 109) (note 7). The recorded
           amount of $6,660,385  represents the net dollar  denominated value of
           amounts  provided for  temporary  differences  between the  financial
           statement  carrying  amounts of existing  assets and  liabilities and
           their respective Mexican tax basis.

       Foreign Exchange Instruments

       Effective January 1995,  the Company  adopted a policy of not engaging in
           futures  contracts  with the  purpose  of  hedging  U.S.  dollar/peso
           revenues or costs, with the exception of regular treasury  operations
           to cover  operating  requirements  for up to thirty days. The Company
           had no open hedge contracts at December 31, 1997 or 1996. At December
           31,  1994,  the Company had an  outstanding  commitment  to sell U.S.
           dollars  for  Mexican   pesos.   The  Company   realized  a  loss  of
           approximately  $1,060,000 on this contract, which is recorded in cost
           of sales and general and administrative  expenses in the accompanying
           consolidated  statement of operations for the year ended December 31,
           1995.

       Investment Security

       The investment  security at December 31, 1997 consisted of a Mexican bond
           denominated  in U.S.  dollars issued by a Mexican bank maturing March
           4, 2004. The Company classifies this investment as available for sale
           in accordance  with SFAS 115,  Accounting for Certain  Investments in
           Debt and Equity Securities. Accordingly, this security is recorded at
           fair value.  Unrealized  holding gains and losses, net of the related
           tax effect, are excluded from earnings and are reported as a separate
           component of stockholders' equity until realized.  Realized gains and
           losses are determined on a specific  identification  basis. A decline
           in the market value of a security  available for sale below cost that
           is  deemed to be other  than  temporary  results  in a  reduction  in
           carrying amount to fair value.  The impairment is charged to earnings
           and a new cost basis for the  security is  established.  Premiums and
           discounts  are  amortized  or  accreted  over the life of the related
           security  as an  adjustment  to yield  using the  effective  interest
           method. Dividend and interest income are recognized when earned.

       Inventories

       Inventories are stated at the lower of cost or market. Cost is determined
           using the first-in,  first-out (FIFO) method. Inventory cost includes
           material,  labor, and overhead.  Overhead content in ending inventory
           at  December  31,  1997  and  1996  was  approximately  $500,000  and
           $451,000, respectively. Inventory reserves, which are charged to cost
           of sales, are provided for excess inventory,  obsolete  inventory and
           for differences between inventory cost and its net realizable value.



                                       27
<PAGE>




(2)    Summary of Significant Accounting Policies, Continued

       Property, Plant and Equipment

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

       Net Income per Share

       Net income per share of common stock for the year ended December 31, 1997
           and 1996 was  calculated  by  dividing  net  income  by the  weighted
           average number of common shares outstanding for the year.

       Net income per share of common stock for 1995 was  calculated by dividing
           net  income  by the  number of common  shares  outstanding  as of the
           Effective Date,  5,000,000,  after deducting amounts  attributable to
           the rights of senior securities of $226,438.

       Income Taxes

       The Company  accounts  for  income  taxes  under the asset and  liability
           method, as required by SFAS 109. Under the asset and liability method
           of SFAS 109,  deferred tax assets and  liabilities are recognized for
           the future tax consequences  attributable to differences  between the
           financial   statement   carrying   amounts  of  existing  assets  and
           liabilities and their  respective tax basis.  Deferred tax assets and
           liabilities are measured using enacted tax rates expected to apply to
           taxable income in the years in which those temporary  differences are
           expected to be  recovered  or settled.  Under SFAS 109, the effect on
           deferred  tax  assets  and  liabilities  of a change  in tax rates is
           recognized in income in the period that includes the enactment date.

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

       Revenue Recognition

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

       Employees' Statutory Profit Sharing

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



                                       28
<PAGE>


(2)    Summary of Significant Accounting Policies, Continued

       Postretirement Benefits

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

       Fiscal Year

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

       Financial Instruments

       SFAS107, Disclosures about Fair Value of Financial Instruments,  requires
           disclosures about the fair value of certain financial instruments for
           which it is practicable  to estimate that value.  The fair value of a
           financial  instrument is generally the amount at which the instrument
           could be exchanged in a current  transaction between willing parties,
           other than in a forced sale or liquidation.

       The carrying  amounts of financial  instruments,  including cash and cash
           equivalents,  receivables,  investment  available for sale,  accounts
           payable,  accrued expenses, taxes payable, and amounts due to related
           parties,  approximated  fair value as of December 31, 1997 because of
           the  relatively  short maturity of these  instruments.  Capital lease
           obligations  primarily represent  obligations recorded at the present
           value of the minimum  lease  payments,  at the inception of the lease
           agreement,  in December  1997.  Accordingly,  the  carrying  value of
           capital lease obligations  approximated the fair value as of December
           31, 1997.

       Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

       The Company adopted the provisions of SFAS 121, Accounting for Impairment
           of Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of, on
           January 1, 1996. This Statement  requires that long-lived  assets and
           certain  identifiable  intangibles  be  reviewed  whenever  events or
           changes in  circumstances  indicate  that the  carrying  amount of an
           asset may not be  recoverable.  Assets to be disposed of are reported
           at the lower of the carrying amount or fair value less costs to sell.
           Adoption  of this  Statement  did not have a  material  impact on the
           Company financial position or results of its operations.

       New Accounting Pronouncements

       In  February 1997, the Financial Accounting Standards Board (FASB) issued
           SFAS 128,  Earnings Per Share,  which  requires  companies to present
           basic earnings per share and diluted  earnings per share,  instead of
           the primary and fully  diluted  earnings per share that was required.
           Adoption  of SFAS 128 did not have an impact on  previously  reported
           earnings per share.



                                       29
<PAGE>



(2)    Summary of Significant Accounting Policies, Continued

       New Accounting Pronouncements, Continued

       In  June 1997, the FASB issued SFAS 130, Reporting  Comprehensive Income,
           which will be effective for the Company's 1998 fiscal year.  SFAS 130
           establishes  standards  for  reporting  comprehensive  income and its
           components in the Company's consolidated financial statements.

       In  June 1997, the FASB issued SFAS 131, Disclosures about Segments of an
           Enterprise and Related Information,  which establishes  standards for
           the way the Company reports  information about operating  segments in
           the  annual  consolidated  financial  statements,  as well as related
           disclosures about products and services,  geographic areas, and major
           customers.  This  standard is effective  for fiscal  years  beginning
           after December 15, 1997.

       Year 2000

       During 1997, the Company began a  corporate-wide  system  conversion to a
           software  system that is Year 2000  compliant.  The  conversion  will
           cover  all   significant   computer   applications  of  the  Company.
           Implementation of all systems is expected by September 1998. The Year
           2000 issues are the result of computer  programs  being written using
           two  digits  rather  than four to define  the  applicable  year.  The
           Company  presently  believes  that,  with the  upgrades  currently in
           progress, the Year 2000 problem will not pose significant operational
           problems.

       Acquisitions

       Effective July 1, 1997,  the Company  completed  the  acquisition  of the
           assets  of  Eurotech,  S.A.  de  C.V.  (Eurotech)  for  approximately
           $3,900,000.  Eurotech is a Mexican plastic molding and metal stamping
           plant located in Cd. Juarez,  Mexico. The acquisition of Eurotech has
           been  accounted  for as a purchase.  The  acquisition  price has been
           allocated to tangible assets.  The operating results of Eurotech have
           been  included in the  Company's  consolidated  financial  statements
           since the date of  acquisition.  The  assets  acquisition,  if it had
           occurred  at the  beginning  of the year,  would not have a  material
           effect on the consolidated financial statements.

(3)    Inventories

       Inventories consist of the following:
<TABLE>
<CAPTION>

                                                                                     1997          1996
                                                                                     ----          ----
          <S>                                                                   <C>              <C>
          Raw materials                                                         $ 10,732,767     12,998,270
          Work-in-process                                                          1,213,553      3,138,189
          Finished goods                                                           2,467,932      1,961,415
                                                                                 -----------     ----------

                                                                                  14,414,252     18,097,874
          Less reserve for excess and
              obsolete inventory                                                   1,717,547      1,897,725
                                                                                 -----------     ----------

                                                                                $ 12,696,705     16,200,149
                                                                                ============     ==========
</TABLE>



                                       30
<PAGE>




(3)    Inventories, Continued

       The reserve for excess and obsolete  inventory is charged against cost of
           sales and was increased  (decreased)  by $(180,178)  and $426,358 for
           the years ended December 31, 1997 and 1996, respectively.

(4)    Property, Plant and Equipment

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

                                                         Estimated
                                                        Useful Lives
                                                           (years)                    1997               1996
                                                       -----------------              ----               ----
              <S>                                           <C>                 <C>                   <C>
              Land                                             -                $   3,641,418          5,211,096
              Buildings                                       20                   11,750,832         13,197,575
              Machinery and equipment                       3 - 10                 26,381,117         19,963,535
              Leasehold improvements                           5                    1,307,253          1,386,811
              Vehicles                                         5                      158,997            148,630
              Construction-in-progress                         -                       67,404            127,906
                                                                                  -----------        -----------

                                                                                   43,307,021         40,035,553
              Less accumulated depreciation
                 and amortization                                                  14,803,900         11,424,834
                                                                                   ----------         ----------

                                                                                $  28,503,121         28,610,719
                                                                                   ==========         ==========
</TABLE>


       Included in property, plant and equipment is $1,682,000 and $2,206,676 of
           machinery  and  equipment  under  capital  leases  and  $280,000  and
           $729,358 in related accumulated amortization at December 31, 1997 and
           1996, respectively.

(5)    Notes Payable and Long-Term Debt

       At  December 31, 1997,  the Company had a  $2,000,000  short-term  credit
           facility,  with a bank, with an adjusted interest rate of Libor, plus
           3 to 5%. Certain equipment  secures the line.  Promissory notes under
           the line are renewable,  with adjusted interest rates, and are due 90
           days or 180 days after issuance.  Interest on the promissory notes is
           payable at each note  maturity.  At December  31,  1997 and 1996,  no
           balance was outstanding under this facility.

     The Company has long-term  credit  facilities  that are denominated in U.S.
     dollars and consist of the following at December 31, 1997:

          o   Line of credit for up to $5,000,000  or 75% of appraised  value of
              certain  properties with an adjusted  interest rate of prime.  The
              available balance at December 31, 1997 was $5,000,000. The line of
              credit  matures  on  December  6, 2002 and is  secured  by a trust
              guaranty in certain properties.



                                       31
<PAGE>


(5)    Notes Payable and Long-Term Debt, Continued

          o   The Company has a revolving credit facility for $10,000,000 with a
              bank. The revolving  credit facility allows the Company to draw on
              term notes payable, with adjusted interest rates of LIBOR plus 3%,
              through  December  15,  1999.  The credit  facility  is secured by
              eligible  accounts  receivable.  Commitment  fees  of  1/8% of the
              unfunded balance are due quarterly.

          o   Line of credit with a bank for up to $10,000,000  with an adjusted
              interest rate of prime,  plus 1/2%.  The line of credit is secured
              by eligible accounts receivable. The available balance at December
              31,  1997 was  $6,333,000.  The line of credit  expires  on May 1,
              1999.  Commitment  fees of 1/16% of the unfunded  balances are due
              quarterly.

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

       Interest payments,  including  commitment  fees, on the notes payable and
           long-term debt were $78,000,  $857,104,  and $2,085,530 for the years
           ended December 31, 1997, 1996, and 1995, respectively.

       The available credit facilities place certain restrictions on the payment
           of dividends and use of proceeds from  disposition of  collateralized
           fixed assets, limit investments or advances in other companies, limit
           the incurrence of debt,  and require the Company to maintain  certain
           financial ratios and insurance coverage. The Company is in compliance
           with such covenants or restrictions at December 31, 1997.

(6)    Leases

       The Company utilizes certain machinery and equipment and occupies certain
           buildings under lease  arrangements that expire at various dates from
           1998 through 2003,  some of which have renewal options for additional
           periods.  Rental  expense for  certain  manufacturing  and  warehouse
           facilities,   mainly  for  operating  lease  agreements,   aggregated
           $2,786,242,  $2,406,815,  and $1,689,425 for the years ended December
           31, 1997, 1996, and 1995, respectively.  Interest payments on capital
           leases  were  $96,473,  $33,160,  and  $90,599  for the  years  ended
           December 31, 1997, 1996, and 1995, respectively.



                                       32
<PAGE>



(6)    Leases, Continued

       Future minimum  lease  obligations  at December 31, 1997 for assets under
           capital  leases  and  for  rental  commitments  under  non-cancelable
           operating leases having an initial or remaining term in excess of one
           year are as follows:
<TABLE>
<CAPTION>

                                                                                  Capital         Operating
              Year ended December 31,                                             Leases            Leases
              <S>                                                               <C>               <C>
              1998                                                              $     553,626     2,311,199
              1999                                                                    578,263     1,746,468
              2000                                                                    103,672     1,435,217
              2001                                                                    -             362,553
              2002                                                                    -             130,003
              2003                                                                    -              65,002
                                                                                --------------    ---------

              Total minimum obligations                                         $   1,235,561     6,050,442
                                                                                                  =========
                   Less amounts representing interest
                     (approximately 3.5% to 10%)                                       84,909
                                                                                -------------

              Present value of net minimum lease obligations                        1,150,652
                   Less current obligations under capital leases                      496,190
              Capital lease obligations, excluding current
                   obligations                                                  $     654,462
                                                                                =============
</TABLE>
       The Company leases  manufacturing  facilities to unrelated  parties under
           operating lease  agreements that expire in 1999 and 2000. The Company
           pays  certain  taxes  on the  properties  and  provides  for  general
           maintenance.  Included in property,  plant and  equipment at December
           31, 1997 is the cost of the land and buildings  under operating lease
           agreements of $4,565,586 and the related accumulated  depreciation of
           $901,797.

       Rental income was  $732,832,  $644,187,  and $501,370 for the years ended
           December 31, 1997, 1996, and 1995,  respectively.  The future minimum
           rental  income  to be  received  under  these  operating  leases  is:
           $791,305 in 1998; $643,558 in 1999; and $362,231 in 2000.

(7)    Income Taxes

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



                                       33
<PAGE>



(7)    Income Taxes, Continued

       The tax  provision  differs  from the  expected  tax rate of 34% in 1997,
1996, and 1995 on taxable income as follows:
<TABLE>
<CAPTION>

                                                                        1997             1996              1995
                                                                        ----             ----              ----
              <S>                                                     <C>               <C>               <C>
              Statutory tax rate                                       34.0%             34.0%             34.0%
              Foreign currency gains or losses not
                 subject to income taxes                                0.2              (1.4)             (1.0)
              Kronos losses (income) not subject to tax (i)               -               0.4              (1.2)
              Non-deductible expenses                                   2.5               1.7               2.1
              Inflation and currency exchange rate
                 gains or losses on monetary items
                 for tax purposes only (ii)                            (9.2)            (15.1)             (2.7)
              Inflation and currency exchange rate
                 portion of depreciation expense for
                 tax purposes only                                      3.1               0.5               2.4
              Deferred income tax valuation reserve
                 adjustment (iii)                                      (2.4)              4.4             (11.8)
                                                                      ------            -----             ------

                                                                       28.2%             24.5%             21.8%
                                                                      ======             =====             =====
</TABLE>
       Significant items impacting the Company's effective tax rate include: (i)
           Kronos,  Inc. is a British Virgin Islands  Corporation and its income
           is not subject to income taxes  (Kronos,  Inc. was merged into Elamex
           effective December 31, 1996); (ii) under Mexican tax laws,  inflation
           and currency  exchange rate  adjustments  are required for income tax
           purposes;  and (iii)  changes in  valuation  reserves  for assets tax
           carryforwards due to management's evaluation of realizability.

       The income tax provision includes the following:
<TABLE>
<CAPTION>

                                                                       1997             1996            1995
                                                                       ----             ----            ----
          <S>                                                     <C>                 <C>            <C>
          Current tax provision                                   $    98,134            79,303        363,000
          Deferred tax provision                                    2,800,203         2,495,776      1,364,000
                                                                    ---------         ---------      ---------

              Total provision for income taxes                    $ 2,898,337         2,575,079      1,727,000
                                                                    =========         =========      =========


          Total income taxes paid were  $224,000,  $352,000,  and $379,000 in the years ended  December 31,  1997,  1996, and 1995,
           respectively.
</TABLE>



                                       34
<PAGE>




(7)    Income Taxes, Continued

       The tax effect of significant temporary differences representing deferred
tax assets and liabilities is as follows:
<TABLE>
<CAPTION>

                                                                                    1997          1996
                                                                                    ----          ----
              <S>                                                               <C>            <C>
              Current deferred tax assets:
                 Assets tax carryforwards                                       $ 1,499,681    1,410,364
                 Net operating loss carryforwards                                 1,477,921    5,014,846
                 Other, net                                                         (62,629)     222,448
                                                                                 -----------   ---------

                                                                                  2,914,973    6,647,658

              Valuation allowance                                                  (211,534)    (458,747)
                                                                                  ----------    ---------

                        Net current deferred tax assets                           2,703,439    6,188,911

              Current deferred tax liabilities:
                 Inventories                                                     (6,125,239)  (7,193,934)
                 Other                                                             (160,099)    (374,760)
                                                                                 -----------  -----------

                        Net current deferred tax liability                      $(3,581,899)  (1,379,783)
                                                                                 ===========  ===========

              Non-current deferred tax liability:
                 Property, plant and equipment, principally
                    due to differences in useful lives                          $(3,078,486)   (2,480,399)
                                                                                 ===========   ===========
</TABLE>


       A   valuation  allowance is provided when it is more likely than not that
           some  portion or all of the deferred tax assets will not be realized.
           A reserve for certain  deferred assets tax  carryforwards of $211,534
           and  $458,747  has been  provided  at  December  31,  1997 and  1996,
           respectively.  During the year ended December 31, 1996, a reserve was
           recorded  as a  result  of tax  planning  activities  related  to tax
           reforms that provided  increased net operating losses, but could also
           result in possible loss of assets tax carryforwards.

       The assets tax paid, adjusted for inflation, may be used to offset income
           taxes that  exceed  the  assets  tax due for the year,  for ten years
           following the payment of the tax. These assets tax  carryforwards  as
           of December 31, 1997 is $1,499,681 and expire from 1999 through 2007.



                                       35
<PAGE>




(7)    Income Taxes, Continued

       At  December  31,  1997,  certain  of the  Mexican  companies  within the
           consolidated  group had tax net operating loss carryforwards that can
           be utilized only by the Mexican  company  which  incurred the losses.
           These net operating loss carryforwards may be adjusted for inflation.
           These  tax  net  operating  loss   carryforwards,   as  adjusted  for
           inflation,  expire as follows,  if not previously  utilized to offset
           taxable income:
<TABLE>
<CAPTION>
              <S>                                                               <C>
              2002                                                              $     212,000
              2003                                                                    171,000
              2005                                                                    785,000
              2006                                                                  3,171,000
              2007                                                                      8,000
                                                                                 ------------

                                                                                $   4,347,000
</TABLE>
       The Company  has  filed a  consolidated  tax  return  with  its  majority
           stockholder  since  1995.  The tax  sharing  agreement  entered  into
           between the  majority  stockholder,  Accel S.A.  de C.V.,  and Elamex
           provides  that Elamex will  transfer  monthly an amount  equal to its
           estimated  payment,  less  credits,  which  would be  required by the
           Mexican tax  authority  calculated  as if they were filing a separate
           return for such year.  The  majority  stockholder  further  agrees to
           reimburse  Elamex for use of any of Elamex's tax benefits at the time
           Elamex would otherwise realize the benefit.

       Dividends paid by Mexican companies which exceed earnings and profits, as
           defined by the  Mexican  tax law,  are  subject to a 34% income  tax,
           payable  by the  Company,  on 1.515  times  the  amount  in excess of
           earnings and profits. Dividends paid which do not exceed earnings and
           profits  are not  currently  subject  to  Mexican  tax to either  the
           Company or the stockholder.  The Mexican  companies paid no dividends
           on common stock in 1997, 1996, or 1995.

(8)    Redeemable Stock - Preferred and Common

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



                                       36
<PAGE>




(9)    Stockholders' Equity

       Common Stock

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

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

       The Company  designated  $897,406  of 1995's net profits as a reserve for
           the  repurchase and  cancellation  of  publicly-traded  common shares
           outstanding as approved by the Company's stockholders.

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

       During the fourth  quarter of fiscal 1997,  a  subsidiary  of the Company
           purchased  18,500  shares of the  Company's  common stock in the open
           market for an aggregate  amount of $215,000.  This treasury stock has
           been presented in the accompanying consolidated balance sheet at cost
           as a reduction of stockholders' equity.



                                       37
<PAGE>




(9)    Stockholders' Equity, Continued

       Common Stock, Continued

       Under the bylaws and Mexican  law, the capital  stock of Elamex,  S.A. de
           C.V. must consist of fixed capital and may have, in addition thereto,
           variable capital.  Stockholders holding shares representing  variable
           capital  common  stock may require the  Company,  with a notice of at
           least three months prior to December 31 of the prior year,  to redeem
           those  shares at a price equal to the lesser of either (i) 95% of the
           market  price,  based on the  average of trading  prices in the stock
           exchange  where it is listed during the thirty trading days preceding
           the end of the  fiscal  year in which  the  redemption  is to  become
           effective or (ii) the book value of the Company's  shares as approved
           at the meeting of  stockholders  for the latest  fiscal year prior to
           the redemption date. At December 31, 1997, the Company has not issued
           any of its authorized  variable  capital  common stock.  Although the
           variable  capital  common stock is redeemable by the terms  described
           above,   such  shares   would  be   classified   as  a  component  of
           stockholders' equity in the consolidated  balance sheets.  Management
           believes  the  variable  common stock  represents  permanent  capital
           because the timing and pricing mechanisms through which a stockholder
           would exercise the option to redeem are such that a stockholder, from
           an economic standpoint, would not exercise this option. At the time a
           stockholder is required to give notice of redemption, the stockholder
           will not be able to know at what price the shares  would be  redeemed
           and would not  expect  the  present  value of the  future  redemption
           payment to equal or exceed the amount  which would be received by the
           stockholder in an immediate public sale.

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

       Mexican Law requires  that at least 5% of the  Company's  net income each
           year (after profit sharing and other  deductions  required by law) be
           allocated to a legal reserve fund, which is not thereafter  available
           for  distribution,  except as a stock  dividend,  until the amount of
           such fund equals 20% of the Company's  historical  capital stock. The
           legal  reserve fund at December  31, 1997 and 1996 was  approximately
           $396,000   (3,152,000   pesos)  and   $329,000   (2,125,000   pesos),
           respectively.  The Company anticipates an additional  allocation will
           be  made  at its  annual  stockholders'  meeting  in  April  1998  of
           approximately $369,000 (2,977,000 pesos). Retained earnings available
           for dividends under Mexican law at December 31, 1997 were $19,615,784
           (158,182,000   pesos).   However,   debt  agreements   place  certain
           restrictions on the payment of dividends (note 5).



                                       38
<PAGE>




(9)    Stockholders' Equity, Continued

       Common Stock Purchase Restrictions and Preemptive Rights

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

       Preferred Stock

       As  part of the  December  15,  1995  amendment  and  restatement  of the
           Company's   bylaws,   the  Company's  Board  of  Directors,   at  its
           discretion,  can issue up to an  aggregate  of  50,000,000  shares of
           preferred  stock in one or more  series.  The  Board may  attach  any
           preferences, rights, qualifications, limitations, and restrictions to
           the  shares of each  series  issued,  including  dividend  rights and
           rates,  conversion rights,  voting rights,  terms of redemption,  and
           liquidation preferences.  The shares may be issued at no par value or
           at a par value  determined  by the Board of  Directors.  No shares of
           preferred stock have been issued as of December 31, 1997.

(10)   Executive Phantom Stock Plan

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

       The Company  keeps a record of the amount of Phantom Stock Shares held by
           each  participant.  Each  participant is credited with dollar amounts
           equal to dividends paid on issued and outstanding  common stock,  and
           such  amounts  accrue  interest at the  short-term  money market rate
           published by the Chase  Manhattan  Bank,  N.A. The Plan provides that
           the  number of  Phantom  Stock  Shares  awarded  be  determined  by a
           committee of the Board of Directors  charged with  administering  the
           Plan and the aggregate number of Phantom Stock Shares awarded for any
           year  shall in no event  exceed  10% of the  number of the  Company's
           issued and outstanding  common shares as of the end of such year. For
           the years  ended  December  31, 1997 and 1996,  the Company  expensed
           approximately  $224,000 and $218,000,  respectively,  as  obligations
           under the Phantom Stock Plan.



                                       39
<PAGE>





(10)   Executive Phantom Stock Plan, Continued

       Transactions involving the plan are summarized as follows:
<TABLE>
<CAPTION>
                                                                                      Option Shares
                                                                                    1997         1996
                                                                                    ----         ----
              <S>                                                                  <C>          <C>
              Outstanding January 1                                                18,442          -
              Granted                                                              29,954        23,140
              Canceled                                                                -          (4,698)
              Exercised                                                               -             -
                                                                                  -------       -------
                 Exercisable December 31                                           48,396        18,442
                                                                                  =======       =======
</TABLE>

(11)   Major Customers

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

       Certain customers accounted for significant  percentages of the Company's
total sales during the periods ended as follows:
<TABLE>
<CAPTION>
                                                                                            December 31
              Customer           Products and Services                             1997       1996       1995
              --------           ---------------------                             ----       ----       ----
                    <S>          <C>                                                <C>        <C>        <C>
                    A            Printed circuit boards and final
                                 assembly                                           19%        18%        18%

                    B            Flexible and rigid circuit boards/
                                 component assembly                                  9         16         23

                    C            Printed circuit boards and cables                   6         14         16

                    D            PBX/switchboards and fiber optic
                                 cable connections                                  14         11          7

                    E            Assembly consumer products                         10          4          -
</TABLE>

       During  1997,   the  Company   announced   the  ending  of  its  business
           relationship  with customers B and C.  Management does not anticipate
           any  significant  changes with respect to sales since those customers
           are  expected to be  replaced  with new sales.  Notwithstanding,  the
           termination of any of these  agreements  could have a material effect
           on the Company's financial position and results of operations.



                                       40
<PAGE>




(12)   Related Party Transactions

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

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

          o   The Company  leased a  manufacturing  facility from a stockholder,
              which  resulted  in rent  expense of  approximately  $88,000,  and
              $234,000  at  December  31,  1996,  and  1995,  respectively.  The
              facility was not leased during 1997.

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

          o   The Company leases three  manufacturing  facilities from companies
              that are owned by a related  party.  Included in rent  expense are
              rental  payments  under these  leases of  approximately  $831,000,
              $900,000,  and $833,000 during December 31, 1997,  1996, and 1995,
              respectively.

          o   Elamex  de  Torreon,  S.A.  de C.V.,  a Mexican  company  owned by
              affiliates of Elamex, exclusively provides assembly services under
              the  direction  of  Elamex  to  a  customer  of  Elamex.  Under  a
              manufacturing contract between Elamex and the Mexican company, the
              Mexican  company is required to submit its budget  annually to the
              Board of Directors of Elamex for  approval.  At December 31, 1997,
              1996,  and  1995,  the  Mexican  company  had  sales to  Elamex of
              $1,731,000, $1,618,000, and $1,835,000, respectively. Elamex had a
              payable to the Mexican company of $62,000 and $54,000, at December
              31, 1996 and 1995,  respectively  and a receivable  of $146,000 at
              December 31, 1997.

          o   A  U.S.  corporation,  owned  by  certain  executives  and  senior
              management  of  the  Company,  exclusively  provides  professional
              services  to  Elamex.  Under  the  service  agreement,   the  U.S.
              corporation  is obligated to submit its annual budget to the Board
              of Directors of Elamex for approval.  At December 31, 1997,  1996,
              and 1995, this company provided services to Elamex for $2,425,000,
              $2,852,000, and $2,208,000,  respectively.  Elamex had payables to
              this  company of $45,000 and  $212,000  at  December  31, 1997 and
              1996, respectively.



                                       41
<PAGE>




(12)   Related Party Transactions, Continued

          o   The Company paid  consulting  fees,  consisting  of tax advice and
              return  preparation,   and  other  administration   services,   of
              approximately $190,000, $213,000, and $280,000 during December 31,
              1997, 1996, and 1995, respectively, to companies which are related
              parties.

          o   The Company  purchases  insurance through an insurance broker that
              is a related party. Premiums paid approximated $442,000, $306,000,
              and $175,000 for the years ended  December  31,  1997,  1996,  and
              1995, respectively.

(13)   Commitments and Contingencies

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

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

       Seniority premiums to which employees are entitled upon retirement  after
           fifteen  years or more of  service,  in  accordance  with the Mexican
           Federal Labor Law, are recognized as expense during the year in which
           services are rendered,  based on actuarial computations.  Included in
           other  liabilities  is  approximately  $258,000  and  $212,000  as of
           December  31, 1997 and 1996,  respectively,  which fully  accrues for
           these  estimated  seniority  obligations.  No  significant  seniority
           payments have been made through December 31, 1997.

       In  January  1998,  the Company  agreed to purchase  2,525,000  shares of
           Series  A  9%  Cumulative  Convertible  Preferred  Stock  ("Preferred
           Stock") of Optimag, Inc.  ("Optimag"),  a California  corporation.  A
           majority of the Board members of Optimag are Elamex directors.




                                       42
<PAGE>





(13)   Commitments and Contingencies, Continued

       Optimag was formed to develop, manufacture, and market optical inspection
           stations and electrical test equipment to companies that produce disk
           drive heads, magnetic media, and optical heads and optical media. The
           Company has agreed to purchase  the  Preferred  Stock in a three-part
           transaction as follows:

          o   In January 1998, the Company  signed the Preferred  Stock Purchase
              Agreement  and  purchased  637,500  shares of Preferred  Stock for
              $1.00 per share which are convertible into common stock 1 for 1.

          o   If certain performance targets are met after 90 days of signing,
              the Company will purchase an additional 637,500 shares of
              Preferred Stock at $1.00 per share.

          o   Upon final  completion  of a  prototype  inspection  station,  the
              Company will purchase a final 1,250,000  shares of Preferred Stock
              at $1.00 per share.  After conversion to common stock, the Company
              will own a minimum of 51% of the common stock.

       The Company will consolidate operations of this investment.

       At  December  31,  1997,  the  Company  has  an  obligation  to  purchase
           inventory held by suppliers valued at approximately $1,280,000.

       The Secretaria de Hacienda y Credito  Publico  (Mexican tax  authorities)
           has begun an  examination  of the Company's  1996 federal tax return.
           The examination  could result in additional income tax being assessed
           on the  Company.  Management  does not  believe  the  outcome of this
           matter  will  have  an  adverse  impact  on the  Company's  financial
           position or results of operations.

(14)   Selected Quarterly Financial Data (Unaudited)

       (In thousands, except per share amounts)
<TABLE>
<CAPTION>

                                            1997 Quarters                                1996 Quarters
                              -----------------------------------------    --------------------------------------
                              1st       2nd        3rd       4th           1st       2nd        3rd       4th
                              -----------------------------------------    --------------------------------------
       <S>                    <C>       <C>        <C>        <C>           <C>      <C>        <C>        <C>
       Net sales              $33,815   33,827     32,872     31,258        25,337   30,925     30,496     32,161
       Gross profit             4,434    5,267      4,216      3,766         3,853    5,243      5,399      4,187
       Net income               1,687    2,130      1,731      1,835         1,445    2,018      2,320      2,144 (a)

       Net income
         per common
         share                  $0.23     0.29       0.23       0.25          0.27     0.27       0.31       0.29

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




                                       43
<PAGE>





Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure

          Not applicable

Item 10.  Directors and Executive Officers of the Registrant

          The names, ages, and positions of the Director and executive  officer
          of the Company as of March 6, 1998 are as follows:
<TABLE>
<CAPTION>

         Name           Age   Position
-------------------------------------------------------------------------------
<S>                      <C>  <C>
Eloy S. Vallina ......   60   Chairman of the Board of Directors
Federico Barrio ......   61   Vice Chairman of the Board of Directors
Jesus Alvarez-Morodo .   51   Vice Chairman of the Board of Directors, Secretary
Hector M. Raynal .....   44   President, Chief Executive Officer and Director
Carlos D. Martens ....   49   Vice President-Finance and Chief Executive Officer
Susan E. Mucha .......   39   Vice President-Sales and Marketing
David Crawford .......   61   Vice President-Manufacturing Operations
Wayne Rout ...........   54   Vice President-Materials
Jesus E. Vallina .....   49   Director
Eloy Vallina Garza ...   26   Director
Eduardo L. Gallegos ..   56   Director
Robert J. Whetten ....   55   Director
Antonio L. Elias .....   49   Director
Jerry W. Neely .......   61   Director
Leon Reinhart ........   55   Director
Tomas de Leon ........   44   Statutory Auditor
</TABLE>

Eloy S. Vallina
     Mr.  Vallina has been  Chairman of the Board of Accel and its  predecessor,
Grupo Chihuahua,  S.A. de C.V., since its inception in 1979. He is also chairman
of Kleentex Corp., and an Advisory Director of First National Bank of San Diego.
Mr. Vallina was Chairman of Banco Comercial Mexicano, later Multibanco Comermex,
one of  Mexico's  largest  commercial  banks at that  time,  from 1971 until its
expropriation in 1982. He graduated with a B.A. in Business  Administration from
the Instituto Tecnologico y de Estudios Superiores de Monterrey.

Federico Barrio
     Mr.  Barrio  has  been  Vice  Chairman  of the  Board  of  Elamex  and  its
predecessor companies,  or has held the functionally equivalent position, for 24
years and was a founding stockholder of the Elamex business.  He is a partner in
Constructora Lintel, a major developer of industrial and commercial buildings in
Cuidad Juarez,  and he has been Constructora  Lintel's  President since 1983. He
has also been an Advisory  Director of Norwest Bank El Paso since 1991. He has a
B.S. in Industrial Engineering from the Chihuahua Technological Institute and an
M.B.A.  degree from the  University of Chihuahua.  Mr. Barrio was former Dean of
Juarez  Technological  Institute  and has 28 years of  experience  in industrial
development and general contracting.

Jesus Alvarez-Morodo
     Mr. Alvarez-Morodo has been Vice Chairman of the Board of Elamex since 1995
and  President  and CEO of Accel  since  1992.  He has been a director of Elamex
since 1990. Mr.  Alvarez-Morodo  has held various  positions with Accel, and its

                                       44
<PAGE>



predecessor,  Grupo Chihuahua and its  subsidiaries  since 1982,  including Vice
President  from 1989 to 1992. He graduated from the  Universidad  Iberoamericana
with a B.S.  in  Electromechanical  Engineering  and from the  Sloan  School  of
Management,  Massachusetts  Institute  of  Technology  with  an M.S.  degree  in
Management.

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

Carlos D. Martens
     Mr. Martens has been Vice President and Chief  Financial  Officer of Elamex
since  March,  1997.  He has more than 20 years of  multinational  business  and
financial  experience with large  conglomerates  such as Grupo  Empresarial G of
Guadalajara  and  Grupo  Industrial  Alfa  of  Monterrey  as  well  as  start-up
situations  in  California  and  Chicago.  He  received  a  B.S.  in  Electrical
Engineering  from  Escuela  Superior  de  Ingenieria  Mecanica y  Electrica  del
Instituto Politecnico Nacional ("ESIME"), a M.S. in Industrial Engineering and a
M.B.A. both from Stanford University.

Susan E. Mucha
     Ms. Mucha has been Vice President Sales and Marketing of Elamex since 1997.
From 1995 to 1997 she was associated with Sparton  Electronics  Inc. as Director
of Business  Development and later as Director of Strategic Planning.  Ms. Mucha
has nearly 17 years of experience in the contract manufacturing industry, having
held  marketing  and  marketing  management  positions  at  several  contractors
including Flextronics International, AVEX Electronics, Inc. and SCI Systems. She
received a B.S. degree from the University of Florida and an M.A.S.  degree from
the University of Alabama in Huntsville. She is on the Steering Committee of the
Institute for Interconnecting and Packaging Electronic Circuits (IPC) Electronic
Manufacturing Services Industry (EMSI) Council.

David R. Crawford
     Mr.  Crawford has been Vice  President  Manufacturing  Operations of Elamex
since August 1995.  From 1987 to 1995 he was Director of Operations of the Allen
Bradley   Business  Unit  Electronic   Components,   a  subsidiary  of  Rockwell
International Corporation. Mr. Crawford has 37 years of experience in electronic
assembly and components  manufacturing from major manufacturing companies in the
area. He received a B.S. from Purdue University.

Wayne Rout
     Mr. Rout has been  Vice-President  of Materials for Elamex since 1988.  Mr.
Rout has 30 years of experience in manufacturing  and materials.  Mr. Rout has a
B.S. degree from Brigham Young  University.  Mr. Rout holds the APICS,  NAPM and
IMMS certifications.

Jesus E. Vallina
     Mr.  Vallina  has been  Director  of  Public  Relations  of  Accel  and its
predecessor,  Grupo  Chihuahua,  for  the  past 22  years.  He is  President  of
Constructora  Inmobiliaria Las Americas,  S.A. de C.V., and Director of Kleentex
Corp. He is also an Advisory  Director of Norwest Bank El Paso. Mr. Vallina is a
graduate of the  University  of Texas at El Paso,  where he received a degree in
Business Administration.

                                       45
<PAGE>



Eloy Vallina Garza
     Mr. Vallina is currently in charge of the Business Operations International
Banking of First  National  Bank in San Diego.  He is also a director  of Accel,
Almacenadora,  S.A. and Copamex.  Mr. Vallina is a graduate of the University of
Monterrey, where he received a B.A. in Business Administration.

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

Robert J. Whetten
     Mr.  Whetten  has been a  Director  of  Elamex  since  1994.  He  served as
President  and Chief  Executive  Officer of Norwest Bank El Paso from 1991 until
February  1996.  Mr.  Whetten has 20 years of banking  experience  in the United
States and Latin  America.  He received a B.A. in Finance and a Master of Public
Administration from Brigham Young University.  Mr. Whetten is out of the country
and does not  expect to  attend  meetings  until his  return.  Mr.  Whetten  has
consented to continue as a director  while away and has agreed to resume to full
status upon his return.

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

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

Leon Reinhart
     Mr.  Reinhart is President and CEO of First National Bank of San Diego.  He
has more than 29 years of banking experience including various senior capacities
with Citibank, in the United States, Latin America and the Middle East.

                                       46
<PAGE>




Tomas de Leon

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

Item 11. Executive Compensation

         During the year ended December 31, 1997,  Elamex paid,  either directly
or through a related company,  MTI Services  Corporation  (MTI), an aggregate of
$913,684 to all of its  directors  and  officers as a group for  services in all
capacities and an additional $125,020 in respect of a discretionary compensation
plan.  During  such year,  the  Company,  through  MTI,  set aside or accrued an
aggregate of $6,988 to provide  pension,  retirement or similar benefits for its
directors and officers pursuant to existing plans, consisting solely of a 401(k)
plan for its U.S. based officers and Directors.

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

Item 12.  Security Ownership of Certain Beneficial Owners and Management
<TABLE>
<CAPTION>
Name and Address of         Amount of Shares       Percent of
Beneficial Owner                 Owned                Total
<S>                             <C>                   <C>
Eloy S. Vallina                 4,051,300             54.8%
Avenida Zarco No. 2401
Chihuahua, Chih. Mexico
Accel, S. A. de C. V.           4,051,300             54.8%
Avenida Zarco No. 2401
Chihuahua, Chih. Mexico
---------------------
<FN>
(1)  Mr. Vallina directly owns 130,862,957  shares, or approximately 45%, of the
     outstanding voting common stock of Accel. In addition, Mr. Vallina controls
     companies  that  hold  46,414,851  shares,  or  approximately  16%,  of the
     outstanding   voting  common  stock  of  Accel.   Accel,   in  turn,   owns
     approximately 54.8% of the outstanding common stock of Elamex.
</FN>
</TABLE>

Item 13.  Certain Transactions

         The Company was formed on the Effective Date in the merger  transaction

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


                                       47
<PAGE>



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

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

         Elamex,  S.A.  de C.V.  and  Mossberg  are  parties to a  manufacturing
contract pursuant to which Elamex has agreed to manufacture  shotgun  components
and safe deposit boxes.  The  manufacture  of firearms and their  components are
highly  regulated  activities  in Mexico that may not be  conducted by companies
with non-Mexican ownership. In order to comply with Mexican regulations,  Elamex
de  Torreon  acts as a  subcontractor  to Elamex  for this  contract.  Elamex de
Torreon is owned by Bielas,  Ensambles  y  Articulos  Reciclables,  S.A. de C.V.
("Bielas"),  whose  stock is held by members of the Board of  Directors  who are
citizens  of Mexico.  Elamex de  Torreon,  which holds a permit from the Mexican
Department of National Defense to manufacture the shotgun  components,  performs
the manufacturing required under the Mossberg contract,  including the provision
of facilities and employees,  under contract to Elamex which supervises the work
performed by Elamex de Torreon.  The  manufacturing  facility  used by Elamex de
Torreon is owned by Elamex de  Delicias,  S.A.  de C.V.  and leased to Elamex de
Torreon.  The initial term of the lease has approximately 6 years to run with an
option  exercisable  by the lessee to extend for 4 additional  years,  while the
Mossberg contract runs for approximately two years from the date hereof.  Elamex
pays Elamex de Torreon its  out-of-pocket  costs to fulfill the contract  (I.E.,
the cost of rent under the lease and the  compensation  of employees) plus up to
2%. The  stockholders  of Elamex de Torreon  have agreed not to  interfere  with
performance  of the foregoing  arrangements,  or permit them to be modified,  in

                                       48
<PAGE>


either case without  Elamex's  consent,  so long as the Mossberg  contract is in
effect.  Elamex de  Delicias,  S.A.  de C.V has granted  Elamex,  and Elamex has
granted to Mossberg, an option to purchase the manufacturing  facility where the
Mossberg contract is performed from Elamex de Delicias,  S.A. de C.V for a price
determined by appraisers appointed by each party to represent fair market value.
The options expire on the expiration of the lease.

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

         Accel is the parent  corporation  of both Elamex and  Esvamex,  S.A. de
C.V.  ("Esvamex").  Esvamex and Elamex are parties to a consulting  agreement of
indefinite duration under which Esvamex provides administrative, accounting, tax
and financial services to Elamex. In return, Elamex pays Esvamex $16,000 monthly
subject to renegotiate as circumstances  may require.  The Company believes that
this amount is the fair market value of the services it receives from Esvamex.


Item 14.  Exhibits and Financial Statement Schedules

a)    Financial Statements

         (i)      The  consolidated  balance sheets of Elamex,  S.A. de C.V. and
                  its  subsidiaries  as of  December  31,  1997 and 1996 and the
                  related  consolidated  statements  of earnings,  stockholders'
                  equity and cash flows for each of the years in the  three-year
                  period  ended  December  31,  1997 are filed in Item 8 of this
                  report.
         (ii)     Financial   statement   schedule,   valuation  and  qualifying
                  accounts and reserves and report thereon  included on pages 51
                  and 52.


                                       49
<PAGE>




b) The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number                      Description
<S>    <C>

3      Estatutos Sociales (By-Laws) of the Registrant (including English translation).*
10.1   Modification Agreement Between Fonlyser, S.A. and Accel, S.A. de C.V., with a translation in English, and
       subsequent modification letter, with a translation in English.*
10.2   Credit  Agreement with Confia, S.A., with a summary in English, and
       renewal letter, with a translation in English.*
10.3   Revolving Credit Agreement with Comerica Bank.*
10.5   Tax Sharing Agreement between Accel, S.A. de C.V. and Elamex S.A. de C.V.*
10.6   Lease of Elamex de Juarez Plant #3, with a translation in English.*
10.7   Lease of Elamex de Juarez Plant #4, with a translation in English.*
10.8   Lease of Elamex de Juarez Plant #5, with a translation in English.*
10.9   Lease of Elamex de Juarez Plant #9.*
10.10  Lease of Elamex de Nuevo Laredo Plant.*
10.12  Executive Phantom Stock Plan.*
21     Subsidiaries of the Registrant.*
99     Financial statement schedule, valuation and qualifying accounts and reserves and
          report thereon included on pages 51 and 52.
<FN>
               * Filed as an exhibit to the Company's Registration Statement on Form S-1, file No. 333-01768
</FN>
</TABLE>

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



                                       50
<PAGE>







                          Independent Auditors' Report





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



Under date of February 25, 1998, we reported on the consolidated  balance sheets
of Elamex,  S.A. de C.V. and  subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of earnings,  stockholders' equity, and cash
flows for each of the years in the  three-year  period ended  December 31, 1997,
which  are  included  in Item 8 of the  1997  annual  report  on Form  10-K.  In
connection  with  our  audits  of  the  aforementioned   consolidated  financial
statements,  we  also  audited  the  related  consolidated  financial  statement
schedule in the Form 10-K. This consolidated financial statement schedule is the
responsibility of the Company's management.  Our responsibility is to express an
opinion on this financial statement schedule based on our audits.

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


                                            KPMG Peat Marwick LLP


El Paso, Texas
February 25, 1998









                                       51
<PAGE>




Elamex & Subsidiaries
Valuation and qualifying accounts and reserves

<TABLE>
<CAPTION>

         Column A             Column B                Column C                Column D       Column E
         --------             --------                --------                --------       --------
                               Balance       Charged to     Charged to                     Balance at End
       For the Year         Beginning of      Cost and        Other                              of
          Ended                 Year          Expenses       Accounts         Deduction         Year
          -----                 ----         ----------     ----------        ---------         ----
Allowance for doubtful accounts (b):
<S>                             <C>              <C>            <C>     <C>     <C>           <C>
December 31, 1997               $525             311             -      (a)      308            528

December 31, 1996                149             527             -      (a)      151            525

December 31, 1995                194             160             -      (a)      205            149


Allowance for material obsolescence:
December 31, 1997             $1,898              -              -               180          1,718
December 31, 1996              1,471             427             -                -           1,898
December 31, 1995                863             608             -                -           1,471
----------------------------
<FN>
 (a)  Uncollectible accounts written off
 (b)  Included as a reduction of trade and other receivables
</FN>

</TABLE>




                                       52
<PAGE>





                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                               ELAMEX, S.A. DE C.V.

March 20, 1998                By:/s/ Hector M. Raynal
--------------                   -----------------------------------------------
Date                             Hector M. Raynal, President and Chief Executive
                                 Officer

March 20, 1998                By:/s/ Carlos D. Martens
--------------                   -----------------------------------------------
Date                             Carlos D. Martens, Vice-President of Finance
                                 and Chief Financial Officer


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


March 20, 1998                By:/s/ Eloy S. Vallina
--------------                   ----------------------------------------------
Date                             Eloy S. Vallina, Chairman of the Board of
                                 Directors

March 20, 1998                By:/s/ Jesus Alvarez-Morodo
--------------                   -----------------------------------------------
Date                             Jesus Alvarez-Morodo, Vice Chairman of the
                                 Board of Directors

March 20, 1998                By:/s/ Hector M. Raynal
--------------                   -----------------------------------------------
Date                             Hector M. Raynal, President, Chief Executive
                                 Officer, and Director (Principal Executive
                                 Officer)

March 20, 1998                By:/s/ Federico Barrio
--------------                   -----------------------------------------------
Date                             Federico Barrio, Vice Chairman of the Board of
                                 Directors


March 20, 1998                By:/s/ Jesus E. Vallina
--------------                   -----------------------------------------------
Date                             Jesus E. Vallina, Director


March 20, 1998                By:/s/ Eloy Vallina Garza
--------------                   -----------------------------------------------
Date                             Eloy Vallina Garza, Director


March 20, 1998                By:/s/ Eduardo L. Gallegos
--------------                   -----------------------------------------------
Date                             Eduardo L. Gallegos, Director



                                       53
<PAGE>


March 20, 1998                By:/s/ Antonio L. Elias
--------------                   -----------------------------------------------
Date                             Antonio L. Elias, Director


March 20, 1998                By:/s/ Jerry W. Neely
--------------                   -----------------------------------------------
Date                             Jerry W. Neely, Director


March 20, 1998                By:/s/ Leon Reinhart
--------------                   -----------------------------------------------
Date                             Leon Reinhart, Director

                              By:
--------------                   -----------------------------------------------
Date                             Robert J. Whetten, Director




                                       54