2. Nature of Business

1.  Corporate History

  The Company was first registered in 1994 under the name Nakornthai
  Strip Mill Co., Ltd. with funds substantially provided by the
  Horrungruang group and a credit facility by a syndicate of Thai banks.
  Construction of the mill commenced in 1995 and the Company was listed
  on the SET in 1996 with an IPO price of Baht 16 per share with the par
  value of Baht 10 per share.

  Construction and start-up of the Hot Mill was completed in 1997 and
  the Company commenced commissioning in October the same year. During
  commissioning, NSM produced 207,129 tonnes of hot-rolled steel.
  However, because of the financial crisis that hit Thailand in 1997,
  the Company was unable to raise further funds in the domestic market
  as planned, to finish the DRI and finishing facilities.

  With a lack of domestic financing, NSM looked to complete the
  mini-mill by raising funds through the US debt and equity markets. In
  March 1998 the Company successfully raised US$ 505.63 million US Notes
  issue. As a condition to the issue, NSM was required to bring in
  management expertise through Steel Dynamics Inc (“SDI”), a leading
  mini-mill operator in the United States.

  However, due to the fall in the international price of hot-rolled
  steel from US$ 340 to US$ 200 per tonne in 1998, SDI cancelled its
  management contract. As such, the Company’s access to its remaining
  funds had been severely restricted under the terms of its long-term
  debt agreement, that were scheduled to be provided to the Company, and
  completion of the construction of the facilities was forced to be
  discontinued. The mill was mothballed from 1999.

  Cessation of production impacted the Company cash flow worse than
  expected. Lack of liquidity since December 1998 caused the company to
  be unable to settle any debts.

  The Company entered into debt restructuring under the supervision of
  CDRAC in 1999. It entered into the business re-organization pursuant
  to the Bankruptcy Act in April 2000. On October 27-29, 2003, the
  Company was able to raise funds, essential for the reorganizing
  process, by offering new shares in the Public Offering of
  1,800,000,000 shares with a par value of Baht 8.25 per share. The
  Public Offering price was at Baht 2.20 per share. Including conversion
  under the Rehabilitation Plan this led to Baht 74,137,788,788.25
  paid-up capital and a total of 8,986,398,641 common shares.

  Major Events and Developments

  2003

  21 January the Company signed a Memorandum of Understanding (“MOU”)
  with the Thai Asset Management Corporation (“TAMC”) and Siam
  Integrated Cold Rolled Steel Plc (“SICOS”) to consider a possible
  merger with SICOS. It is understood that the MOU arose as a result of
  the stated policy of the Thai government to encourage merger in steel
  to restructure the steel industry in Thailand. TAMC appointed advisers
  to carry out a study of the proposed merger.

  7 June the Company signed another MOU with TAMC and SICOS to consider
  the possibility of merging the business with SICOS. It is understood
  that the memorandum is only the joint consideration of the proposal
  and has no binding effect upon the Company.

  26 September The Central Bankruptcy Court granted approval to Maharaj
  Planner Company Limited (“the Plan Administrator”) to proceed with the
  registration of the decrease of the Company’s authorized share capital
  and increase of the Company’s authorized share capital with the
  Ministry of Commerce, in accordance with the debt restructuring set
  forth in the Plan.

  October On October 9, the Company registered the decrease of
  authorized share capital from Baht 8,600,000,000 to Baht 7,186,398,640
  and on October 10, the Company registered the increase of authorized
  share capital from Baht 7,186,398,640 to Baht 128,157,480,290.

  On October 31, 2003, the Company registered the increase of the
  paid-up capital derived from debt-to-equity conversion from Baht
  7,186,398,640 to Baht 71,863,986,410 and issued warrant for existing
  shareholders at the total amount of 3,233,879,388 units.

  November On November 4, 2003, the Company registered the decrease of
  par value of shares from Baht 10 per share to Baht 8.25, from Baht
  128,157,480,290 to Baht 105,729,921,239.25, with paid-up capital of
  Baht 59,287,788,788.25.

  On November 6, the Company registered the increase of paid-up capital
  of Baht 14,850,000,000 from Baht 59,287,788,788.25 to Baht
  74,137,788,788.25, portion of the common shares in the total of
  8,986,398,641 shares. Change of authority of the directors to be Mr.
  Sawasdi Horrungruang sign jointly with Mr. Chan Bulakul or Mr. Anut
  Chatikavanij or Mr. Kerry Hill or Mr. Abinash Majhi together with the
  Company’s seal affixed.

  On November 18, 2003, SET allowed the securities of the Company to
  resume trading under the REHABCO sector.

  December On December 13, the Company had successfully completed the
  first phase of the hot commissioning and test run of its core steel
  production facility by producing the first coil through the slab
  route. On December 18, the Company had successfully completed the full
  process Hot Commissioning, starting from scrap melting, casting
  through to rolling, and successfully underwent a final combined
  equipment test (“Hot Commissioning”) producing hot rolled coils.

  2004

  January The Company started production for commercial market.

  March On March 10, Creditors’ Committee acknowledged the resignation
  of Mr. Kerry Hill, Managing Director effective on 16 December 2003 and
  approved to appoint Mr. Anthony W. Bagnall to be a Senior Vice
  President Overseeing Plant and Production effective on 16 February
  2004. Approved of changing a called-position from Managing Director to
  President and approved to appoint Mr. Sawasdi Horrungruang to be a
  President effective on 10 March 2004.

  June On June 4, Creditors’ Committee acknowledged the resignation of
  Mr. Sawasdi Horrungruang as President and approved to appoint Dr. Don
  Bhasavanich to be a President effective on 1 June 2004.

August The Company moved into 24-hours operations from the previous 12
hours per day of operation.

September The Company achieved net profit from the 3^(rd) quarter
operation results.

December The Company achieved net profit from cumulative operation for
the year ended 2004.

2005

  1 March The Plan Administrator acknowledged resignation of Mr. Chan
  Bulakul and Mr. Anut Chatikavanij, directors of the Company and
  approved to appoint Dr. Don Bhasavanich and Ms. Pattama Horrungruang
  to be the directors instead. Approved given to change authority of the
  Company’s directors to be Mr. Sawasdi Horrungruang signing jointly
  with Ms. Pattama Horrungruang or Dr. Don Bhasavanich or Mr. Abinash
  Majhi together with the Company’s seal affixed.

  May The Stock Exchange of Thailand (SET) has transferred the
  securities of NSM from the REHABCO sector to Construction Materials
  sector, Property and Construction group on 20 May 2005.

  On 20 May 2005, the Company registered the increase of the registered
  capital in the amount of Baht 967,862,131.50 from the registered
  capital of Baht 105,729,921,239.25 to Baht 106,697,783,370.75 by
  issuing 117,316,622 ordinary shares with the par value of Baht 8.25
  and, registered the increase of the paid up capital of the Company in
  the amount of Baht 967,862,131.50 from the paid up capital of Baht
  74,137,788,788.25 to Baht 75,105,650,919.75. The registration was made
  at the Department of Business Development, the Ministry of Commerce.

  16 August The Company registered the increase of the registered
  capital in the amount of Baht 931,710,565.50 from the registered
  capital of Baht 106,697,783,370.75 to Baht 107,629,493,936.25 by
  issuing 112,934,614 ordinary shares with the par value of Baht 8.25
  and registered the increase of the paid up capital of the Company in
  the amount of Baht 931,710,565.50 from the paid up capital of Baht
  75,105,650,919.75 to Baht 76,037,361,485.25. The registration was made
  at the Department of Business Development, the Ministry of Commerce.

  December The Company’s quality for the entire production process has
  been assured by achievement of ISO 9001:2000

2.  Business Operation

    Overview of Business Operation Structure as at 31 December 2005

100.00%

100.00%

  The Company is primarily engaged in the manufacture of steel and steel
  related products. NSM Steel Company Limited (“NSM Cayman”) is a
  wholly-owned subsidiary of the Company, whilst NSM Steel (Delaware)
  Inc (“NSM Delaware”) is a wholly-owned subsidiary of NSM Cayman and
  both are established outside Thailand.

  NSM Cayman has been organized solely for the purpose of issuing Senior
  Mortgage Notes Due 2006, Senior Subordinated Mortgage Notes Due 2008,
  and Subordinated Second Mortgage Debentures Due in 2009. NSM Delaware
  issued Notes solely as an agent of NSM Cayman. The Notes are
  irrevocably and unconditionally guaranteed by the Company. These two
  subsidiaries have no income, because they have no operations and have
  not engaged in any business.

  The Company intends to complete the liquidation of NSM Cayman after
  completion of the business rehabilitation. Presently, NSM Delaware is
  no longer in existence, and has been so proclaimed in accordance with
  provisions of general corporation laws of the state of Delaware.

3.  Revenue Structure

  The Company commenced operations in 2004 and from 2005 the Company has
  achieved continuous improvement in production volumes, as well as
  generated income from product sales. In 2003, there were sales of
  redundant inventory.

+------------------------+-------+-----+-------+------+-------+------+
|                        | 2005  |     | 2004  |      | 2003  |      |
+------------------------+-------+-----+-------+------+-------+------+
|                        | Baht  | %   | Baht  | %    | Baht  | %    |
|                        | Mi    |     | Mi    |      | Mi    |      |
|                        | llion |     | llion |      | llion |      |
+------------------------+-------+-----+-------+------+-------+------+
| Sales                  | 13,8  | 87  | 9,5   | 9    | -     | -    |
|                        | 98.13 | .65 | 11.33 | 5.34 |       |      |
| HRC                    |       |     |       |      | 29.40 | 1.61 |
|                        | 87.57 | 0   | 2     | 2.20 |       |      |
| Raw material & iron    |       | .55 | 19.02 |      |       |      |
| unit                   |       |     |       |      |       |      |
+------------------------+-------+-----+-------+------+-------+------+
| Interest Income        | 3.73  | 0   | 12.86 | 0.13 | 1.99  | 0.11 |
|                        |       | .02 |       |      |       |      |
+------------------------+-------+-----+-------+------+-------+------+
| Other Income           | 1,7   | 11  | -     | -    | 8     | 4    |
|                        | 84.86 | .26 |       |      | 82.55 | 8.45 |
| Gain on reversal of    |       |     | 1     | 1.05 |       |      |
| impairment of          | -     | -   | 05.03 |      | 8     | 4    |
| fixed assets           |       |     |       | 0.80 | 42.08 | 6.23 |
|                        | -     | -   | 80.01 |      |       |      |
| Gain on foreign        |       |     |       | 0.48 | -     | -    |
| exchange               | 81.79 | 0   | 47.81 |      |       |      |
|                        |       | .52 |       |      | 65.66 | 3.60 |
| Reversal of            |       |     |       |      |       |      |
| devaluation of         |       |     |       |      |       |      |
| inventories            |       |     |       |      |       |      |
|                        |       |     |       |      |       |      |
| Other income           |       |     |       |      |       |      |
+------------------------+-------+-----+-------+------+-------+------+
| Total                  | 15,8  | 100 | 9,9   | 10   | 1,8   | 10   |
|                        | 56.08 | .00 | 76.06 | 0.00 | 21.68 | 0.00 |
+------------------------+-------+-----+-------+------+-------+------+

4.  Business Objectives

  Since the return to operation for NSM in the late 2003, initial goal
  was to restart and stabilize the hot roll production upon raising
  sufficient funds, and completing construction of the Finishing
  Facility to optimize revenue through value added products.

  This goal was achieved during 2004 evidenced by commencement of the
  24-hr x 7-day operations from the third quarter of 2004. Immediate
  benefit was the improvement in the operational conversion costs. Soon
  after NSM was able to demonstrate a record monthly production of over
  86,000 tonnes in December 2004. Integrity of the hot roll production
  equipment was essentially proven. Production reached nearly the
  capacity level in one year after the restart.

  Next goal for NSM is to become one of the world’s most efficient,
  lowest-cost producers of high quality flat-rolled steel products. NSM
  product line would extend from the basic hot-rolled steel to high
  value-added pickled & oil and galvanised products, and to other
  downstream speciality products. As such, quality receives an utmost
  attention. ISO9001:2000 certification by the end of 2005 is but one
  major step towards reaching the world standards and competitiveness.

  The Company’s medium- to long-term goal is to move away from commodity
  products, which are subjected to frequent price fluctuation. NSM
  charts a plan towards production of high value-added products to
  expand the product mix, and to optimise earnings and profitability.

  Continued growth and enhanced product mix are the major objectives for
  the Company. During 2006 NSM plans to achieve sales of near one
  million tonnes through hot rolled, tempered rolled and pickle & oil
  products, compared with the over 770,000 tonnes in 2005 and 500,000
  tonnes during the 2004 restart. The Company also targets to enter the
  coated product market during 2008 upon completion of the CGL
  (continuous galvanizing line) facility.