2. Nature of Business

2.1 Corporate History

  The Company was first registered, on 5 January 1994 under the name
  Nakornthai Strip Mill Co., Ltd. with funds substantially provided by
  the Horrungruang group and a credit facility provided by a syndicate
  of Thai banks. Construction of the NSM mill commenced in 1995 and the
  Company was listed on the SET in 1996 with an IPO price of Bt 16 per
  share with the par value of Bt 10 per share.

  Construction and start-up of the Hot Mill was completed in 1997 and
  the Company commenced commissioning in October same year. During the
  commissioning period, NSM produced a total of 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. On
  12 March 1998 the Company successfully raised US$ 505.63 million via a
  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 operation in the United States.

  However, due to the fall in the international price of hot-rolled
  steel from approximately US$340 to US$200 per tonne in 1998, SDI
  cancelled its management contract. As a result of SDI’s withdrawal,
  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
  had been mothballed since 1999.

  The cessation of production caused the Company cash flow worse than
  expected. Lack of liquidity since December 1998 caused the company
  unable to settle any due debts.

  The Company entered into the debt restructuring process under the
  supervision of CDRAC in 1999. The Company entered into the business
  re-organization process pursuant to the Bankruptcy Act in April 2000.
  On October 27-29, 2003, the Company processed of raising funds, an
  essential of reorganizing process by offered New Shares in Public
  Offering in the amount of 1,800,000,000 shares with a par value of Bt
  8.25 per share. The Public Offering price is Bt 2.20 per share.
  Including Conversion under Rehabilitation Plan resulted in total
  amount of Bt 74,137,788,788.25 paid-up Capital and total of
  8,986,398,641 common shares.

  Major Events and Developments

  2002

  April American Appraisal (Thailand) conducted an independent review of
  the assets of the Company, and this revealed a significant reversal of
  the previous impairment recorded in asset values.

  July The Official Receiver distributed the Amended Plan to the
  Creditors.

  October The Company submitted revised income tax returns, from 1998
  through 2001, to the Revenue department and revised income reports to
  BOI authorities for the same period, reclassifying the 1998 CSP
  project sales income, as non -promoted sales income, as the CSP
  project was under Commissioning and Test Run during 1998.

  December NTS Steel Group Plc. (“NTS”) entered into a merger between
  NTS and companies in the Siam Cement Group. NTS reduced its shares in
  NSM from 31.31% to 8.14%. The amount of shares reduced was transferred
  to NTS’s Creditors.

  11 December The Company received approval for the Amended Plan from
  the Central Bankruptcy Court of Thailand.

  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 the merger of
  steel industry businesses in order 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 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 to be 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 Bt 8,600,000,000 to Bt 7,186,398,640 and
  on October 10, the Company registered the increase of authorized share
  capital from Bt 7,186,398,640 to be Bt 128,157,480,290.

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

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

  On November 6, the Company registered the increase of paid-up capital
  of total 14,850,000,000 from Bt 59,287,788,788.25 to Bt
  74,137,788,788.25, portion of common shares in total of 8,986,398,641
  shares. Change of authority of the Company’s director 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 slab route. On
  December 18, the Company had successfully completed the full process
  Hot Commissioning, starting from Scrap Melting, Casting through
  Rolling and underwent a final combined equipment test (“Hot
  Commissioning”) producing hot rolled coils.

  2004

  January The Company started Production for Commercial.

  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 also 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 a President and approved to appoint Mr.
  Don Bhasavanich to be a President effective on 1 June 2004.

August The Company moved into 24 hours of operations from 12 hours 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.

2.2 Business Operation

Overview of Business Operation Structure as at 31 December 2004

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 in 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. Presently the Company is in the process of formally
  liquidating both subsidiary companies.

2.3 Revenue Structure

  The Company has commenced normal operations during the year 2004 and
  achieved continuous improvement in production volumes. This has
  enabled the Company to generate income from product sales. In 2003,
  there were some sales of redundant inventory.

+---------------------------+-------+-----+-------+-----+------+-----+
|                           | 2004  |     | 2003  |     | 2002 |     |
+---------------------------+-------+-----+-------+-----+------+-----+
|                           | Baht  | %   | Baht  | %   | Baht | %   |
|                           | Mi    |     | Mi    |     | Mil  |     |
|                           | llion |     | llion |     | lion |     |
+---------------------------+-------+-----+-------+-----+------+-----+
| Sales                     | 9,5   | 95  | -     | -   | 6.53 | 0   |
|                           | 11.33 | .34 |       |     |      | .11 |
| HRC                       |       |     | 29.40 | 1   | 5    |     |
|                           | 2     | 2   |       | .61 | 2.45 | 0   |
| Raw Material              | 19.02 | .20 |       |     |      | .86 |
+---------------------------+-------+-----+-------+-----+------+-----+
| Interest Income           | 12.86 | 0   | 1.99  | 0   | 1.74 | 0   |
|                           |       | .13 |       | .11 |      | .03 |
+---------------------------+-------+-----+-------+-----+------+-----+
| Other Income              | -     | -   | 8     | 48  | 5,46 | 89  |
|                           |       |     | 82.55 | .45 | 5.26 | .13 |
| Gain on reversal of       | 1     | 1   |       |     |      |     |
| impairment of             | 05.03 | .05 | 8     | 46  | 50   | 8   |
| Fixed Assets              |       |     | 42.08 | .23 | 2.30 | .19 |
|                           | 80.01 | 0   |       |     |      |     |
| Gain on foreign exchange  |       | .80 | -     | -   | -    | -   |
|                           | -     |     |       |     |      |     |
| Reversal of devaluation   |       | -   | 65.66 | 3   | 10   | 1   |
| of inventories            | 47.81 |     |       | .60 | 1.37 | .65 |
|                           |       | 0   |       |     |      |     |
| Gain on debt              |       | .48 |       |     | 2.06 | 0   |
| restructuring of          |       |     |       |     |      | .03 |
| receivables               |       |     |       |     |      |     |
|                           |       |     |       |     |      |     |
| Other income              |       |     |       |     |      |     |
+---------------------------+-------+-----+-------+-----+------+-----+
| Total                     | 9,9   | 100 | 1,8   | 100 | 6,13 | 100 |
|                           | 76.06 | .00 | 21.68 | .00 | 1.71 | .00 |
+---------------------------+-------+-----+-------+-----+------+-----+

2.4 Business Objectives

  Since restart of NSM in the late 2003, initial goal was to restart and
  stabilize hot roll production upon raising of sufficient funds, along
  with compiling the construction of the Finishing Facility to optimize
  revenue through value added products. This goal was satisfactory
  achieved during 2004 by commencing 24 hr-7 day operations in the third
  quarter of 2004 and benefit in improving operating costs. NSM was also
  able to show record monthly production of over 86,000 tons by the
  month of December.

  Unchanged is the stated next goal of becoming the world’s most
  efficient lowest-cost producer of high quality flat-rolled steel
  products. Product line would ultimately include hot-rolled, pickled &
  oil and galvanised products, as well as other high value-added
  downstream speciality products. Quality received a clear focus and a
  drive towards an ISO 9001 certification has been under way from the
  last quarter of 2004.

  The Company’s medium-to long-term target is to gradually move away
  from commodity products, which are normally subject to price
  fluctuations and move towards production of high value-added products
  to optimize its earnings and profitability.

  Subsequent to successful financial restructuring during 2003, rapid
  stabilization of production facility during 2004 and target completion
  of the existing facilities, the Company will continually set upward
  growth goals. During 2005 the Company plans to achieve a sales volume
  of one million tons through hot rolled, tempered rolled & pickle & oil
  product sales, upon achieving of one half million ton sales volume
  target during 2004. Following such trend the Company also targets to
  enter the coated product market during 2006 upon completion of the CGL
  facility and further revise the sales target volume.