<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>e15109_20f.txt
<DESCRIPTION>FORM 20-F
<TEXT>
     As filed with the Securities and Exchange Commission on June 30, 2003

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    Form 20-F

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 31, 2002

                         Commission File Number 1-11176

                            GRUPO SIMEC, S.A. de C.V.

             (Exact name of Registrant as specified in its charter)

                            GROUP SIMEC, S.A. de C.V.

                 (Translation of Registrant's name into English)

                              UNITED MEXICAN STATES

                 (Jurisdiction of incorporation or organization)

                           CALZADA LAZARO CARDENAS 601

                        COLONIA LA NOGALERA, GUADALAJARA,

                              JALISCO, MEXICO 44440

                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

   Title of each class                 Name of each exchange on which registered
   -------------------                 -----------------------------------------

American Depositary Shares                      American Stock Exchange
  Series B Common Stock                         American Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

                                      None

Securities for which there is a reporting  obligation  pursuant to Section 15(d)
of the Act.

                                      None

      Indicate the number of outstanding  shares of each of the issuer's classes
of common stock as of the close of the period covered by the annual report.

                 Series B Common Stock -- 2,160,625,003 shares**
                            (As of December 31, 2002)

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

                                 Yes (X) No ( )

      Indicate by check mark which  financial  statement item the registrant has
elected to follow.

                             Item 17 ( ) Item 18 (X)

----------
 *    Not for trading,  but only in connection with the registration of American
      Depositary Shares.

**    Does not reflect the effects of the 1 for 20 reverse split with respect to
      Series B Common Stock effective as of February 20, 2003.
<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

                                     PART I.

Item 1.  Identity of Directors, Senior Management and Advisers...............  1

Item 2.  Offer Statistics and Expected Timetable.............................  1

Item 3.  Key Information.....................................................  1

Item 4.  Information on the Company..........................................  7

Item 5.  Operating and Financial Review and Prospects........................ 18

Item 6.  Directors, Senior Management and Employees.......................... 24

Item 7.  Major Shareholders and Related Party Transactions................... 28

Item 8.  Financial Information............................................... 30

Item 9.  Offer and Listing Details........................................... 31

Item 10. Additional Information.............................................. 32

Item 11. Quantitative and Qualitative Disclosures About Market Risk.......... 40

Item 12. Description of Securities Other than Equity Securities.............. 41

                                    PART II.

Item 13. Defaults, Dividends Arrearages and Delinquencies.................... 49

Item 14. Material Modifications to the Rights of Security Holders
         and Use of Proceeds................................................. 49

Item 15. Controls and Procedures............................................. 49

Item 16. Reserved............................................................ 49

                                    PART III.

Item 17. Financial Statements................................................ 50

Item 18. Financial Statements................................................ 50

Item 19. Exhibits............................................................ 50


                                     - i -
<PAGE>

Presentation of Financial Information

      Grupo Simec, S.A. de C.V. (collectively with its subsidiaries,  "Simec" or
the "Company") is a corporation (sociedad anonima de capital variable) organized
under the laws of the United Mexican States. The Company publishes its financial
statements  in  Mexican  pesos.  Pursuant  to  accounting  principles  generally
accepted in Mexico ("Mexican GAAP"), financial statement amounts for all periods
in the  consolidated  financial  statements of the Company and, unless otherwise
indicated,  throughout this Annual Report,  have been restated in constant pesos
as of December 31, 2002 (i.e.,  pesos with purchasing power as of that date). In
this  Annual  Report,  references  to "pesos" or "Ps." are to Mexican  pesos and
references  to "U.S.  dollars,"  "U.S.$,"  "dollars" or "$" are to United States
dollars.  This Annual Report contains  translations of certain peso amounts into
U.S. dollars at specified rates solely for the convenience of the reader.  These
translations  should not be construed as  representations  that the peso amounts
actually  represent  those U.S.  dollar  amounts or could be converted into U.S.
dollars at the rate indicated.  Unless otherwise indicated,  U.S. dollar amounts
that have been translated from pesos have been so translated at an exchange rate
of Ps.  10.3125 to $1.00 based on the  average  rate of  exchange  announced  by
principal  Mexican banks for same-day  settlement of interbank  transactions  in
effect on December  31, 2002 as  determined  by Banco de Mexico (the  "Interbank
Transactions  Rate").  The noon buying rate in New York City for cable transfers
payable in pesos,  as  certified  by the  Federal  Reserve  Bank of New York for
customs  purposes (the "Noon Buying  Rate") on June 26, 2003 was Ps.  10.4580 to
$1.00.

Forward Looking Statements

      This Annual Report contains certain  forward-looking  statements regarding
the business of Simec. When used in this Annual Report, the words "anticipates,"
"plans," "believes,"  "estimates,"  "intends," "expects," "projects" and similar
expressions are intended to identify  forward-looking  statements,  although not
all forward-looking statements contain those words. These statements,  including
but not limited to Simec's  statements  regarding  its strategy for raw material
acquisition,  products and markets,  production processes and facilities,  sales
and distribution and exports,  growth and other trends in the steel industry and
various  markets,  operations  and liquidity and capital  resources are based on
management's  beliefs,  as well  as on  assumptions  made  by,  and  information
currently available to, management, and involve various risks and uncertainties,
some of which are beyond  Simec's  control.  Simec's actual results could differ
materially from those expressed in any  forward-looking  statement.  In light of
these risks and  uncertainties  there can be no assurance  that  forward-looking
statements  will in fact prove to be  accurate.  Factors that might cause actual
results to differ from  forward-looking  statements include, but are not limited
to,  actions taken by Simec's  creditors,  future capital  expenditures,  future
devaluations of the peso, the imposition by Mexico of foreign exchange  controls
and price controls,  the costs of compliance with U.S. and Mexican environmental
laws,  factors relating to the steel industry  (including the cyclicality of the
industry,  worldwide  production  capacity,  the high degree of competition from
Mexican  and  foreign  producers  and the price of  ferrous  scrap and other raw
materials),  the influence of economic and market  conditions in other countries
on Mexican  securities as well as the factors set forth in "Risk  Factors" under
Item 3 of this Annual  Report.  All references to tons in this Annual Report are
to metric tons. One metric ton is equal to 1.102 short tons.

                                    PART I.

Item 1. Identity of Directors, Senior Management and Advisers

      Not applicable.

Item 2. Offer Statistics and Expected Timetable

      Not applicable.

Item 3. Key Information

Selected Financial Data

      The  information  set forth below has been  selected  or derived  from the
Company's audited  consolidated  financial  statements and notes thereto for the
fiscal year ended December 31, 2002 included elsewhere in this
<PAGE>

Annual  Report and which are referred to in this Annual  Report and which as the
"Consolidated  Financial  Statements."  Such  information  is  qualified  in its
entirety by reference to the Consolidated  Financial  Statements,  including the
Notes  thereto  and Item 5,  "Operating  and  Financial  Review and  Prospects",
included  elsewhere  in this Annual  Report.  In 2001,  the Company  changed its
auditor from Arthur Andersen to KPMG Cardenas, Dosal, S.C., in order to have the
same auditor as its new parent,  Industrias CH, S.A. de C.V.  ("Industrias CH").
Thus,  the  selected  consolidated  financial  data for the fiscal  years  ended
December  31,  1998,  1999 and 2000 are  extracted  from the  Company's  audited
consolidated financial statements which have been reported on by Arthur Andersen
and  should  be  read  in  conjunction  with  those  statements.   The  selected
consolidated  financial  data for the fiscal  years ended  December 31, 2001 and
2002 is extracted from the Company's audited  consolidated  financial statements
which have been reported on by KPMG Cardenas, Dosal, S.C., and should be read in
conjunction with those statements.

      The Company's consolidated financial statements are prepared in accordance
with Mexican GAAP, which differs in significant respects from generally accepted
accounting  principles  in  the  United  States  ("U.S.  GAAP").  The  financial
information  set forth below is also presented in accordance  with U.S. GAAP. In
accordance  with  Mexican  GAAP rules on  inflation  accounting,  the  Company's
consolidated  financial  statements  recognize  certain effects of inflation and
restate data for prior  periods in constant  pesos as of December 31, 2002.  The
effect of these  inflation  accounting  principles  has not been reversed in the
reconciliation  to U.S. GAAP. Note 14 to the Consolidated  Financial  Statements
provides a description  of the principal  differences  between  Mexican GAAP and
U.S. GAAP as they relate to the Company,  and a  reconciliation  to U.S. GAAP of
net income and total stockholders' equity.

      The  consolidated  financial  statements,  including the figures set forth
below, reflect adjustments  calculated in accordance with Accounting  Principles
Bulletin B-10, as amended  ("Bulletin B-10") issued by the Instituto Mexicano de
Contadores Publicos (the "Mexican Institute of Public Accountants").  Generally,
Bulletin  B-10 is  designed to  recognize  the  effects of  inflation  by making
certain adjustments to financial statements and to present the amounts contained
in such financial  statements in constant pesos  calculated as of the end of the
most recent period  presented,  which for each of the periods set forth below is
December 31, 2002.

      For an explanation of certain terms used in the tables below and elsewhere
throughout this Annual Report, see Item 5.


                                     - 2 -
<PAGE>

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                      -----------------------------------------------------
                                                      1998        1999        2000        2001         2002            2002(1)
                                                      ----        ----        ----        ----         ----            -------
                                                          (Millions of constant December 31, 2002 pesos,       (Millions of dollars,
                                                                   except share and per ADS data)                 except share and
                                                                                                                    per ADS data)
<S>                                                 <C>         <C>         <C>        <C>          <C>                <C>
Income Statement Data:
Mexican GAAP:
   Net sales .................................        3,024       2,581       2,431        2,011        2,112          204.80
   Direct cost of sales ......................        1,981       1,617       1,607        1,350        1,413          137.02
   Marginal profit ...........................        1,043         964         824          661          699           67.78
   Indirect manufacturing, selling, general
     and administrative expenses .............          391         371         386          331          288           27.93
   Depreciation and amortization .............          188         167         152          140          156           15.13
   Operating income (2) ......................          464         426         286          190          255           24.72
   Financial income (expense) (6) ............         (584)        185        (114)           5         (123)         (11.92)
   Other income (expense), net (3) ...........          (27)        (19)        (64)          64          (36)          (3.49)
   Income (loss) from continuing operations
     before taxes, employee profit sharing
     and minority interest ...................         (147)        592         108          259           96            9.31
   Income tax expense and employee profit
     sharing (4) .............................           47          52         133           17          (22)          (2.13)
   Income (loss) from continuing operations ..         (194)        540         (25)         242          118           11.44
   Income (loss) from discontinued
     operations ..............................           10           8           7            0            0               0
   Credit (provision) for loss on disposal
      of segments ............................           37         (12)        (22)           0            0               0
   Net income (loss) .........................         (147)        536         (40)         242          118           11.44
   Minority interest .........................            2           1           0            0            0               0
   Majority interest .........................         (149)        535         (40)         242          118           11.44
   Net income (loss) per ADS (5) .............           (7)         26          (2)           4            1            0.11
   Diluted net income (loss) per ADS (5) .....           (3)         12          (1)           4            1            0.11
   Weighted average shares outstanding
     (000's) .................................      414,301     414,301     414,301    1,096,323    1,999,344
   Weighted average shares outstanding,
     plus potential shares from convertible
     debt (000's) ............................      907,153     907,153     907,153    1,096,323    1,999,344
U.S. GAAP including effects of inflation:
   Net sales .................................        3,024       2,582       2,431        2,011        2,112          204.80
   Cost of sales .............................        1,980       1,618       1,606        1,345        1,417          137.41
   Marginal profit ...........................        1,044         964         825          666          695           67.39
   Operating income (2) ......................          564         635         257          176          224           21.72
   Financial income (expense) (6) ............         (583)        185        (113)           6         (124)         (12.02)
   Other income (expense), net (3) ...........          (27)        (19)        (62)         578          (66)          (6.40)
   Income (loss) from continuing operations
     Before taxes and minority interest ......          (46)        801          82          760           34            3.30
   Income tax expense (income) (4) ...........          106         183          56           61         (106)         (10.28)
   Income (loss) from continuing operations
     Before minority interest ................         (152)        618          26          699          140           13.58
   Minority interest .........................            0           3           0            0            0            0.00
   Income (loss) from continuing operations ..         (152)        615          26          699          140           13.58
   Income (loss) from continuing operations ..           (7)         30           1           13            1            0.14
     per share  (5)
   Diluted  net  income  (loss) per
     share (5) ..............................            (3)         14           1           13            1            0.14
</TABLE>


                                     - 3 -
<PAGE>

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                      -----------------------------------------------------
                                                      1998        1999        2000        2001         2002            2002(1)
                                                      ----        ----        ----        ----         ----            -------
                                                          (Millions of constant December 31, 2002 pesos,       (Millions of dollars,
                                                                   except share and per ADS data)                 except share and
                                                                                                                    per ADS data)
<S>                                                   <C>         <C>         <C>          <C>          <C>            <C>
   Income (loss) from discontinued
     operations ..............................            8           7           8            0            0            0.00
   Credit (provision) for loss on
     disposal of  segments ...................           68         (12)        (22)           0            0            0.00
   Net income (loss) .........................          (76)        610          12          699          140           13.58

Balance Sheet Data:
Mexican GAAP:
   Total assets ..............................        6,816       6,111       5,286        4,885        5,222          506.38
   Long-term debt ............................        3,954       3,094       1,777          706          775           75.15
   Total stockholders' equity ................        2,343       2,206       1,190        2,934        3,595          348.61
U.S. GAAP including effects of inflation:
   Total assets ..............................        6,561       6,509       5,903        5,720        5,475          530.91
   Long-term debt ............................        3,954       3,094       1,777          706          858           83.20
   Total stockholders' equity ................          986       1,595       1,586        3,471        3,759          364.51

Other Data:
Mexican GAAP:
   Capital expenditures ......................           57          97          41           40            9            0.87
   Depreciation and amortization from
     continuing operations ...................          188         167         152          140          156           15.13
   Depreciation and amortization from
     discontinued operations .................           11           7           3            0            0            0.00
   Total depreciation and amortization .......          199         174         155          140          156           15.13
</TABLE>

----------
(1)   Peso  amounts  have been  translated  into  U.S.  dollars  solely  for the
      convenience  of the  reader,  at the rate of Ps.  10.3125  per $1.00,  the
      Interbank  Transactions  Rate in effect on  December  31,  2002.  See " --
      Exchange Rates."

(2)   Reflects  different  treatment  of direct cost of sales,  start-up  costs,
      employee profit sharing and accrued  vacation costs under Mexican GAAP and
      U.S. GAAP. See Note 14 to the Consolidated Financial Statements.

(3)   Includes  gains on sales of assets and sales not  related  to  production,
      provisions  for doubtful  accounts  derived from changes in the  estimates
      made in prior  years,  expenses  related  to the  disposal  of dust at the
      Guadalajara facility and financial restructuring fees.

(4)   Reflects different  treatment of deferred income taxes and employee profit
      sharing under Mexican GAAP and U.S. GAAP. See Note 14 to the  Consolidated
      Financial Statements.

(5)   For U.S.-GAAP  purposes,  the weighted  average  shares  outstanding  were
      calculated giving rise to the reverse split effect mentioned in note 13(d)
      to the Consolidated Financial Statements.

(6)   Reflects  different  treatment of gain from monetary position and exchange
      loss  capitalized  under  Mexican GAAP and U.S.  GAAP.  See Note 14 to the
      Consolidated Financial Statements.


                                     - 4 -
<PAGE>

      Exchange Rates

      Since  November 1991,  Mexico has had a free market for foreign  exchange.
Prior to December 21, 1994, the Mexican Central Bank, Banco de Mexico,  had kept
the  peso/U.S.  dollar  exchange  rate within a range  prescribed by the Mexican
Government through intervention in the foreign exchange markets. On December 21,
1994, the Mexican Government  announced its decision to suspend  intervention in
the foreign exchange market by the Mexican Central Bank and to allow the peso to
float freely against the U.S.  dollar.  The peso/U.S.  dollar  exchange rate has
exhibited periods of significant  volatility since the peso was allowed to float
freely  against  the U.S.  dollar.  There can be no  assurance  that the Mexican
Government  will  maintain its current  policies with regard to the peso or that
the peso will not fluctuate significantly in the future.

      The following table sets forth,  for the periods  indicated,  the high and
low rate for the purchase of dollars as well as average and period end rates for
each full year period  indicated,  expressed  in nominal  pesos per dollar based
upon the Noon  Buying  Rate.  The  average  figures  represent  the  average  of
month-end rates.

Periods                High            Low            Average         Period End
-------                ----            ---            -------         ----------
1998                  10.63            8.04             9.25             9.90
1999                  10.60            9.24             9.56             9.48
2000                   9.64            9.18             9.44             9.51
2001                   9.97            8.95             9.33             9.16
2002                  10.43            9.00             9.66            10.43

Periods                High            Low
-------                ----            ---
2002
  December            10.43           10.10

2003
  January             10.98           10.32
  February            11.06           10.77
  March               11.24           10.72
  April               10.77           10.31
  May                 10.42           10.11

      On June 26, 2003, the noon buying rate was Ps. 10.4580 to $1.00.

      Fluctuations  in the exchange  rate  between the peso and the U.S.  dollar
will affect the dollar equivalent of the peso price of shares of Series B Common
Stock on the Mexican Stock  Exchange and the price of ADSs on the American Stock
Exchange.  Any cash dividends will be paid by the Company in pesos, and exchange
rate  fluctuations will affect the dollar amounts received by holders of ADSs on
conversion by the  Depositary of cash dividends on the shares of Series B Common
Stock underlying ADSs.


                                     - 5 -
<PAGE>

Risk Factors

      The  following  are risk factors  relating to Simec and an  investment  in
shares of its Series B Common  Stock or American  Depositary  Shares.  The risks
described  below are not the only ones  facing the  Company.  Additional  risks,
including  those described  elsewhere in this Annual Report,  may impair Simec's
business operations.  The Company's business, results of operations or financial
condition  could be harmed if any of these risks  materialize  and, as a result,
the price of American  Depositary Shares representing its Series B common shares
could  decline  and  investors  could  lose  a  substantial   portion  of  their
investment.

      Information in these risk factors  concerning  Mexico has been included to
the extent that such  information  is publicly  available  to the  Company.  The
Company believes this  information is reliable,  but cannot guarantee that it is
accurate.

      Mexican Governmental, Political, Economic and Social Factors

      The  Mexican   Government  has  exercised,   and  continues  to  exercise,
significant   influence   over  the  Mexican   economy.   Accordingly,   Mexican
governmental  actions  concerning the economy and state-owned  enterprises could
have a significant  impact on Mexican private sector entities in general and the
Company in particular,  and on market conditions,  prices and returns on Mexican
securities,  including those of the Company.  The Company's financial condition,
results  of   operations   and  prospects  may  also  be  affected  by  currency
fluctuations,   inflation,   interest  rates,   regulation,   taxation,   social
instability  and  other  political,  social  and  economic  developments  in  or
affecting  Mexico.  There can be no assurance  that future  developments  in the
Mexican political, economic or social environment, over which the Company has no
control,  will not have a material  adverse  effect on the  Company's  business,
results of operations,  financial condition or prospects or adversely affect the
market price of the ADSs and the Series B Common Stock.

      A portion of Simec's debt is LIBOR-based  floating rate debt. Increases in
LIBOR will increase  Simec's debt  servicing  costs.  In addition,  increases in
interest rates,  high levels of inflation,  peso  devaluation and other economic
factors may adversely impact the Mexican  economy.  Their events could adversely
affect the business, financial condition, results of operations and prospects of
the Company.

      The  Mexican  economy  has in the  past  experienced  balance  of  payment
deficits  and  shortages  in  foreign  exchange  reserves.   While  the  Mexican
Government does not currently restrict the ability of Mexican or foreign persons
or  entities  to convert  pesos to  foreign  currencies  generally,  and to U.S.
dollars in particular,  it has done so in the past and no assurance can be given
that the Mexican  Government will not institute a restrictive  exchange  control
policy in the future. In addition, under Mexican law, Mexicans have the right to
pay  amounts  owed under  contracts  in pesos.  If the  Company  were  unable to
exchange such pesos into dollars or were unable to obtain sufficient dollars, it
would have difficulty  meeting its U.S. dollar denominated  payment  obligations
under its indebtedness. The effect of any such exchange control measures adopted
by the  Mexican  Government  on the Mexican  economy  cannot be  predicted.  See
"--Exchange Rates."

      Certain Accounting Considerations

      All  Mexican   companies  must  prepare  their  financial   statements  in
accordance with Mexican GAAP, which differs in certain significant respects from
U.S.  GAAP.  Among  other   differences,   Mexican  companies  are  required  to
incorporate the effects of inflation directly in their accounting records and in
their published financial statements.  Accordingly, Mexican financial statements
and reported  earnings may differ from those of companies in other  countries in
this and other respects.  See Note 14 to the Consolidated  Financial  Statements
for a description  of the principal  differences  between  Mexican GAAP and U.S.
GAAP.

      Cyclical Nature of Steel Industry

      The steel industry is cyclical in nature and sensitive to general national
and international  macroeconomic conditions. In addition,  although global steel
prices have increased during the first quarter of 2003, decreases during


                                     - 6 -
<PAGE>

2002 and over the last  several  years have led to a  decrease  in the prices of
Simec's  products and has  adversely  affected its profits over the last several
years.

      The cost of ferrous  scrap,  the  principal  raw material  used in Simec's
steel   operations,   is  subject  to  price   fluctuations.   Although  Simec's
wholly-owned  scrap  collection  and  processing  operations  furnish a material
portion of its scrap requirements, Simec must acquire the remainder of its scrap
from other sources.  Because increases in the prices Simec is able to charge for
its finished  steel  products  generally  lag increases in ferrous scrap prices,
such  increases in scrap prices can adversely  affect the  operating  results of
Simec. In 2002, the price of scrap decreased from 2001,  continuing the decrease
observed in recent  years.  However,  the price of scrap  increased in the first
quarter  of 2003 and  there  can be no  assurance  that  scrap  prices  will not
increase further.

      Energy Costs

      Energy  costs  constitute  a  significant  component  of Simec's  costs of
operations.  The Mexican  Government is currently the only domestic  supplier of
energy and has, in some cases,  increased  prices  above  international  levels.
Simec,  like all other high volume users of  electricity,  pays special rates to
the Comision Federal de Electricidad  for  electricity.  Simec also pays special
rates to  Pemex,  the  national  oil  company,  for gas used at the  Guadalajara
facility. See Item 4. Simec has not always been able to pass the effect of these
increases on to its customers and there is no assurance  that Simec will be able
to pass the effect of these increases on to its customers in the future.

      Tariffs, Anti-Dumping and Countervailing Duty Claims

      In  recent  years,  the  U.S.  Government  has  imposed  anti-dumping  and
countervailing duties against Mexican and other foreign steel producers, but has
not imposed any such penalties against the Company or the Company's products. In
the first quarter of 2002 the U.S.  Government  imposed  tariffs of 15% on rebar
and 30% on hot rolled bar and cold finish bar against  imports of steel from all
the countries  with the  exception of Mexico,  Canada,  Argentina,  Thailand and
Turkey;  in the first  quarter of 2003 the tariffs  were reduced to 12% on rebar
and 24% on hot rolled bar and cold finish bar.  There can be no assurances  that
anti-dumping or  countervailing  duties suits will not be initiated  against the
Company or that the U.S.  Government  will not impose  tariffs on steel  imports
from Mexico or that existing tariffs on U.S. steel imports from other countries,
including  those tariffs  referenced  above imposed in the first quarter of 2002
which expire in 2005 but are subject to review and potential  early  termination
in late 2003 will not be lifted in the future.

      In September 2001, the Mexican  Government  imposed tariffs of 25% against
imports  for all  products  that  Simec  produces  from all  countries  with the
exception  of the those which have a free trade  agreement  with  Mexico,  which
includes the United  States.  In March 2002,  the Mexican  Government  increased
these  tariffs to 35%.  In the third  quarter of 2002 the imposed  tariffs  were
reduced to 18%.  There can be no  assurances  that  countries  seeking to export
steel products to Mexico will not impose similar  tariffs on Mexican  exports to
their countries.

Item 4. Information on the Company

History and Development of the Company

      General

      Simec is a mini-mill  steel  producer in Mexico and  manufactures  a broad
range of small and medium-sized structural steel products.  Simec's products are
used  primarily  in the  residential,  commercial  and  industrial  construction
markets.  Simec  believes  that most of its  products  are used by the small and
mid-market  end-users  that  represent  a  substantial  portion  of the  Mexican
non-flat  steel  market.  Simec  currently  owns and operates  Mexico's  largest
non-flat structural steel mini-mill,  located in Guadalajara,  Jalisco,  through
its direct wholly-owned subsidiary, Compania Siderurgica de Guadalajara, S.A. de
C.V.  ("CSG"),  and  also  owns and  operates  a  mini-mill  in  Mexicali,  Baja
California  Norte,  through  its  indirect  wholly-owned  subsidiary,   Compania
Siderurgica de California, S.A. de C.V. ("CSC").

      Simec's steel  operations  commenced in 1969 when a group of families from
Guadalajara,  Jalisco,  formed CSG, a mini-mill  steel company.  In 1980,  Grupo
Sidek, S.A. de C.V. ("Sidek"), the former parent of Simec, was


                                     - 7 -
<PAGE>

incorporated and became the holding company of CSG. In 1990, Sidek  consolidated
its steel and aluminum  operations  into a separate  subsidiary  -- Grupo Simec,
S.A. de C.V.

      In  December  1997,  Simec  completed  a  corporate   reorganization   and
restructuring of its liabilities.  Prior to the restructuring,  Simec maintained
equity  interests in its  subsidiaries  through  direct  ownership or indirectly
through  interests in one or more of its other  wholly  owned or majority  owned
subsidiaries.  As part of the  restructuring,  CSG  borrowed  funds under a bank
credit facility  established as part of the restructuring  with a bank syndicate
composed of Simec's  then  existing  bank  lenders,  most of which were  Mexican
banks. In addition,  CSG issued notes offered in connection with a debt exchange
offer  consummated  concurrently  with  the  restructuring  for the  purpose  of
refinancing  all  of  the  then  outstanding  debt  of  Simec.  Pursuant  to the
restructuring  and  subsequent   transactions,   approximately  99%  of  Simec's
consolidated debt was replaced with an equal aggregate  principal amount of debt
of CSG. In return,  Simec  transferred its equity interest in its  subsidiaries,
other than CSG, to CSG,  increasing  CSG's equity  interest in those other Simec
subsidiaries.  As a result of the restructuring,  Simec's only material asset is
its 100% equity  interest in CSG. CSG, in turn,  holds a 100% equity interest in
each of  Simec's  indirect  subsidiaries,  or in the  case of  non-wholly  owned
subsidiaries,   the  equity  position  held  by  Simec   immediately   prior  to
consummation of the restructuring. See Item 5.

      In March 2001,  Sidek  consummated the sale of its entire  approximate 62%
controlling  interest in Simec to  Industrias  CH.  Industrias  CH also acquired
additional  common  shares held by certain of Simec's bank  creditors  that,  in
connection with the transaction,  converted  approximately $95.4 million of bank
debt ($90.2  million of  principal  and $5.2  million of  interest)  into common
shares  of  Simec  at a  conversion  price  equivalent  to  $3.87  per  American
depositary  share.  As  a  result,  at  that  time  Industrias  CH  acquired  an
approximate 82.5% interest in Simec.

      As a result of the acquisition by Industrias CH of a controlling  interest
in Simec,  CSG,  as  required by the terms of its  outstanding  notes  issued in
connection with the restructuring,  commenced an offer in April 2001 to purchase
all outstanding  notes at a price of 100% of their principal amount plus accrued
interest to the date of  redemption.  On June 8, 2001 CSG  redeemed  pursuant to
that offer  $14,505,664  in  aggregate  principal  amount of notes plus  accrued
interest.  On July 13, 2001 CSG  exercised  its  optional  redemption  right and
redeemed the remaining  $37,838,023  aggregate  principal amount of its notes at
100% of their  principal  amount  plus  accrued  interest.  Simec  financed  the
repurchases of the notes with loans from  Industrias CH. In the third quarter of
2001,  Industrias  CH converted  approximately  $69.5 million of loans to Simec,
plus  accrued  interest,  into  common  shares  of Simec at a  conversion  price
equivalent to $1.60 per American depositary share. Those loans to Simec had been
made  principally to fund the redemption of the notes and the retirement of bank
loans.  Industrias CH advised Simec that it has subsequently  resold such common
shares.

      Principal Capital Expenditures and Divestitures

      Simec seeks to improve its operating  efficiency and increase sales of its
product lines through  capital  investments  in new equipment and  technological
improvements. In 2000, Simec spent $3.1 million in capital investments. Projects
at the Guadalajara facility included:

      o     the increase the Sack rolling mill's production capacity by reducing
            the changeover  time from one product to another,  enabling  greater
            variety in the facility's monthly production,

      o     additional investment in the scrap shredder,

      o     warehouse improvements, and

      o     improvements  in the quality of special steel finished  products and
            related productivity through, among other things, the acquisition of
            a Farmer Norton Bar Turning Machine.

      Projects at the Mexicali facility in 2000 included:

      o     further  investment  to increase  the rolling  mill's  straightening
            capacity and

      o     the acquisition of a new dust collector.


                                     - 8 -
<PAGE>

      In 2001,  the Company  spent $4.2  million on capital  investments  all of
which were  funded  through  internal  resources.  Projects  at the  Guadalajara
facility included:

      o     the  purchase  of a  Co-Jet  system  for the  melt  shop in order to
            increase productivity and reduce energy consumption, and to increase
            the production of specialty steel products.

      Projects at the Mexicali facility in 2001 included:

      o     increasing the strengthening capacity at the rolling mill; and

      o     conversion of the rolling mill's heating  furnace in order to enable
            it to operate on either gas or heavy oil.

      In 2002, Simec spent $0.7 million in capital investments.  Projects at the
Guadalajara facility included the addition of a digital regulation system to the
electric  arc furnace in order to reduce  energy  consumption  at the melt shop.
Projects at the Mexicali facility include improvements to the warehouse.

      In 1998,  Simec  disposed of its aluminum  business  conducted by Aluminio
Conesa, S.A. de C.V.  ("Conesa") as part of Simec's corporate  reorganization in
order to focus exclusively on its steel business.  Conesa's  operations prior to
its disposition  were accounted for as a discontinued  operation for all periods
and its operating  results have been excluded from  continuing  operations.  See
Item 5 and Note 2 to the Consolidated Financial Statements.

      In 2000,  Simec sold its entire 50% interest in Moly-Cop  Mexico,  S.A. de
C.V. ("Moly-Cop"), to GS Industries Inc. for $2.4 million. Moly-Cop manufactures
grinding  balls used  principally  by grinding  mills in the mining,  cement and
chemical  industries.  In 2000,  Simec  also  sold its  entire  interest  in its
wholly-owned  subsidiary  Estral,  S.A.  de  C.V.  ("Estral"),  to  Contenedores
Industrial  Mezquital,  S.A. de C.V.  (90%) and to Mr. Arturo  Gerardo  Gonzalez
Martinez  (10%) for $3.5  million,  of which $3.15  million was paid in 2000 and
$0.35 million was paid in 2001. Estral  manufactures  light and structural steel
racks for warehousing and other industrial  storage.  In accordance with Mexican
GAAP and U.S.  GAAP,  the  operations  of  Moly-Cop  (until May 2000) and Estral
(until  October 2000) were  accounted  for as  discontinued  operations  for all
periods and their operating results are excluded from continuing operations.

Business Overview

      Simec's primary strategic  objective is to be Mexico's leading producer of
a broad range of small- and  medium-sized  structural  steel  profiles and steel
bars.  Simec's  operating  strategy  is  to  maximize  the  flexibility  of  its
manufacturing  facilities,   expand  capacity,  minimize  production  costs  and
continuously  improve product and process  quality as well as customer  service.
Its marketing and  distribution  strategy  focuses on  distributors  serving the
small and  mid-market  end-users  who  represent  a  substantial  portion of the
Mexican non-flat steel market. Simec believes that its ability to produce a wide
range of products in  competitively-priced  small order  volumes is an important
means  by  which  Simec  differentiates  itself  from  its  major  domestic  and
international competitors.

      Simec's  steel  production  facilities  are  designed  to permit the rapid
changeover  from one  product to  another.  This  flexibility  permits  Simec to
efficiently  produce small volume orders that meet the specialized  needs of its
customers. Production runs, or campaigns, of Simec's products occur on a regular
cycle of four to eight weeks, minimizing customer waiting time for both standard
and specialized  products.  In addition,  because a substantial  portion of each
campaign has  historically  been devoted to firm orders or to the  production of
products  which Simec has been able to sell in a short period after  production,
both Simec and its  customers  have been able to  minimize  inventory  financing
costs. Simec cannot assure that significant levels of firm orders or its ability
to forecast  which products can be sold in short periods after  production  will
continue in the future.

      Simec operates the Guadalajara mini-mill through CSG. At December 31, 2002
the Guadalajara facility's annual installed capacity of steel billet was 350,000
tons, and its annual  installed  capacity of finished  product was 480,000 tons.
Simec operated the Guadalajara mini-mill at 93.4% capacity for billet production
and 82.5% capacity for finished product production in 2002. Production levels in
2000, 2001 and 2002 at the Guadalajara facility were


                                     - 9 -
<PAGE>

lower  than in prior  years  as a  result  of the  Company's  decision  to cease
production  during peak hours in order to save on electricity costs and to focus
on production of higher margin rather than commodity  products.  At December 31,
2002, CSG had, on an unconsolidated basis, total assets of Ps. 3,476 million.

      Simec  conducts  the  operations  of the  Mexicali  mini-mill  through its
indirect  wholly  owned  subsidiary,   CSC.  The  Mexicali  mini-mill  commenced
operations in 1993 and at December 31, 2002 had an annual installed  capacity of
430,000  tons of steel  billet and its annual  installed  capacity  of  finished
product was  250,000  tons.  Simec  operated  the  Mexicali  mini-mill  at 79.2%
capacity  for  billet   production  and  76.2%  capacity  for  finished  product
production  in 2002.  Production  levels at the Mexicali  facility were lower in
2000 and 2001 than in prior years as a result of the Company's decision to cease
production  during  peak  hours  to save on  electricity  costs  and to focus on
production  of  higher  margin  rather  than  commodity  products,  in 2002  the
production  levels at the Mexicali  facility  were higher than 2000 and 2001 and
comparable to prior recent historical levels. In addition,  the increased billet
production at the Mexicali  facility in 2002 reflected an increase of 3,832 tons
from 2001 in the need for  billet at the  Guadalajara  facility  and the sale to
third  parties  of 23,137  tons of Billet.  Simec  invested  approximately  $140
million to build the Mexicali mini-mill and invested an aggregate amount of $9.7
million in capital  improvements from 1997 to 2000. Simec invested an additional
$1.2  million  and $0.1  million  in  capital  improvements  in 2001  and  2002,
respectively. At December 31, 2002, CSC had total assets of Ps. 2,947 million.

      Products and Markets

      Simec's rolling mills at the  Guadalajara  mini-mill use billet to produce
I-beams,  channels,  angles, steel bars (round and square rods), flat bar, rebar
and special products. Simec's rolling mills at the Mexicali mini-mill use billet
to produce rebar,  steel bars (round and square),  commercial  angles (angles of
less than three  inches in width) and flat bar.  I-beams,  channels,  structural
angles (angles  greater than three inches width) and rebar are generally sold to
construction contractors,  fabricators,  steel service centers and manufacturers
who cut, bend,  shape and fabricate the steel to meet engineering or end product
specifications.  The construction  industry uses these products primarily in the
manufacture of commercial  buildings and residential  housing, as well as in the
manufacture of a wide variety of industrial products.  Round and square rods and
flat bar are used to manufacture a wide variety of products, including gratings,
steel floors and roof  joists,  safety  walkways,  ornamental  furniture,  stair
railings and farm equipment. Simec also manufactures cold drawn rods. These rods
are  used to  manufacture  industrial  products  requiring  steel  with  special
properties,  such as tensile  strength  and  flexibility.  Products of this type
include  automobile  axles,  screws  and  bolts.  Rebar  is used  primarily  for
strengthening   concrete  in   highways,   buildings   and  other   construction
applications.  In 2000, the Company began production at its Guadalajara facility
of a wider  range of widths of  hexagonal  bars and of  channels of a width of 5
inches.  In 2001, the Company began  production at the  Guadalajara  facility of
additional widths of hexagonal bars, lighter channels of a width of 5 inches and
wider ranges of widths of spring flat bars. In 2002 the Company began production
at the Guadalajara  facility of additional  widths of spring flat bars and round
bars-special bar quality (SBQ).

      The following  table sets forth,  for the years  indicated,  Simec's sales
volume for basic steel products.

                        Total Basic Steel Sales Volume(1)

                                                     Years ended December 31,
                                                     ------------------------
                                                        (Thousands of tons)
                                                     2000      2001      2002
                                                     ----      ----      ----
Basic Steel Products

I-Beams                                              83.3      88.0      85.1
Channels                                             84.2      48.3      57.5
Angles(2)                                           125.5     102.0     123.8
Steel Bars (round, square and hex rods)             136.3     138.7     149.4
Cold Drawn                                           21.6      17.0      17.6
Rebar                                               102.3     110.0     116.5
Flat Bar                                             66.3      54.8      53.9

Other                                                 0.1       1.9       5.6
                                                    -----     -----     -----
Total Steel Sales                                   619.6     560.7     609.4
                                                    =====     =====     =====

----------
(1)   Includes both domestic and export sales.

(2)   Angles include structural angles and commercial angles.


                                     - 10 -
<PAGE>

      The  following  table  sets  forth,  for  the  years  indicated,   Simec's
proportionate domestic and export steel sales.

                    Domestic and Export Steel Sales By Region

                                            Domestic Sales          Exports
                                            --------------          -------
                                             Years ended          Years ended
                                             December 31,         December 31,
                                             ------------         ------------
                                          2000   2001   2002    2000  2001  2002
                                          ----   ----   ----    ----  ----  ----

I-Beams                                    97%    98%    98%      3%    2%    2%
Channels                                   73%    85%    81%     27%   15%   19%
Angles(1)                                  89%    91%    87%     11%    9%   13%
Steel Bars (round, square and hex rods)    94%    94%    94%      6%    6%    6%
Cold Drawn                                 96%    97%    95%      4%    3%    5%
Rebar                                      88%    85%    70%     12%   15%   30%
Flat Bar                                   93%    92%    86%      7%    8%   14%
Other                                     100%   100%   100%      0%    0%    0%
                                          ----   ----   ----     ---   ---   ---
Total (weighted average)                   89%    91%    87%     11%    9%   13%
                                           ===    ===    ===     ===   ===   ===

----------

(1)   Angles include structural angles and commercial angles.

      The  following  tables  set  forth,  for  the  years  indicated,  selected
operating  data for Simec's two steel  production  facilities  (the peso amounts
shown below are presented in nominal pesos).

<TABLE>
<CAPTION>
                                             Guadalajara Mini-Mill

                                                                                   Years ended December 31,
                                                                                   ------------------------
                                                                               2000          2001         2002
                                                                               ----          ----         ----
<S>                                                                         <C>          <C>           <C>
Steel Sales (000's tons)                                                        430.8        384.4         410.0
Average finished product price per ton                                      Ps. 3,559    Ps. 3,398     Ps. 3,440
Average scrap cost per ton                                                    1,327.3      1,124.5       1,187.8
Average manufacturing conversion cost per ton of finished product(1)          1,420.2      1,345.1       1,184.2
Average manufacturing conversion cost per ton of billet(1)                      721.3        693.3         666.5

<CAPTION>
                                               Mexicali Mini-Mill

                                                                                   Years ended December 31,
                                                                                   ------------------------
                                                                               2000          2001         2002
                                                                               ----          ----         ----
<S>                                                                         <C>          <C>           <C>
Steel Sales (000's tons)                                                        188.8        176.3         199.4
Average finished product price per ton                                      Ps. 3,090    Ps. 2,884     Ps. 2,885
Average scrap cost per ton                                                    1,037.4        897.7         919.3
Average manufacturing conversion cost per ton of finished product(1)          1,189.1       1161.0       1,084.1
Average manufacturing conversion cost per ton of billet(1)                      747.2        746.7         683.4
</TABLE>

-------------

(1)   Manufacturing conversion cost is defined as all production costs excluding
      the cost of scrap and related yield loss.

      Production Process and Facilities

      A mini-mill uses an electric arc furnace to melt ferrous  scrap,  which is
then cast into long, square bars called billet in a continuous  casting process,
all of which occurs in a melt shop. The billet is thereafter transferred to


                                     - 11 -
<PAGE>

a rolling  mill,  reheated and rolled into  finished  product.  In contrast,  an
integrated steel mill heats iron pellets and other primary  materials in a blast
furnace  to first  produce  pig iron,  that must be  refined  in a basic  oxygen
furnace to liquid steel, and then cast to billet and finished product.  Compared
to integrated steel mills, a mini-mill typically produces certain steel products
more  efficiently  because of the lower energy  requirements  resulting from its
smaller  size and  because of its use of refined  ferrous  scrap.  In  addition,
mini-mills are designed to provide shorter  production runs with relatively fast
product  changeover  times,  allowing for greater  responsiveness  to customers'
requirements.  Therefore,  a  mini-mill  can  generally  produce a wide range of
specialty,  non-commodity  steel products in shorter runs and at lower cost than
an integrated steel mill.

      In the steel production  process,  Simec uses ferrous scrap to produce its
finished steel products. Simec melts ferrous scrap in an electric arc furnace to
produce molten steel, to which alloying elements and carbon are added, and which
then is transported  to continuous  casters for  solidification.  The continuous
casters  produce  long,  square  strands of steel  that are cut into  billet and
transferred to the rolling mills for further  processing or, in some cases, sold
to other  steel  producers.  In the rolling  mills,  the billet is reheated in a
walking beam furnace with preheating burners,  passed through a rolling mill for
size reduction, and conformed into final sections and sizes. The shapes are then
cut into a variety of lengths.

      Simec's  Guadalajara  facilities and equipment  include one improved DEMAG
electric  arc  furnace  utilizing  water-cooled  sidewalls  and roof,  one DEMAG
four-strand  continuous caster, five reheating furnaces and three rolling mills.
The Guadalajara  mini-mill has an annual  installed  capacity of 350,000 tons of
billet and an annual installed  capacity of finished product of 480,000 tons. In
2002,  the  Guadalajara  mini-mill  produced  326,960  tons of steel  billet and
395,983 tons of finished product.

      In 1993, Simec began operations at its mini-mill located in Mexicali, Baja
California.  The  mini-mill  is  located  approximately  22  miles  south of the
California border and approximately 220 miles from Los Angeles. Simec's Mexicali
facilities and equipment  include one EBT DEMAG  electric arc furnace  utilizing
water-cooled sidewalls and roof, one DEMAG four-strand continuous banana caster,
one walking beam reheating furnace,  one SACK rolling mill, a Linde oxygen plant
and a water treatment plant.  This facility has an annual installed  capacity of
430,000  tons of steel  billet  and an annual  installed  capacity  of  finished
product of 250,000  tons.  Excess billet  produced at the Mexicali  mini-mill is
used  primarily by the  Guadalajara  mini-mill.  In 2002 the Mexicali  mini-mill
produced  approximately  340,457 tons of billet, of which 100,032 tons were used
by the  Guadalajara  mini-mill  and 23,137 tons were sold to third  parties.  In
2002, the Mexicali  mini-mill  produced  190,612 tons of finished  product.  The
decision  to locate the new  mini-mill  in  Mexicali  was based upon a number of
factors,  including  proximity to new domestic and foreign  markets,  work force
quality and  proximity  to stable  sources of scrap,  electricity  and other raw
materials.  The Mexicali  mini-mill  also is situated near major  highways and a
railroad  linking  the  Mexicali  and  Guadalajara   mini-mills,   allowing  for
coordinated production at the two facilities.

      Reducing   freight   expenses  was  one  of  Simec's  main  objectives  in
constructing the Mexicali mini-mill.  Simec's most significant freight costs are
those  associated  with  acquiring  steel scrap or billet and shipping  finished
product to customers.  The Mexicali facility is one of the closest mini-mills to
the Southern  California market and has competitive  freight costs for shipments
of scrap to the  mini-mill  and  shipments of finished  product from the mill to
customers in northern Mexico and the southwestern  United States.  In accordance
with the North  American Free Trade  Agreement  ("NAFTA"),  the total tonnage of
products that can be  transported  through  Mexico on a single truck,  since May
1996, is limited to 30 tons.

      In 2000,  54% of the  products  produced at the  Mexicali  mini-mill  were
rebar, 16% were angles, 14% were steel bars (round, square and hex rods) and the
remaining 16% were other  products,  principally  merchant bar and channels.  In
2001, 59% of the products  produced at the Mexicali  mini-mill  were rebar,  13%
were angles, 16% were steel bars (round,  square and hex rods) and the remaining
12% were other products,  principally merchant bar and channels. In 2002, 56% of
the products produced at the Mexicali mini-mill were rebar, 17% were angles, 15%
were steel bars (round,  square and hex rods) and the  remaining  12% were other
products, principally merchant bar and channels.


                                     - 12 -
<PAGE>

      The  production  levels and  capacity  utilization  rates for Simec's melt
shops and rolling mills for the years indicated are presented below.

                   Production Volume and Capacity Utilization

                                                Years ended December 31,
                                                ------------------------
                                                   (Tons in thousands)
                                             2000         2001        2002
                                             ----         ----        ----
Melt shops
      Steel billet production                662.8        625.8       667.4
      Annual installed capacity(1)           780.0        780.0       780.0
      Effective capacity utilization         85.0%        80.2%       85.6%
Rolling mills
      Total production                       627.9        573.0       586.6
      Annual installed capacity(1)           730.0        730.0       730.0
      Effective capacity utilization         86.0%        78.5%       80.4%

----------
(1)   Annual  installed  capacity is  determined  based on the  assumption  that
      billet of various specified diameters, width and length is produced at the
      melt shops or that a specified mix of rolled  products are produced in the
      rolling mills on a continuous basis throughout the year except for periods
      during which operations are discontinued for routine maintenance,  repairs
      and improvements. Amounts presented represent annual installed capacity at
      December 31 for each period.

      Simec's  production for the years ended 2002, 2001 and 2000 represented an
estimated  11%,  10%,  and  11.3%,  respectively,   of  Mexican  non-flat  steel
production,  based upon production figures compiled by Canacero.  The production
and capacity  utilization  levels in 2000,  2001 and 2002 were lower than recent
historical  levels,  and reflected the  Company's  decision to cease  production
during peak hours at the Mexicali and Guadalajara mini-mills in order to save on
electricity  costs and to focus on the  production at the Mexicali  mini-mill of
higher margin rather than commodity products.

      Simec  has  received  the ISO 9002  certification  from  British  Standard
Institution  for its  Guadalajara and Mexicali  mini-mill  facilities.  ISO is a
worldwide  federation of national  standards bodies which have united to develop
internationally  accepted  standards so that customers and manufacturers  have a
system  in place to  provide a  product  of known  quality  and  standards.  The
standards set by ISO cover every facet of quality from management responsibility
to service and delivery.  Management believes that adhering to the stringent ISO
9002 procedures not only creates  efficiency in  manufacturing  operations,  but
also positions Simec to meet the exacting  standards  required by its customers.
Simec is  engaged  in a total  quality  program  designed  to  improve  customer
service, overall personnel qualifications and team work.

      Sales and Distribution

      Simec  distributes  its steel products  throughout  Mexico and exports its
steel products primarily to the United States. Simec also exports steel products
in Central and South America,  Canada and Europe.  Simec believes that more than
half of its  steel  products  are  sold to the  construction  sector,  with  the
remaining  amounts  being  sold to the  manufacturing,  electrical,  mining  and
transportation industries.

      Simec's  basic   domestic   steel  sales  are  made  through  a  group  of
approximately 97 independent distributors, who also carry other steel companies'
product  lines,  and  through  Simec's  wholly  owned  distribution   center  in
Guadalajara.  Simec believes its  distribution  center is an important source of
information  concerning  customer  needs and  market  developments.  By  working
through  its  distributors,  Simec  believes  that  it has  established  and can
maintain  market  leadership  with  small and  mid-market  end-users  throughout
Mexico. Simec believes that its domestic customers are highly service-conscious.
Simec has built upon this  strategy  in  marketing  products  from the  Mexicali
mini-mill.  In 2001 and 2002,  no single  customer  accounted for 10% or more of
Simec's total steel sales.  Simec's management believes that it is not dependent
on any single customer and that it could replace lost sales  attributable to any
customer given similar market conditions.


                                     - 13 -
<PAGE>

      Simec  distributes  its steel  products  in the  United  States  primarily
through  independent  distributors who also carry other steel companies' product
lines. Simec employs three full-time employees who are dedicated  exclusively to
exports.

      During 2001 and 2002, orders for Simec's products were received on average
approximately two weeks before those products were produced.  Accordingly, Simec
does not  believe  that  backlog  is a  significant  factor in its  business.  A
substantial  portion of Simec's  production is ordered by its customers prior to
production.  There can be no assurance that significant levels of pre-production
sales orders will continue.

      Competition

      The markets in which Simec competes are highly competitive and weakness in
the  steel  industry  globally  has  heightened  competition.  Some  of  Simec's
competitors  maintain  larger  stocks of inventory and are able to provide their
products  to  customers  faster  than Simec and may be better be  positioned  to
withstand weak market conditions. Simec believes that it competes in the Mexican
domestic market and in its export markets for non-flat steel products  primarily
on the basis of price and  product  quality.  In  addition,  it  competes in the
domestic market based upon its responsiveness to customer delivery requirements.
Simec  believes  that it is one of the lowest cost  producers of non-flat  steel
products  in Mexico and is also one of the lowest  cost  producers  of  non-flat
steel  products in the export markets in which it competes.  Simec  endeavors to
enhance  its  competitive  position  in  Mexico  by  working  closely  with  its
distributors   and   adjusting   its   production   schedule  to  meet  customer
requirements.  Through  its  flexible  production  facilities,  Simec is able to
respond  quickly to the demand for its  products.  Simec also  believes that its
geographic  location  and large  variety of  products  help it to  maintain  its
competitive market position in Mexico and in the states bordering Mexico.  Simec
believes  that its  Mexicali  mini-mill,  one of the closest  mini-mills  to the
southern  California  market,  provides a  production  and  transportation  cost
advantage in northwestern Mexico and southern California.

      Based on information  compiled by Canacero,  Simec believes that it is the
sole Mexican producer of 5-inch, 6-inch and 200 mm I-beams and that there is one
other  small  producer  of  4-inch   I-beams.   These  products   accounted  for
approximately  88,024 tons,  or 16%, and  approximately  84,843 tons, or 14%, of
Simec's total finished product sales in 2001 and 2002, respectively.

      In 2001, Simec sold 185,882 tons of I-beams,  channels and angles at least
3 inches in width  (including the 88,024 tons of I-beams  described above) which
represented  approximately  33% of Simec's total finished  product sales for the
year. In 2002, Simec sold 199,953 tons of I-beams,  channels and angles at least
3 inches in width  (including the 84,843 tons of I-beams  described above) which
represented  approximately  33% of Simec's total finished  product sales for the
year.  Simec  believes  that the  domestic  competitors  in the market for these
structural  profiles  are  Altos  Hornos  de  Mexico,  S.A.  de C.V.  ("Ahmsa"),
Siderurgica del Golfo,  S.A. de C.V. and Aceros Corsa,  S.A. de C.V.  ("Corsa").
Based on  information  compiled by Canacero,  Simec  estimates that its share of
domestic production of structural profiles was 61% in 2001 and 67% in 2002.

      In 2001,  Simec sold 154,024 tons of steel bar (including  specialty steel
bars),  compared  to 164,047  tons in 2002.  Based on  information  compiled  by
Canacero,  Simec believes that its share of domestic production of steel bar was
34% in 2001 and 46% in 2002.  Simec's  other major  product  lines are rebar and
commercial profiles (angles less than 3 inches in width and flat bar), for which
Simec's  share of  domestic  production  in 2001  was 4% and 20%,  respectively,
compared to 4% and 24%, respectively,  in 2002. Rebar and merchant bars together
accounted for approximately 220,820 tons, or 39%, of Simec's total production of
finished steel products in 2001, compared to approximately 245,371 tons, or 40%,
in 2002.  Simec  competes in the  domestic  market with a number of producers of
these products, including Ahmsa, Hylsamex, S.A. de C.V., Sicartsa, S.A. de C.V.,
Corsa,  Aceros Tultitlan,  S.A. de C.V., Atlax, S.A. de C.V.,  Commercial Metals
Inc., Belco Mineira Aceralia  Perfiles  Bergara,  S.A.,  Chaparral Steel Company
("Chaparral") and Bayou Steel Corporation ("Bayou").

      Simec has been able to maintain its domestic  market share and  profitable
pricing levels in Mexico because the Guadalajara  facility's central Mexico site
affords  Simec  substantial  cost  advantages  relative to U.S.  producers  when
shipping to customers in central and southern Mexico and its flexible production
facility gives Simec the ability to ship specialty  products in relatively small
quantities with short lead times. The Mexicali  mini-mill has helped to increase
sales in  northwestern  Mexico and the  southwestern  United States  because its
relatively close proximity to these areas reduces Simec's freight costs.


                                     - 14 -
<PAGE>

      Exports

      Simec  believes  that  NAFTA has  increased  competition  from U.S.  steel
producers by gradually  lowering  tariffs.  Prior to the passage of NAFTA, a 10%
tariff  was  imposed by Mexico on  imports  of steel  products  similar to those
produced by Simec.  Under  NAFTA,  this tariff is reduced by 1% per year over 10
years  commencing in 1994 (at December 31, 2002 the tariff was 1%).  Conversely,
the  tariffs  imposed  by the  United  States on imports of steel bar (round and
square rods),  structural  profiles,  flat bar and rebar,  which at December 31,
2002 were 0.4%, 0.0%, 0.4% and 0.4%,  respectively,  are being phased out over a
similar period. See " -- North American Free Trade Agreement."

      Simec  believes its principal  competitors  in the United  States  market,
depending  on  the  product,   include  Nucor   Corporation,   Birmingham  Steel
Corporation,  North Star Steel Co., Chaparral,  Bayou and Structural Metals Inc.
Simec believes that these  companies,  as a result of their location  within the
United States and their  maintenance  of large levels of inventory,  are able to
provide their products to their customers faster than Simec.

      Changes in the  exchange  rate between the peso and the dollar that do not
fully reflect the  difference in inflation  rates between  Mexico and the United
States could adversely affect Simec's  production cost.  Following a significant
devaluation  of the peso in 1995,  and a large  decrease in domestic  demand for
steel products,  Simec  commenced an aggressive  export program in order to take
advantage of relatively  higher prices (in peso terms) of steel  products and to
offset the decline in domestic consumption. As a result, in 1995, Simec's export
sales were 226,825 tons, representing 37% of total basic steel sales in tons. In
subsequent  years, as domestic demand and steel prices increased in Mexico,  and
Simec's  margins  on  exports  decreased,  Simec  refocused  its  efforts on the
domestic market.

      In 2002,  exports  increased to 80,182  tons,  or 13% of total basic steel
sales in tons sold from  48,385  tons,  or 9% of total basic steel sales in tons
sold in 2001.  Exports of basic steel  products  increased in 2002 due to higher
margins for export  sales in 2002 than in 2001,  reflecting  the weakness of the
peso versus the dollar in 2002 versus 2001 and recent prior years.

      Raw Materials

      Ferrous scrap,  electricity,  ferroalloys and refractory  products are the
principal  materials used in the  manufacture of Simec's steel  products.  Among
these,  ferrous  scrap is the most  important  for the  production  of steel and
accounted for  approximately 46% and 48% of Simec's direct cost of sales in 2001
and  2002,  respectively.  In  2001  Simec  acquired  0.3% of its  total  billet
requirements from third parties, at prices approximately 28% higher than Simec's
billet  production  cost;  in 2002 no billet was  acquired  from third  parties.
Ferrous scrap is principally  generated from automobile,  industrial,  naval and
railroad  scrap.  The market for ferrous scrap is  influenced  by  availability,
freight costs,  speculation by scrap brokers and other conditions largely beyond
the control of Simec. Fluctuations in scrap costs directly influence the cost of
sales of finished goods.

      Simec  purchases  raw scrap from  peddlers and scrap dealers in Mexico and
the San Diego area,  and  processes  the raw scrap into refined  ferrous  scrap.
Simec meets its refined ferrous scrap  requirements  through three sources:  (i)
Simec's  wholly  owned  scrap  processing  facilities,  which  in the  aggregate
provided  Simec with  approximately  29% and 11% of its refined scrap tonnage in
2001  and  2002,  respectively,  and  (ii)  purchases  from  third  party  scrap
processors in Mexico and the  southwestern  United States which in the aggregate
provided  Simec  with  approximately  39% and  32% in  2001,  respectively,  and
approximately  61% and 28% in 2002,  respectively,  of its refined ferrous scrap
requirements.  Simec is a dominant scrap collector in the Mexicali,  Tijuana and
Hermosillo  regions and, by primarily  dealing directly with small Mexican scrap
collectors,  Simec  believes it has been able to acquire  scrap at prices  lower
than those in the international and domestic markets.

      Ferroalloys, electrodes and refractory products collectively accounted for
approximately  15% of  Simec's  direct  cost of  sales  in 2001 and 14% in 2002.
Ferroalloys are essential for the production of steel and are added to the steel
during  manufacturing  process to reduce undesirable elements and to enhance its
hardness, durability and resistance to friction and abrasion. Simec buys most of
its manganese  ferroalloys from Compania Minera Autlan, S.A., with the remainder
purchased from Electrometalurgica de Veracruz, S.A. de C.V. and Possehl, S.A. de
C.V.  Simec  obtains  electrodes  used to melt raw  materials  from Ucar  Carbon
Mexicana,  S.A.  de C.V.  and SGL  Carbon  Group.  Refractory  products  include
firebricks, which line and insulate furnaces, ladles and other transfer vessels.


                                     - 15 -
<PAGE>

Simec  purchases its refractory  products from RFI Refmex,  S.A. de C.V., LWB de
Mexico, S.A. de C.V. and Tecnologias Minerales de Mexico, S.A. de C.V.

      Electricity  accounted  for  approximately  11% of Simec's  direct cost of
sales  in 2001  and 12% in 2002  and is  supplied  by the  Comision  Federal  de
Electricidad  ("CFE").  Simec,  like all other high volume users of electricity,
pays  special  rates  to CFE for  electricity.  Energy  prices  in  Mexico  were
substantially below international  levels at the beginning of the 1980s. Between
1987 and 1996, such prices  increased to reflect  international  rates and, as a
result,  electricity  prices in Mexico increased  substantially in real terms in
the  same  period.  In  1996,  the  Mexican  Government  increased  the  cost of
electricity  through a monthly increase of  approximately  1.2% per month and in
April 1996  increased  electricity  rates 8.5%.  Additionally,  in 1996 CFE also
increased the fuel component of the rate with an effect of approximately  12% in
Simec's cost of electricity.  In December 1996, CFE increased  substantially the
different  rates and tariffs on  electricity  usage:  (i)  different  rates were
implemented  based on the time of use during  the day and the season  (summer or
winter) and (ii) the fuel  component  was changed and is based upon a new factor
determined by the price index of the Machinery  and Equipment  Producers,  Basic
Metals Producers and other Manufacturing Companies. As a result of such changes,
the cost of electricity  increased by 22% from November to December 1996.  Since
1997, CFE has continued to adjust rates and tariffs for electricity  usage based
on changes on such price index.  As a result,  Simec has modified its production
schedule  in order to reduce  electricity  costs by limiting  production  during
periods when peak rates are in effect.  Although,  Simec  believes the effect of
such increases can be partially offset by programming  scheduled maintenance and
production stops during the peak hours,  there can be no assurance that any such
cost increase will not have a material adverse effect on the business of CSG.

      North American Free Trade Agreement

      On January 1, 1994, NAFTA became effective. NAFTA established a free trade
zone  among  Mexico,  Canada and the United  States  and has  removed  over time
customs  duties  imposed on goods traded among the three  countries,  removed or
relaxed many investment restrictions,  liberalized trade in services, provided a
specialized  means for settlement  of, and remedies for, trade disputes  arising
under NAFTA, promote trilateral regional and multilateral  cooperation,  and has
resulted in new laws and regulations to further these goals.  Certain provisions
of NAFTA are being phased in over a number of years, which phasing in period has
been  substantially  completed.  The Mexican  Government expects that NAFTA will
provide Mexican exports with permanent access to U.S. and Canadian  markets.  In
addition,  increased foreign  investment in Mexico may result as restrictions on
foreign  ownership are  eliminated.  As a result of these two factors,  NAFTA is
anticipated over the long term to have a favorable  effect on employment,  wages
and economic growth in Mexico. On the other hand,  Mexican producers and service
providers  are subject to increased  foreign  competition  as tariffs on certain
imported goods and  protection of certain  industries  from foreign  competition
have been reduced. This increased competition, the effects of which have already
been felt in many segments of the Mexican  economy after Mexico's entry into the
General  Agreement on Tariffs and Trade in 1986,  is likely to result in changes
in the composition of Mexican economic activity.

      Simec believes NAFTA has increased competition in finished products of the
type produced by it in certain areas of Mexico,  particularly the northeast,  as
Mexican tariffs on steel products  exported to Mexico from the United States are
gradually  phased out.  In  addition,  however,  Simec  believes  that NAFTA has
decreased  the  cost  of  certain  of  its  important  raw  materials,  such  as
electrodes, refractory products and ferroalloys, and spare parts.

      Environmental Matters

      The Mexican  operations of various of Simec's  subsidiaries are subject to
Mexican  federal,  state and  municipal  laws and  regulations  relating  to the
protection  of the  environment  and  require  numerous  permits,  licenses  and
authorizations  at  municipal,   state  and  federal  levels.   The  fundamental
environmental  law  in  the  Mexican  federal  system  is the  Ley  General  del
Equilibrio  Ecologico y Proteccion  al Ambiente  (the General Law of  Ecological
Equilibrium and  Environmental  Protection or the "Ecological  Law").  Under the
Ecological Law, rules have been  promulgated  concerning  water  pollution,  air
pollution,  noise pollution, solid wastes and hazardous substances. In addition,
the Mexican federal government has enacted regulations concerning the import and
export of hazardous  materials and hazardous wastes.  The Mexican federal agency
in charge of overseeing and enforcing compliance with the federal  environmental
laws is the Secretaria del Medio Ambiente y Recursos  Naturales (the Ministry of
the Environment and Natural Resources or "SEMARNAT"), which in 2000 assumed this
function from the Secretaria


                                     - 16 -
<PAGE>

del Medio Ambiente, Recursos Naturales y Pesca (the Ministry of the Environment,
Natural  Resources  and  Fisheries or  "SEMARNAP").  As part of its  enforcement
powers, the SEMARNAT, through the Procuraduria Federal de Proteccion al Ambiente
(the Federal  Bureau of  Environmental  Protection or "Profepa") can bring civil
and criminal  proceedings against companies that violate  environmental laws and
can  close  non-complying   facilities.   Simec  has  made  significant  capital
investments  in  connection  with the building of its  production  facilities in
order to comply with  requirements of municipal,  state and federal  authorities
and to remain in  compliance  with its  permits,  licenses  and  authorizations.
Although Simec believes that it is currently in substantial  compliance with the
applicable  Mexican  federal  and state  and  municipal  environmental  laws and
regulations,  it is possible that changes in Mexican federal, state or municipal
environmental laws or regulations, or their interpretation or enforcement, could
cause Simec to have to invest  additional  capital to remain in compliance  with
future federal, state and municipal requirements.

      Simec  has  obtained   necessary  general  operating   licenses  from  the
environmental authorities and the sanitation authorities, including a Soil Usage
License,  a Waste Water  Discharge  Registration  and a Statement  for Hazardous
Waste. Simec has executed an agreement that provides for certain  investments to
improve  its  production  facilities  located  in  Mexicali.  Pursuant  to  that
agreement the SEMARNAT may conduct  periodic  inspections of such  facilities to
verify compliance with its terms.  Simec is required to provide an environmental
impact  report for each project that  contains the  architectural  designs,  the
environmental  impact of the project  and  proposed  measures  to minimize  such
impact. The SEMARNAT and State Environmental  Authorities have the right to make
periodic  inspections.  In  addition,  Simec is required to provide the SEMARNAT
with periodic  reports  regarding its compliance with the Ecological Law and the
regulations thereunder.  These reports require, among other things,  information
with  respect  to  environmental  protection  controls  and the  disposition  of
industrial waste.

Organizational Structure

      Simec is a subsidiary of Industrias CH, which holds an  approximate  85.6%
controlling  interest in Simec.  The  following  table shows  Simec's  corporate
structure  as of May 31,  2003.  The table also  shows,  for each  company,  its
country of incorporation,  the approximate  percentage equity ownership interest
of its  direct  parent  company  shown on the  table,  and,  if  different,  the
proportion of voting power held by such direct parent company.

<TABLE>
<CAPTION>
                                                                                    Percentage
                                                                                     of Equity          Jurisdiction of
Name of Company                                                                        Owned             Incorporation
---------------                                                                     ----------          ---------------
<S>                                                                                    <C>           <C>
Grupo Simec, S.A. de C.V.                                                                --                 Mexico

  Compania Siderurgica de Guadalajara, S.A. de C.V.                                    99.99%               Mexico

    Compania Siderurgica de California, S.A. de C.V.                                    100%                Mexico

        Consorcio Internacional, S.A. de C.V.                                          99.79%               Mexico

        Compania Siderurgica del Pacifico, S.A. de C.V.                                99.99%               Mexico

        Administradora de Servicios de la Industria Siderurgica ICH, S.A. de C.V.      99.99%               Mexico

        Procesadora Mexicali, S.A. de C.V.                                              100%                Mexico

        Sistemas de Transporte de Baja California, S.A. de C.V.                         100%                Mexico

        Servicios Simec, S.A. de C.V.                                                   100%                Mexico

        Undershaft Investments, N.V.                                                    100%         Netherlands Antilles

          Pacific Steel, Inc.                                                           100%              California

        Industrias del Acero y del Alambre, S.A. de C.V.                               99.99%               Mexico

        Metalica las Torres, S.A. de C.V.                                              99.99%               Mexico

        Coordinadora de Servicios Siderurgicos de Calidad, S.A. de C.V.                 100%                Mexico
</TABLE>


                                     - 17 -
<PAGE>

Description of Property

      Simec's principal  facilities consist of a steel mini-mill in Guadalajara,
Jalisco and a steel  mini-mill in Mexicali,  Baja California  Norte.  Simec owns
these facilities. Pursuant to the restructuring, Simec granted a lien, on all of
its property, plant and equipment to secure the new debt incurred as part of the
restructuring.    See   Item   5,   "Operating   and   Financial    Review   and
Prospects--Liquidity and Capital Resources."

      The Company's corporate offices are located next to the steel mini-mill in
Guadalajara,  Mexico.  Simec also has various sales and distribution  facilities
throughout  Mexico and scrap  collection  facilities  in Tijuana  and San Diego,
California.

      For a more  complete  description  of  Simec's  principal  facilities  and
production equipment, see "--Production Process and Facilities" above.

Item 5. Operating and Financial Review and Prospects

      The  following   discussion   should  be  read  in  conjunction  with  the
Consolidated  Financial Statements included elsewhere in this Annual Report. The
Consolidated  Financial Statements have been prepared in accordance with Mexican
GAAP,  which differ  significantly  from U.S. GAAP. Note 14 to the  Consolidated
Financial Statements provides a description of the principal differences between
Mexican GAAP and U.S. GAAP, as they relate to the Company,  and a reconciliation
to U.S.  GAAP of net earnings and total  shareholders'  equity.  Under  Bulletin
B-10,  financial data for all periods in the Consolidated  Financial  Statements
and  throughout  the Annual  Report have been  restated in constant  pesos as of
December 31, 2002.  For the years ended  December 31, 2000,  2001 and 2002,  the
National   Consumer  Price  Index  increased   approximately   9%,  4%  and  6%,
respectively.

      Critical Accounting Policies and Estimates

      Management's  discussion  and  analysis  of its  financial  condition  and
results of operations are based upon Simec's  financial  statements,  which have
been  prepared  in  accordance  with  Mexican  GAAP.  The  preparation  of these
financial  statements requires management to make estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities,  the  disclosure  of
contingent  assets and  liabilities  at  year-end,  and the  reported  amount of
revenues and expenses  during the year.  Management  regularly  evaluates  these
estimates,  including those related to the carrying value of property, plant and
equipment,  inventories  and direct  cost of sales,  income  taxes and  employee
profit  sharing,   foreign  currency   transactions  and  exchange  differences,
valuation  allowances  for  receivables,  inventories  and  deferred  income tax
assets;  liabilities  for deferred  income taxes,  potential  tax  deficiencies,
environmental  obligations,  and potential  litigation  claims and  settlements.
Management  estimates  are based on  historical  experience  and  various  other
assumptions  that are believed to be  reasonable  under the  circumstances,  the
results of which form the basis for making  judgments  about the carrying values
of assets and  liabilities  that are not readily  apparent  from other  sources.
Accordingly,  actual  results may differ  materially  from current  expectations
under different assumptions or conditions.

      Management believes that the critical accounting policy which requires the
more  significant  judgments  and  estimates  used  in  the  preparation  of the
financial statements relates to the impairment of property,  plant and equipment
and other non-current  assets.  The Company evaluates  periodically the adjusted
values of its property,  plant and equipment and other  non-current  assets,  to
determine  whether there is an indication  of potential  impairment.  Impairment
exists when the carrying amount of an asset exceeds future revenues  expected to
be generated by the asset.  If such assets are  considered  to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the asset exceeds the expected revenues.  Assets to be disposed of are
reported at the lower of the carrying  amount or realizable  value.  Significant
judgment is involved in  estimating  future  revenues or  realizable  value,  as
applicable,  of the Company's  assets.  The class of the Company's  assets which
must require complex determinations based upon assumptions and estimates relates
to idle machinery.


                                     - 18 -
<PAGE>

      Year Ended December 31, 2002 compared to Year Ended December 31, 2001

      Net Sales

      Net sales of Simec  increased 5% to Ps. 2,112  million in 2002 compared to
Ps. 2,011 million in 2001. Sales in tons of basic steel products increased 9% to
609,408 tons in 2002  compared to 560,726  tons in 2001.  Exports of basic steel
products reflected a substantial portion of the increase in terms of steel sold,
increasing  to  80,179  tons in 2002  versus  48,385  tons in 2001 due to higher
margins for export sales in 2002 than in 2001. Additionally, Simec sold to third
parties  23,137 tons of billet in 2002 compared to 1,248 tons of billet in 2001.
The average  price of steel  products  decreased 5% in real terms in 2002 versus
2001,   reflecting  continued  weak  global  market  conditions.   Additionally,
increases  in net sales in 2002 were  attributable  in part to Simec's  focus on
higher margin products.

      Direct Cost of Sales

      Simec's  direct cost of sales  increased 5% to Ps.  1,413  million in 2002
compared to Ps. 1,350  million in 2001.  Direct cost of sales as a percentage of
net sales was 67% in each of 2002 and 2001.  The average  cost of raw  materials
used to produce  steel  products  decreased 6% in real terms in 2002 versus 2001
primarily as a result of decreases in the price of scrap, Simec's reduced energy
consumption and decreases in the price of ferroalloys.

      Marginal Profit

      Simec's  marginal profit  increased 6% to Ps. 699 million in 2002 compared
to Ps. 661 million in 2001.  As a percentage of net sales,  marginal  profit was
33% in each of 2002 and 2001.

      Indirect Manufacturing, Selling, General And Administrative Expenses

      Indirect  manufacturing,  selling,  general  and  administrative  expenses
(which include depreciation and amortization) decreased 6% to Ps. 444 million in
2002 from Ps. 471 million in 2001.  This  decrease  was due to the  reduction of
Simec's  labor force and to lower  expenses for the  maintenance  of  machinery,
equipment and operating materials. Depreciation and amortization in 2002 was Ps.
156 million compared to Ps. 140 million in 2001.

      Operating Income

      Simec's operating income increased 34% to Ps. 255 million in 2002 compared
to Ps. 190 million in 2001. As a percentage of net sales,  operating  income was
12% in 2002 and 9% in 2001.

      Financial Income (Expense)

      Simec recorded  financial  expense in 2002 of Ps. 123 million  compared to
financial  income of Ps. 5 million during 2001.  Simec recorded an exchange loss
of approximately  Ps. 100 million in 2002 compared to an exchange gain of Ps. 99
million in 2001  reflecting  the 12.8%  decrease in the value of the peso versus
the dollar in 2002  versus an  increase  of 4.5% in the value of the peso versus
the dollar in 2001.  Net interest  expense was Ps. 53 million in 2002 versus Ps.
166 million  during 2001  reflecting a lower amount of debt  outstanding  during
2002.  Industrias  CH  provided  $24.4  million  to Simec  retire  bank debt and
subsequently converted portions the $24.4 million of debt owing to Industrias CH
to equity.  Simec  recorded a gain from  monetary  position of Ps. 30 million in
2002  compared  to a gain from  monetary  position  of Ps. 72  million  in 2001,
reflecting  the domestic  inflation  rate of 5.7% in 2002 as compared to 4.4% in
2001 and lower debt levels during 2002.

      Other Income (Expense), Net

      Simec recorded other  expense,  net, of Ps. 36 million in 2002  reflecting
(i) income relating to tax benefits associated with the acquisition of machinery
and equipment in 2001 of Ps. 6 million,  (ii) a gain of Ps. 2 million in respect
of $200,000 principal amount of Simec's MTNs which were acquired at 50% of their
principal amount,  without provision for accrued interest, and were subsequently
cancelled, (iii) income of Ps. 3 million relating to insurance payments received
in respect  of the  breakdown  of the scrap  shredder  machine  at the  Mexicali
mini-mill,  (iv) expenses  relating to an adjustment in the value of the land of
its subsidiary Pacific Steel of Ps. 20 million,


                                     - 19 -
<PAGE>

(v) expenses of Ps. 2 million for fees relating to obtaining the approval of the
Comision  Nacional  Bancaria y de Valores to increase the capital stock of Simec
(vi) a reserve  of Ps.  10  million  relating  to the  realizable  value of idle
machinery  and  equipment,  (vii) a  reserve  of Ps. 8 million  relating  to the
clean-up  of  contaminated  land at the  Pacific  Steel  facilities  and  (viii)
expenses related to other financial operations of Ps. 7 million.  Simec recorded
other income,  net, of Ps. 64 million in 2001  reflecting  (i) income  resulting
from the  cancellation  of Ps. 15 million of interest  on bank debt  recorded as
accrued  interest in 2000, (ii) income from the cancellation of the provision of
Ps. 9 million for doubtful accounts recorded as a result of changes in estimates
made in prior  years,  (iii)  income  from a  decrease  of Ps. 10 million in the
current  liability to Simec's former parent company,  Grupo Sidek, (iv) expenses
relating to a provision for doubtful accounts of Ps. 6 million,  (v) expenses of
Ps. 3 million relating to the cancellation of the goodwill, (vi) income relating
to asset  taxes for prior years of Ps. 25 million  and (vii)  income  related to
other financial operations of Ps. 14 million.

      Income Tax and Employee Profit Sharing

      Simec  recorded a provision  of Ps. 22 million for income tax and employee
profit sharing in 2002  (including a decrease in the provision of Ps. 57 million
from the  application  of  Bulletin  D-4 with  respect  to  deferred  income tax
described  below) compared to a provision of Ps. 17 million in 2001 (including a
decrease in the provision of Ps. 5 million from the  application of Bulletin D-4
with respect to deferred income tax described below).

      Net Income

      As a result of the foregoing, Simec recorded net income of Ps. 118 million
in 2002 compared to net income of Ps. 242 million in 2001.

      Recent Pronouncements Applicable to Mexican GAAP

      In 1999, the Mexican Institute of Public  Accountants issued Bulletin D-4,
"Accounting  for Income and Asset Taxes and Employee Profit  Sharing",  which is
effective  for  all  fiscal  years  beginning  January  1,  2000.  Bulletin  D-4
establishes  financial  accounting  and  reporting  standards for the effects of
asset tax,  income tax and employee  profit sharing that result from  enterprise
activities during the current and preceding years. Simec's long-term liabilities
resulting from the adoption of Bulletin D-4 were Ps. 766 million at December 31,
2002  compared to Ps. 697 million at December  31,  2001.  The effect on Simec's
consolidated statement of income in 2002 was a decrease of Ps. 57 million in the
provision for income tax and employee  profit sharing  compared to a decrease of
Ps. 5 million in 2001. These provisions do not affect the cash flow of Simec.

      Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

      Net Sales

      Net sales of Simec  decreased 17% to Ps. 2,011 million in 2001 compared to
Ps. 2,431 million in 2000. Sales in tons of basic steel products decreased 9% to
560,726 tons in 2001 compared to 619,598 tons in 2000; the decrease in tons sold
reflected  the  decrease in economic  activity in Mexico and the United  States.
Exports of basic steel  products  decreased to 48,385 tons in 2001 versus 65,942
tons in 2000. The decrease in exports resulted from Simec's  continuing focus on
the  Mexican  market  as  margins  from  exports  decreased  as a result  of the
continued  decline in worldwide steel prices and the strength of the peso versus
the dollar given the  differential  in inflation  levels  between Mexico and the
United States. The average price of steel products decreased 9% in real terms in
2001 versus the same period of 2000, due principally to pricing  pressure caused
by imports of competing products.

      Direct Cost of Sales

      Simec's  direct cost of sales  decreased  16% to Ps. 1,350 million in 2001
compared to Ps. 1,607 million in 2000,  reflecting lower net sales.  Direct cost
of sales as a percentage of net sales increased from 66% in 2000 to 67% in 2001.
The average cost of raw materials used to produce steel products decreased 7% in
real terms in 2001 versus 2000 as a result of  decreases  in the prices of scrap
and certain other raw materials.


                                     - 20 -
<PAGE>

      Marginal Profit

      Simec's  marginal  profit  decreased  20% to Ps. 661  million  during 2001
compared  to Ps. 824 million in 2000.  As a  percentage  of net sales,  marginal
profit was 33% in 2001 compared to 34% in 2000.

      Indirect Manufacturing, Selling, General and Administrative Expenses

      Indirect  manufacturing,  selling,  general,  and administrative  expenses
(which include depreciation and amortization relating to continuing  operations)
decreased  13% to Ps. 471  million in 2001 from Ps.  538  million in 2000;  this
decrease was due to the reduction in Simec's labor force and lower  expenses for
the maintenance of machinery,  equipment and operating  materials.  Depreciation
and amortization  relating to continuing operations in 2001 decreased to Ps. 140
million compared to Ps. 152 million in 2000.

      Operating Income

      Simec's operating income decreased 34% to Ps. 190 million in 2001 compared
to Ps. 286 million in the same  period of 2000.  As a  percentage  of net sales,
operating income was 9% in 2001 and 12% in the same period of 2000.

      Financial Income (Expense)

      Simec  recorded  financial  income  in 2001 of Ps. 5 million  compared  to
financial  expense of Ps. 114 million  during 2000.  Simec  recorded an exchange
gain of approximately Ps. 99 million in 2001 compared to an exchange loss of Ps.
17  million  in 2000 as a result of the 4.5%  increase  in the value of the peso
versus the  dollar in 2001  compared  to a decrease  of 0.6% in the value of the
peso versus the dollar in 2000. Net interest expense was Ps. 166 million in 2001
versus Ps. 339 million during 2000 reflecting a lower amount of debt outstanding
during 2001.  Simec recorded a gain from monetary  position of Ps. 72 million in
2001  compared  to a gain from  monetary  position  of Ps. 242  million in 2000,
reflecting  the  domestic  inflation  rate of 4.4% in 2001 as  compared to 9% in
2000.

      Other Income (Expense), Net

      Simec  recorded other income,  net, of Ps. 64 million in 2001  (reflecting
(i) income from the cancellation of Ps. 15 million of bank interest  recorded as
accrued  interest in the prior year (included a gain of Ps. 1 million in respect
of  $120,000  principal  amount  of MTNs  which  were  acquired  at 50% of their
principal amount,  without provision for accrued interest, and were subsequently
cancelled),  (ii) income from the cancellation of the provision of Ps. 9 million
for doubtful accounts recorded as a result of changes in estimates made in prior
years,  (iii) income from a decrease of Ps. 10 million in the current  liability
to Grupo Sidek,  (iv) expense  relating to a provision for doubtful  accounts of
Ps. 6 million, (v) expenses of Ps. 3 million relating to the cancellation of the
goodwill,  (vi) income relating to asset taxes for prior years of Ps. 25 million
and (vii)  income  related  to other  financial  operations  of Ps. 14  million)
compared  to other  expense,  net,  of Ps. 64  million in 2000  (reflecting  (i)
expenses  related  to the  disposal  of excess  dust at the  Mexicali  mini-mill
resulting  from the scrap melting  process in previous  years of Ps. 34 million,
(ii) costs  related to the Simec  Restructuring  of Ps. 13  million),  (iii) the
provision  of Ps. 10  million  for  doubtful  accounts  recorded  as a result of
changes in  estimates  made in prior  years and (iv)  expenses  related to other
financial operations of Ps. 7 million.

      Income Tax and Employee Profit Sharing

      Simec  recorded a provision  of Ps. 17 million for income tax and employee
profit  sharing in 2001  (including  income of Ps. 5 million from the  provision
from the  application  of  Bulletin  D-4 with  respect to  deferred  income tax)
compared to a provision of Ps. 133 million in 2000 (including a provision of Ps.
58 million from the  application of Bulletin D-4 with respect to deferred income
tax).


                                     - 21 -
<PAGE>

      Discontinued Operations

      In 2000,  Simec recorded net loss from  discontinued  operations of Ps. 15
million (which included the operations of Estral and Moly-Cop).  In 2000, Estral
and  Moly-Cop  recorded  in the  aggregate  net  sales of Ps.  146  million  and
operating  income of Ps. 15 million.  Simec had no  discontinued  operations  in
2001.

      Net Income (Loss) Before Minority Interest

      As a result of the foregoing,  Simec  recorded net income before  minority
interest  of Ps.  242  million  in 2001  compared  to net loss  before  minority
interest of Ps. 40 million in 2000.

      Recent Pronouncements Applicable to Mexican GAAP

      In 1999, the Mexican Institute of Public  Accountants issued Bulletin D-4,
"Accounting  for Income and Asset Taxes and Employee Profit  Sharing",  which is
effective  for  all  fiscal  years  beginning  January  1,  2000.  Bulletin  D-4
establishes  financial  accounting  and  reporting  standards for the effects of
asset tax,  income tax and employee  profit sharing that result from  enterprise
activities during the current and preceding years. Simec's long-term liabilities
resulting from the adoption of this Bulletin was Ps. 697 million at December 31,
2001  compared to Ps. 738 million at December  31,  2000.  The effect on Simec's
consolidated statement of income in 2001, was a decrease of Ps. 5 million in the
provision for income tax and employee profit sharing  compared to an increase of
Ps. 58 million in 2000. These provisions do not affect the cash flow of Simec.

Liquidity and Capital Resources

      As a result of the economic  crisis in Mexico arising from the devaluation
of the peso  versus the U.S.  dollar in 1994 and its  aftermath,  including  the
liquidity  crisis which affected the Mexican banking  system,  the insolvency of
Simec's   former   parent,   Sidek,   and  Simec's  high  levels  of  short-term
indebtedness, Simec was unable to generate or borrow funds to refinance its debt
or to support its operations and capital  improvements.  As of December 15, 1997
and  immediately  prior to the  consummation  of the  Restructuring  (as defined
below), Simec had total outstanding  indebtedness of approximately $322 million;
over half of Simec's  debt had matured and was unpaid and  substantially  all of
the  balance  was  subject  to  acceleration.  In  December  1997,  the  Company
consummated a corporate  reorganization  and  restructuring  of its  liabilities
(collectively,  the  "Restructuring").  Simec's  wholly-owned  subsidiary,  CSG,
incurred new bank debt,  issued new debt securities (and paid limited amounts of
accrued  interest  on  certain  outstanding  debt) in  exchange  for,  and in an
aggregate amount  approximately  equal to, the outstanding  consolidated debt of
the  Company  at the date of  consummation  of the  Restructuring  in return for
equity in all of Simec's subsidiaries,  and the elimination of intercompany debt
owed by CSG to Simec.  The  Restructuring  did not result in a reduction  in the
overall  amount of  Simec's  consolidated  outstanding  debt  and,  accordingly,
following the Restructuring,  Simec, through CSG, continued be highly leveraged.
Simec's only material asset following  consummation of the  Restructuring is its
100% equity  interest in CSG. The new bank debt bore interest at floating  rates
based on margins above six month LIBOR and was originally scheduled to mature in
2007 with principal  amortizing in equal semi-annual  installments  beginning in
2000, except for approximately $70 million of non-amortizing bank debt scheduled
to  mature  in  2009.  In  2000,  Simec  and  its  bank  creditors  restructured
substantially  all of the then outstanding bank debt to provide for, among other
things  (i)  a  two  year  extension  with  respect  to  the  amortization  of a
substantial  portion of bank debt, from seven years to nine years,  with a final
maturity in 2009 and a 0.75%  increase in the interest  rate  applicable to such
bank debt,  as a result of which such bank debt now bears  interest  at floating
rates based on margins ranging from 5.125% to 5.625% above six-month  LIBOR, and
(ii) at Simec's election (which was exercised in connection with the acquisition
by Industrias CH of a controlling  interest in Simec),  the  conversion of $90.2
million of bank debt (plus $5.2 million of accrued interest thereon) into common
shares  of  Simec  based  upon the  price of  approximately  $0.1935  per  share
(approximately $3.87 per American depositary share).

      At December  31,  2002,  Simec's  total  consolidated  debt  consisted  of
approximately  $48  million of U.S.  dollar-denominated  debt  (including  $14.4
million of debt owed to its parent company, Industrias CH, while at December 31,
2001,   Simec   had   outstanding    approximately    $103   million   of   U.S.
dollar-denominated debt (including $14.8 million of debt owed to Industrias CH).
Simec's lower debt level at December 31, 2002  reflects the  prepayment of $48.1
million of bank debt in 2002 (Simec  financed  $24.4 million of this  prepayment
with loans from


                                     - 22 -
<PAGE>

Industrias  CH), the semi-annual  amortization  installments on its bank debt in
May and November  2002  aggregating  $6.7 million and the  conversion  to common
stock in June 2002 of $24.6  million of loans (plus  accrued  interest  thereon)
from Industrias CH at a conversion  price  equivalent to U.S. $1.51 per American
Depositary  Share.  Substantially  all of Simec's  remaining  consolidated  debt
(other than debt owed to  Industrias  CH) matures in 2009 and amortizes in equal
semi-annual  installments.  As at June 18, 2003, Simec's total consolidated debt
consisted of approximately  $1.7 million of U.S. dollar denominated debt (in May
2003 Simec prepaid $18.1 million owed to Bancomext). On May 21, 2003, Industrias
CH made a  capital  contribution  to Simec in the  amount of $14.4  million  for
capital  stock to be issued upon receipt by Simec of approval  from the Comision
Nacional Bancaria y de Valores. In addition Simec had outstanding  $302,000 of 8
7/8% MTN's due 1998 (accrued  interest at December 31, 2002 was $227,666)  which
were issued in 1993 as part of a $68 million issuance.

      In June 2002, Industrias CH converted approximately $24.6 million of loans
to Simec,  plus  accrued  interest  thereon,  into  common  shares of Simec at a
conversion price equivalent to $1.51 per American  Depositary Share. Those loans
had been made  principally  to fund the  prepayment  of Simec bank debt. In July
2002, certain minority  shareholders of Simec exercised their pre-emptive rights
to purchase  capital stock for Ps. 26.8 million at the  equivalent of U.S. $1.51
per American Depositary Share. Their pre-emptive rights arose as a result of the
conversion of Industrias CH debt. In February  2003,  Simec  effected a 1 for 20
reverse  split of its  Series B  common  stock  and,  as a  result,  each of its
American  Depositary  Shares now represents 1 share of Series B Common Stock. In
March 2003,  Industrias  CH converted  approximately  $16.1  million of loans to
Simec,  plus accrued interest  thereon,  into 12,317,605  shares of Simec common
stock at a conversion price equivalent to $1.35 per American  Depositary  Share.
The loans converted to equity had originally been made to Simec by Industrias CH
for the primary  purpose of prepaying  Simec's bank debt.  The conversion of the
Industrias  CH loans to equity  will  result in  preemptive  rights for  Simec's
minority  shareholders  once  approval is received  from the  Comision  Nacional
Bancaria  y  de  Valores.   These  pre-emptive   rights  will  entitle  minority
shareholders  to purchase in the aggregate  2,374,331  shares of Series B common
stock,  which  corresponds  to 0.1360  shares  for each share of Series B common
stock they owned  immediately  prior to acquiring such pre-emptive  rights, at a
price per share equal to Ps.14.588  (the peso  equivalent  of $1.35 per American
Depositary Share on March 26, 2003).

      Net resources  provided by operations  were Ps. 317 million in 2002 versus
net resources  provided by operations of Ps. 413 million in 2001.  Net resources
used in  financing  activities  were Ps.  229  million in 2002,  reflecting  the
prepayment  of Ps. 481  million  ($48.1  million)  of bank debt,  the  scheduled
amortization  of an additional  $6.7 million of its bank debt and the conversion
by Industrias CH of Ps. 252.7 million of loans,  plus accrued interest  thereon,
into common  shares and the  increase of capital  stock of Ps. 26.8 million as a
result of the exercise of pre-emptive  rights by certain minority  shareholders.
In 2001,  net  resources  used in  financing  activities  were Ps.  419  million
reflecting  the  redemption  of Ps. 518  million  ($52.3  million) of CSG notes,
thereby  retiring  such  issuance  in  full.  Net  resources  used in  investing
activities  were Ps. 43 million in 2002 versus net  resources  used in investing
activities  of Ps.  57  million  in  2001.  These  amounts  were  used  for  the
acquisition of property, plant and equipment and other non-current assets.

      In 2000,  Simec sold its entire interest in Moly-Cop,  a 50% owned company
that  manufactures  grinding  balls used  principally  by grinding  mills in the
mining,  cement and chemical  industries to GS Industries Inc. for $2.4 million.
In  2000,  Simec  also  sold its  entire  interest  in  Estral,  a  wholly-owned
subsidiary that  manufactures  light and structural  steel racks for warehousing
and other industrial storage to Contenedores Industrial Mezquital,  S.A. de C.V.
(90%) and to Mr. Arturo Gerardo  Gonzalez  Martinez  (10%) for $3.5 million,  of
which  $3.15  million was paid in 2000 and $0.35  million  was paid in 2001.  In
accordance  with Mexican GAAP and U.S. GAAP,  the operations of Moly-Cop  (until
May 2000) and Estral  (until  October 2000) were  accounted for as  discontinued
operations  for all  periods  and their  operating  results  are  excluded  from
continuing operations.

      The  Company  invested  Ps. 9  million  principally  with  respect  to the
Mexicali  mini-mill and the  Guadalajara  mini-mill in 2002,  compared to Ps. 40
million in 2001.  The  Company's  debt to equity  ratio  decreased  from 0.66 at
December 31, 2001 to 0.45 at December 31, 2002.  The Company had available  cash
and cash  equivalents  of  approximately  Ps. 109 million at  December  31, 2002
versus Ps. 65 million at December 31, 2001.

      Except  for the  bank  loan of  approximately  $300,000  made to CSG,  the
limited  additional  financing  made  available  under the CSG Credit  Facility,
financing  available from its parent Industrias CH and limited amounts of vendor
financing,  since  January 1, 1995 the Company had not had access to  additional
financing or borrowed any  additional  amounts  (other than the extension of the
maturity of certain loans from third parties prior to


                                     - 23 -
<PAGE>

consummation of the  Restructuring);  however,  as described above Industrias CH
has lent amounts to CSG for various  purposes,  including most  significantly to
repay third party  indebtedness and thus the Company relies heavily on cash from
operating  cash flow to fund its  operations.  At December  31,  2002,  CSC owed
Industrias  CH $14.4  million  ($14.5  million as of June 1, 2003),  which bears
interest at 7.5% per annum and matures in 2003.

      The Company does not have in place any interest  rate or currency  hedging
instruments.  The Company does not have any off-balance sheet financing or other
arrangements.  The  Company is not party to any  non-exchange  traded  contracts
accounted for at fair value.

Item 6. Directors, Senior Management and Employees

Directors and Senior Management

      The following  table sets forth the names,  other  positions held with the
Company and the year of their  initial  appointment  to their  position,  of the
members  of  Simec's  Board of  Directors  and their  alternates  as well as the
Statutory  Examiner and his alternate.  The Statutory Examiner and his alternate
are not members of the Board of  Directors,  See  "--Board  Practices--Statutory
Examiner," below.

                                                                     Director
   Name                               Other Position With Simec       Since
   ----                               -------------------------       -----
   Directors:
   Rufino Vigil Gonzalez                                               2001
   Arturo Perez Trejo                                                  2003
   Eduardo Vigil Gonzalez                                              2001
   Raul Vigil Gonzalez                                                 2001
   Jose Luis Rico Maciel                                               2001
   Rodolfo Garcia Gomez de Parada                                      2001
   Gerardo Arturo Avendano Guzman                                      2001

   Alternate Directors:
   Manuel Rivero Figueroa                                              2003
   Jose Luis Romero Suarez                                             2001
   Sergio Vigil Gonzalez                                               2001
   Juan Mendez Martinez                                                2001
   Ignacio Muriedas Prieto                                             2001
   Jaime Vigil Sanchez Conde                                           2001
   Sergio Villagomez Martinez                                          2003

   Statutory Examiners:
   Humberto Valdes Mier                   Statutory Examiner           2001
   Jose Luis Valencia Font           Alternate Statutory Examiner      2003

      The following table sets forth the names of the executive  officers of the
Company,  their current  position and the year of their initial  appointment  to
that position.

                                                                        Position
                                                                          Held
   Name                                 Position in Simec                Since
   ----                                 -----------------                -----
   Luis Garcia Limon                 Chief Executive Officer             1984*
   Adolfo Luna Luna                  Chief Financial Officer             2001
   Alejandro Villa Flores            Chief Operating Officer             1999
   Marcos Magana Rodarte               Chief Sales Officer               2001
   Martin Guerrero Lopez          Chief Human Resources Officer          1996
   Jose Flores Flores       Chief Corporate Financial Planning Officer   2001

      *Represents  the date as of which Mr.  Garcia Limon first held this office
with the Company's predecessor, CSG.


                                     - 24 -
<PAGE>

      Biographical Information

      Gerardo Arturo  Avendano  Guzman.  Mr. Avendano was born in 1955. He is an
independent  director  for  purposes  of  Mexican  law and has been a member  of
Simec's Board of Directors and the Audit  Committee  since 2001. Mr. Avendano is
an independent lawyer specializing in civil, mercantile and fiscal litigation.

      Jose Flores Flores.  Mr. Flores was born in 1950. He is currently  Simec's
Chief Corporate  Financial  Planning  Officer.  From 1990 to 2001 he was Simec's
Manager of  Financial  Analysis and Stock Market  Disclosure.  Before that,  Mr.
Flores  was the  Auditor  Manager  of a food  company  from  1988 to  1990,  the
Controller  Manager of Grupo Situr,  Holding Company of Hotels,  a subsidiary of
Grupo Sidek from 1986 to 1988, and Auditor Manager of Simec from 1983 to 1986.

      Rodolfo Garcia Gomez de Parada. Mr. Garcia was born in 1953. He has been a
member of Simec's Board of Directors  since April 2, 2001 and is an  independent
director  for  purposes of Mexican  law. He has also been General Tax Adviser to
the Company  since 1978 and is a member of the board of  directors of a group of
self-service stores and restaurants since 1990.

      Luis Garcia Limon.  Mr.  Garcia was born in 1944. He is currently  Simec's
Chief Executive Officer.  From 1982 to 1990 he was General Director of CSG, from
1978 to 1982 he was Operation  Director of CSG, from 1974 to 1978 he was General
Manager of Moly Cop and Pyesa, and from 1969-1974 he was Engineering  Manager of
CSG. In addition,  from 1967 to 1969 Mr.  Garcia was the Director of  Electrical
Installation of a construction company.

      Martin Guerrero Lopez.  Mr. Guerrero was born in 1954. He has been Simec's
Human  Resources  Director  since  1996.  Prior to this  position  he was  Human
Resources  Manager of CSC from 1990 to 1995 and  Superintendent  of Personnel of
CSG from 1989 to 1990. From 1985 to 1989, Mr. Guerrero served as Human Resources
Regional  manager  of a food  company.  Previously,  he  also  served  as  human
resources corporate manager of a beverage company.

      Adolfo Luna Luna. Mr. Luna was born in 1955. He is currently Simec's Chief
Financial  Officer.  From 1990 to 2001 he was Simec's  Auditor  Manager.  Before
that, Mr. Luna served as Controller Manager of a food company from 1988 to 1990.
He was also Simec's  Audit  Supervisor,  Supervisor  of  Financial  Analysis and
Supervisor of  Consolidation  and Financial  Disclosure to the Stock Market from
1986 to 1988 and  Accountant  for a  grinding  balls  manufacturing  company,  a
subsidiary of Simec, from 1983 to 1986.

      Marcos  Magana  Rodarte.  Mr.  Magana  was born in 1965.  He is  currently
Simec's Marketing and Sales Director.  Before holding this position,  Mr. Magana
was  Domestic  Sales  Manager of CSG from 1997 to 2001,  Sales  Manager  for the
western region of CSG from 1994 to 1996, Sales Manager of Metalica las Torres, a
subsidiary  of Simec from 1992 to 1994 and  Salesman of CSG,  from 1990 to 1992.
Before working with Simec, Mr. Magana worked for a bank as Executive Promoter of
Sales.

      Arturo  Perez Trejo.  Mr. Perez was born in 1959.  He has been a member of
Simec's  Board of  Directors  and Audit  Committee  since April 2003,  and is an
independent  director  for  purposes of Mexican  law.  Mr. Perez has also served
since 1992 as the Chief  Financial  Officer of a group that  produces  and sells
structural steel racks for warehousing and other industrial storage.

      Jose Luis Rico Maciel.  Mr. Rico was born in 1926. He has been a member of
Simec's Board of Directors  since April 2, 2001 and is an  independent  director
for purposes of Mexican law. He also serves as Corporate  Legal and Tax Director
to the  Company  and is a  member  of the  board  of  directors  of a  group  of
self-service stores and restaurants since 1957.


                                     - 25 -
<PAGE>

      Humberto  Valdes Mier. Mr. Valdes was born in 1949. Mr. Valdes is a public
accountant  and is currently  Simec's  statutory  examiner and is the partner in
charge of BDO's  Guadalajara  office. He is currently member of several domestic
boards of directors. Mr. Valdes has key experience with multinational companies,
such as Grupo Sidek,  Grupo Arancia,  Productos de Trigo, Borg Warner de Mexico,
Grupo Almeria, Industrias Salver, and Grupo Holiday Inn Occidente.

      Jose Luis  Valencia  Font.  Mr.  Valencia was born in 1943. He is an audit
partner of BDO's Guadalajara office and is currently Simec's alternate statutory
examiner.  Mr.  Valencia  has  served as auditor  of  companies  such as Everest
Jennings,  S.A. de C.V.,  Grupo Hoteles Quinta Real,  Hoteles Camino Real, Grupo
Cementos Mexicanos, and Laboratorios Abbott, S.A. de C.V.

      Eduardo Vigil  Gonzalez.  Mr. Gonzalez was born in 1957. He is currently a
member of Simec's  Board of  Directors.  Mr.  Gonzalez  has been a member of the
Board of Directors since April 2, 2001.  Since 1976, Mr. Gonzalez has been chief
executive  officer of a welded pipe  corporation.  Mr.  Gonzalez is a brother of
Rufino Vigil Gonzalez and Raul Vigil Gonzalez.

      Raul Vigil  Gonzalez.  Mr. Gonzalez was born in 1961. He has been a member
of the Board of  Directors  since  April 2,  2001.  Since 1992 he has been chief
executive  officer of a steel  company.  In  addition,  he has also been general
manager of a steel  distribution  company.  Mr.  Gonzalez is a brother of Rufino
Vigil Gonzalez and Eduardo Vigil Gonzalez.

      Rufino Vigil Gonzalez.  Mr. Gonzalez was born in 1948. He is currently the
Chairman of Simec's  Board of Directors.  Mr.  Gonzalez has been a member of the
Board of Directors since April 2, 2001.  Since 1973, Mr. Gonzalez has been chief
executive  officer of a steel related products  corporation.  From 1988 to 1993,
Mr. Gonzalez was a member of the board of directors of a Mexican investment bank
and from 1971 to 1973 he was a construction corporation manager. Mr. Gonzalez is
a brother of Eduardo Vigil Gonzalez and Raul Vigil Gonzalez.

      Alejandro  Villa  Flores.  Mr.  Flores was born in 1964.  He is  currently
Simec's Chief Operating  Officer.  From 1998 to 2000 he was Operation Manager of
CSG, from 1996 to 1998 he was Quality  Assurance Manager of CSG and from 1993 to
1996 he was Quality  Assurance  Manager of CSC. Prior to working with Simec, Mr.
Flores worked for a steel company as a quality assurance chief from 1989 to 1990
and process engineer from 1987 to 1989.

Compensation

      The  remuneration  paid  by the  Company  during  2002  to all  Directors,
Alternate  Directors,  the Statutory Examiner,  the Alternate Statutory Examiner
and Executive  Officers,  including the Secretary and the Assistant Secretary of
the Board of Directors,  was approximately Ps13.8 million. In 2002, no fees were
paid to Directors,  Alternate Directors,  the Statutory Examiner,  the Alternate
Statutory Examiner,  the Secretary and the Assistant Secretary for attendance at
each meeting of the Board.

Board Practices

      Simec's  bylaws  provide  that the Board of  Directors  will  consist of a
maximum of nine but not less than six members. Directors are elected to one-year
terms and remain in their position until newly elected members replace them. All
of the current Directors were elected at the annual general shareholders meeting
on April 30, 2003 and will serve in such position  until the next annual general
shareholders  meeting.  According to Mexican law the participation of foreigners
on the board of directors of a Mexican  company may not exceed the percentage of
participation of foreign investment in the capital stock of such company.

      Minority holders of Series L Common Shares, if any,  representing at least
10% of Simec's capital stock,  have the right to appoint a minority Director and
its  alternate  under the Ley del Mercado de Valores  (the  "Mexican  Securities
Market Law").  However,  if no minority  Director is  appointed,  the holders of
Series L Common  Shares,  if any,  would have the right to appoint two Directors
and two  alternates.  Directors  are  entitled  to  indemnification  for certain
liabilities under the Mexican Securities Market Law.

      Simec's Directors are classified as:


                                     - 26 -
<PAGE>

      o     Independent Directors.  At least 25% of the Company's Directors must
            be  independent,  as  defined  under  Simec's  by-laws.  Independent
            Directors are those  directors who are elected solely upon the basis
            of merit and professional experience and who are not included in any
            of the following categories:

            a)    Executives  and  employees  of the Company  during the year in
                  which  they  are  to  serve  as a  Director  or  in  the  year
                  immediately prior thereto;

            b)    Controlling shareholders of the Company;

            c)    Consultants  or advisors of the Company,  or their  employees,
                  whose revenues derived from the Company  represented more than
                  10% of their total revenues.

            d)    Directors,  executives,  management  or  employees  of Simec's
                  customers  and  suppliers  whose  revenues  derived from Simec
                  constitute  more  than 10% of  their  aggregate  purchases  or
                  sales, respectively, with the Simec group companies.

            e)    Directors,  executives,  management  and  employees of Simec's
                  debtors or creditors if the  aggregate  amount owed to or from
                  Simec represents more than 15% of the total assets as shown on
                  the financial statements of such debtor or creditor.

            f)    Directors  and  employees of any  institutions  which  receive
                  donations from Simec if such donation represents more than 15%
                  of the total donations received by such institution.

            g)    Executives  and  management  of any company the  directors  of
                  which include  persons who are also executives and managers of
                  Simec.

            h)    Relatives of the persons included in (a) through (g) above.

      o     Controlling  Directors.  Controlling  Directors  are  those  who are
            material  shareholders  of  the  Company.  The  combined  number  of
            controlling and independent directors must represent at least 40% of
            the total number of Directors; and

      o     Related  Directors.  Related  Directors  are those  who are  neither
            independent nor material shareholders.

      Our board of directors has adopted a code of ethics in December  2002. The
Company is currently  evaluating that code to determine whether it complies with
applicable securities laws and the rules of the Commission.

      Audit Committee

      Simec's  by-laws provide that an audit committee will assist the Company's
Board of Directors on certain  matters  determined by the general  shareholders'
meeting.  The by-laws also provide that the audit committee will have the number
of members  determined by the general  shareholders'  meeting,  which may not be
less  than  three,  all of whom  shall  be  elected  from  among  the  Company's
independent directors, as defined above. The current audit committee members are
Arturo Perez Trejo,  Gerardo Arturo  Avendano Guzman and Rodolfo Garcia Gomez de
Parada.

      The  Company  is  currently  reviewing  the  structure  of its  Board  and
committees,  including  the audit  committee,  in order to comply with  recently
enacted and amended  requirements  of the U.S.  securities laws and the rules of
the American Stock  Exchange.  The Company intends to be in full compliance with
such rules and laws at the time they  become  effective  as to  foreign  private
issuers such as Simec.


                                     - 27 -
<PAGE>

      Statutory Examiner

      Under Mexican law, the statutory  examiners  report to the shareholders at
the annual  ordinary  general  meeting  regarding  the accuracy of the financial
information  presented to  shareholders  by the Board of Directors and generally
review the affairs of the Company.  The statutory  examiners are also authorized
to:

      o     call ordinary general meetings or extraordinary  general meetings of
            shareholders;

      o     place items on the agenda for general  meetings of shareholders  and
            meetings of the Board of Directors; and

      o     attend general meetings of shareholders and meetings of the Board of
            Directors (without the right to vote).

      In accordance with Simec's by-laws,  as currently in effect, the number of
statutory  examiners is fixed at one  proprietary  and one  alternate  examiner,
which shall be appointed by the vote of Simec shares  representing a majority of
shareholders present at a general ordinary  shareholders' meeting. Once elected,
statutory  examiners  remain in their  position  until newly  elected  statutory
examiners  replace them. The statutory  examiner must be a different person than
the  person  who  executes  the  auditors  report  on  the  Company's  financial
statements.

Employees

      At  December  31,  2002,  Simec had  1,333  employees,  compared  to 1,386
employees  at  December  31, 2001 and 1,608  employees  at  December  31,  2000.
Approximately  69% of the labor force of all  subsidiaries  of Simec,  direct or
indirect,  are  unionized.  Wages and benefits for  non-unionized  employees are
fixed by a compensation  system that  incorporates  both  performance and market
rates.  Salaries  and  benefits  of Simec's  operating  subsidiaries'  unionized
employees are fixed annually by union  contracts.  Simec's  management  believes
that its relations with employees are satisfactory  within all of its divisions,
and  there has been no strike or work  stoppage  since the  commencement  of its
operations in late 1969. Simec considers  employee training a priority and, as a
result, has implemented programs in the professional and technical areas of each
division.

Share Ownership

      As of April 30, 2003, based on information available to Simec, it believes
the  officers and  directors  of Simec as a group own 34,750  shares of Series B
Common Stock. Accordingly, on an individual basis, and as a group, our directors
and executive officers  beneficially owned less than one percent of any class of
our  shares.  None of the  members of our board of  directors  or our  executive
officers holds any options to purchase common shares or preferred shares.

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

      As of December 31, 2002, Simec had 2,160,625,003 shares of Series B common
stock  outstanding  This does not reflect the 1 for 20 reverse  split of Simec's
Class B Common Stock which became effective on February 20, 2003.

      On March 29, 2001,  Sidek  consummated the sale of its entire  approximate
62% controlling  interest in Simec to Industrias CH, In addition,  Industrias CH
acquired  additional  common shares from certain of Simec's bank  creditors.  In
August 2001,  Industrias  CH converted  approximately  $69.5 million of loans to
Simec plus accrued  interest thereon into common shares of Simec at a conversion
price  equivalent to U.S.  $1.60 per American  depositary  share.  In June 2002,
Industrias  CH  converted  approximately  $24.6  million  of loans to Simec into
common  shares  of Simec at a  conversion  price  equivalent  to U.S.  $1.51 per
American depositary share. In March 2003, Industrias CH converted  approximately
$16.1 million of loans to Simec plus accrued interest thereon into common shares
of Simec at a conversion price equivalent to U.S. $1.35 per American  depositary
share. As a result,  Industrias CH currently holds an approximate 85.6% interest
in Grupo Simec.


                                     - 28 -
<PAGE>

      The  current  members  of the  Board  of  Directors  of the  Company  were
nominated   and  elected  to  such   position  at  the  2003  General   Ordinary
Shareholders'  Meeting  as  proposed  by  Industrias  CH.  It is  expected  that
Industrias  CH will be in a position to  continue  to elect the  majority of the
Directors of the Company and to exercise substantial  influence and control over
the business  and policies of the Company and to influence  the Company to enter
into  transactions  with Industrias CH and affiliated  companies.  However,  the
by-laws  of the  Company  provide  that at least  two of its  Directors  must be
independent  of the Company and its affiliates and the Board of Directors of the
Company  has passed a  resolution  requiring  the  approval  of two  independent
Directors for certain  transactions between the Company and its affiliates which
are not subsidiaries of the Company. Furthermore,  under the laws of Mexico, any
shareholder  or group of  shareholders  is  entitled  to elect one member of the
Board of Directors for each full 10% of the capital stock of the Company that it
owns.  In  addition,  under the laws of Mexico,  a majority  shareholder  has no
fiduciary  duty  to  minority  shareholders  but may  not  act  contrary  to the
interests of the  corporation  for the majority  shareholder's  benefit.  Such a
majority  shareholder  is required to abstain from voting on any matter in which
it directly  or  indirectly  has a conflict  of  interest  and can be liable for
actual and  consequential  damages if such matter passes as a result of its vote
in favor thereof. In addition, the directors of a Mexican corporation owe a duty
to  act in a  manner  which,  in  their  independent  judgment,  is in the  best
interests of the corporation and all its shareholders.

Related Party Transactions

      In 1991,  the Company sold 100% of its interest in the  operations of Club
de Precios S.A. de C.V.  ("Club de Precios"),  which operated  three  membership
warehouse stores and franchised  another store.  Grupo Mak, S.A. de C.V. ("Grupo
Mak"),  a company  wholly-owned  by Jorge  Martinez  Guitron  and Jose  Martinez
Guitron,  each a former director of the Company,  acquired 75% of such interest.
The remaining 25% was sold to a former member of the Board of Directors of Sidek
and Grupo Situr,  S.A. de C.V. The aggregate  purchase price was  $1,750,000,  a
portion  of  which  was  paid  at  closing  with  the  balance  to  be  paid  in
installments. Grupo Mak and the other purchaser ceased making scheduled payments
in 1993 and 1994,  respectively.  In 1995, Simec and the purchasers  amended the
original  contract  to  provide a single  payment of the  outstanding  principal
amount plus all accrued and unpaid interest in August 1997. This payment was not
made. In 2002 the Company canceled $1.4 million of Grupo Mak and Ps. 7.9 million
of Club de Precios  against the reserve  established  because the  impossibility
recovery of these accounts.

      In 1992,  the Company sold  Ferrometal  de Baja  California,  S.A. de C.V.
("Ferrometal"),  which  operates  steel  distribution  centers  in  northwestern
Mexico, to two individuals,  Sergio Luis Gonzalez Melo (a former director of the
Company)  and an executive  officer of  Ferrometal.  The purchase  price of $2.9
million was determined based upon arms-length negotiations.  The amounts payable
from such individuals were initially  denominated in dollars bearing interest at
15% per annum.  In 1995,  Simec  entered into an agreement  with the  purchasers
pursuant to which the interest  accrued as of December 31, 1994 was capitalized,
the debt was  converted  into pesos with no interest  accruing from January 1995
and the entire  principal amount was to be paid no later than December 31, 1996.
The executive  officer of Ferrometal  timely paid his obligations.  Mr. Gonzalez
owed  approximately Ps. 10 million in historic pesos at December 31, 2002. Simec
obtained  favorable  judgments  against  him in  February  2002,  June  2002 and
February 2003. This proceeding is not completed,  however,  and Simec is not yet
entitled to execute on its judgment. The Company has established a reserve equal
to 100% of the amount owed by Mr. Gonzalez.

      In 2001, in connection  with the  acquisition  by Industrias CH of Sidek's
controlling  interest in Simec,  Simec  decreased the amount it owed to Sidek by
paying Sidek Ps. 6.8 million in cash, crediting against the amount owed to Sidek
amounts owed to Simec by former subsidiaries  Industria Naval de Mazatlan,  S.A.
de C.V. and  Industria  Naval del Pacifico,  S.A. de C.V. and crediting  certain
other amounts. In 2002 Simec settled its crediting certain other amounts owed to
it by Sidek for Ps. 4.2 million and paying Ps. 2.8 million in cash.  At December
31, 2002 there were no amounts owed to Sidek.

      Simec has  borrowed  various  amounts  from  Industrias  CH,  primarily to
finance debt redemptions and bank loan amortization and interest  payments.  See
Item 5.

      In 1993, the Company's Board of Directors  adopted a resolution  requiring
that any extension or provision of credit or financing or the like to or for the
benefit  of  any  affiliate  of  the  Company  be on  an  arms-length  basis  on
commercially   reasonable  terms  and  be  approved  by  two  of  the  Company's
independent Directors and may not be


                                     - 29 -
<PAGE>

amended,   modified  or  rescinded  without  the  approval  of  two  independent
Directors. This resolution may be enforced by any holder of the Company's Common
Stock.

Item 8. Financial Information

Consolidated Statements and Other Financial Information

      See Item 18 - "Financial Statements" and "Index to Financial Statements."

Dividends

      Since the  consummation  of the initial public offering of Series B Common
Stock in 1993, the Company has not declared any dividends.  CSG's ability to pay
dividends has been severely limited by the debt  instruments  executed as a part
of the Restructuring. See Item 5.

Significant Changes

      See Item 5 - "Operating and Financial Review and Prospects."

Legal Proceedings

      There  are  currently  no  material  legal or  administrative  proceedings
pending in Mexico against Simec or any of its subsidiaries which are expected to
have a material  adverse  effect on Simec's  financial  condition  or results of
operations,  or are  expected  to result in  material  capital  expenditures  or
materially adversely affect Simec's competitive position.

      Certain subsidiaries of Simec that conduct operations in the United States
are  subject  to  U.S.  federal,   state  and  local  regulation,   particularly
environmental  regulations.  In 1989 Pacific Steel, Inc.  ("Pacific  Steel"),  a
subsidiary  based in San  Diego,  California,  was  required  by the  California
Regional Water Control Board, San Diego Region (the "Regional  Board") to sample
the soil  beneath  the former  storage  site of the  automobile  shredder  waste
generated by Pacific  Steel's prior scrap  processing  operations and submit the
results to the  Regional  Board,  which it did. In 1990,  in response to another
directive  issued by the  Regional  Board,  Pacific  Steel  submitted a range of
remedial  alternatives to clean up the contaminated soil. The Regional Board has
not responded to Pacific Steel's clean up alternatives. Based upon the advice of
environmental engineering consultants retained by Simec, consultation with other
parties  and the fact that  Pacific  Steel  has  discontinued  scrap  processing
operations,  Simec  believes  its  liability  will be between  $0.8 million with
respect to the  remediation of this site based upon present volume  assumptions,
exclusive of any  contribution  from third  parties or insurance  coverage  with
respect to all or a portion of its  remedial  costs to which it may be entitled.
Simec  maintains a reserve of  approximately  $0.8  million with respect to this
matter.  There  can be no  assurance  that  the  Regional  Board  or  any  other
interested   third  party  will  not  object  to  the  recommended   remediation
alternative.  Pacific Steel has discontinued  processing scrap in San Diego, but
continues to collect raw scrap in San Diego for  transportation  to Mexicali for
processing. See Notes 1(l) and 12(c) to the Consolidated Financial Statements.

      In September 2002, the California  Department of Toxic Substances  Control
(the  "California   TSC")  issued  an  Imminent  and  Substantial   Endangerment
Determination  and Schedule for Compliance (the  "Enforcement  Order")  alleging
that certain soil  management  and metal  recovery  operations at one of Pacific
Steel's sites may cause imminent and  substantial  endangerment  to human health
and the environment.  The California TSC has verbally  indicated that it intends
to seek a penalty of  approximately  $270,000  although no penalty has  formally
been  sought as of the date of this  Annual  Report.  Pacific  Steel has filed a
notice of defense  preserving  its right to an  administrative  hearing  and has
provided to the  California  TSC a plan to address  the  alleged  non-compliance
issues.  Additionally,  the Community  Development  Commission of National City,
California  (the "CDC") has  announced  that it intends to  purchase,  at market
value less the cost of remediation  and costs  incurred,  3.86 acres of the site
for redevelopment.  Consequently,  Pacific Steel recorded its land at realizable
value  based  on an  independent  appraisal,  resulting  in a Ps.  19.8  million
decrease  in the value of the land and a charge  to  income in the same  amount.
Additionally,  at December 31, 2002 Pacific Steel recognized a $0.8 million (Ps.
8.4 million) provision for cleaning expenses.


                                     - 30 -
<PAGE>

      In 1998,  Profepa  directed  CSC to dispose of excess dust at the Mexicali
mini-mill  resulting  from the scrap  melting  process.  Profepa has  accepted a
proposal  from CSC  pursuant  to which  the  excess  dust  would be  removed  by
September  2000. In May 2000,  Profepa fined CSC for not disposing of the excess
dust,  notwithstanding  that  CSC  had  until  September  2000 to  complete  the
disposal. CSC challenged this fine and a judge declared its invalidation. CSC is
currently  awaiting a new  resolution  by Profepa  modifying  the fine.  Profepa
inspected several times the Guadalajara  mini-mill and directed CSG to undertake
various  minimum  actions.  CSG has already  complied with Profepa's  directive.
There  are  currently  no other  material  legal or  administrative  proceedings
pending  against  Simec  or  any  of  its  subsidiaries   with  respect  to  any
environmental  matter in Mexico,  and management does not believe that continued
compliance  with the  Ecological  Law or  existing  Mexican  state or  municipal
environmental  laws will have a material  adverse  effect on  Simec's  financial
condition or results of operations,  result in material capital  expenditures or
have a material adverse effect on Simec's competitive position. Simec is a party
to certain  legal  proceedings  involving  local taxing  authorities.  See Notes
12(e), 12(f) and 13(f) to the Consolidated Financial Statements.

      In the normal course of business  operations,  Simec and its  subsidiaries
have been named as defendants in a variety of legal actions. Simec believes that
such actions or proceedings  are covered by insurance or are not material to the
financial condition,  business and affairs of Simec and its subsidiaries,  taken
as a whole.

Item 9. Offer and Listing Details

Share Price Information

      The following table sets forth for the periods  indicated the high and low
sales prices  expressed in historical  pesos of the Series B Common Stock on the
Mexican Stock Exchange, and the high and low sales price expressed in dollars of
the ADSs on the American Stock Exchange.

                                                  Mexican           American
                                                   Stock              Stock
                                                 Exchange           Exchange
                                                 --------           --------
                                              High      Low       High     Low
                                              ----      ---       ----     ---
1998                                          2.15      0.60      5.00     1.25
1999                                          2.44      0.50      5.00     0.75
2000                                          2.50      1.15      5.00     1.88
2001                                          1.25      0.52      2.50     0.81
2002                                          0.89      0.50      1.75     0.80

2001
      First Quarter                           1.25      0.81      2.50     1.62
      Second Quarter                          0.90      0.65      1.80     1.20
      Third Quarter                           0.76      0.68      1.50     1.10
      Fourth Quarter                          0.70      0.52      1.75     0.81

2002
      First Quarter                           0.65      0.50      1.30     1.00
      Second Quarter                          0.89      0.51      1.75     1.25
      Third Quarter                           0.70      0.55      1.55     0.85
      Fourth Quarter                          0.59      0.51      1.05     0.80

2003
      First Quarter                          11.00     10.20      1.60     0.85
      Second Quarter (through June 24)       12.50     12.40      1.40     1.25

2002
      December                                0.51      0.51      1.05     0.90

2003
      January                                 0.53      0.51      0.90     0.90
      February                               10.60     10.60      1.60     0.85
      March                                  11.00     10.20      1.60     1.30
      April                                  12.50     12.40      1.40     1.30
      May                                    12.50     12.50      1.26     1.25

On February 20, 2003 the Company effected a 1 for 20 reverse stock split.


                                     - 31 -
<PAGE>

Markets

      The Series B Common  Stock is listed on the  Mexican  Stock  Exchange  and
ADSs,  each  representing  1 share of Series B Common  Stock,  are listed on the
American Stock Exchange.  The ADSs are evidenced by American Depositary Receipts
("ADRs")  issued  by the  Bank  of New  York,  as  Depositary  under  a  Deposit
Agreement, dated as of July 8, 1993, among Simec, the Depositary and the holders
from time to time of ADRs.

Item 10. Additional Information

Memorandum and Articles of Association

      Set forth below is a brief  summary of certain  significant  provisions of
Simec's  by-laws  and  Mexican  law.  This  description  does not  purport to be
complete and is qualified by reference to Simec's by-laws, which have been filed
as an exhibit to this annual  report.  For a  description  of the  provisions of
Simec's  by-laws  relating  to the  Board  of  Directors,  audit  committee  and
statutory auditors, see Item 6. "Directors, Senior Management and Employees".

      Organization, Register and Purpose

      Simec is a sociedad anonima de capital variable  organized in Mexico under
the  Mexican  Companies  Law (Ley  General de  Sociedades  Mercantiles),  and is
registered with the Public Registry of Commerce of Guadalajara, Jalisco.

      Simec's  main   purpose,   as  described  in  section  1  of  its  by-laws
(estatutos),  is to  promote,  organize  and  manage any type of  commercial  or
non-profit corporations.  Simec is domiciled in the city of Guadalajara, Jalisco
and its principal  administrative  office is located at Calzada Lazaro  Cardenas
601, Guadalajara, Jalisco, Mexico 44440.

      Share Capital

      Simec's  capital stock is divided into series B and series L common stock.
Prior to June 2002, the Company's  capital stock also included  series A shares.
On June 5, 2002, all shares of series A common stock were converted to shares of
series B common stock on a one-for-one basis.

      Series L  common  stock  may  never  represent  more  than 25% of  Simec's
outstanding  capital  stock.  At  December  31,  2002,  series  B  common  stock
represented 100% of Simec's capital stock, and no series L common stock has been
issued.  At  December  31,  2002,  the  Company's  total  share  capital was Ps.
2,630,014,  represented  by a  fixed  portion  of Ps.  945,326  thousand,  and a
variable  portion of Ps. 1,684,688  thousand.  On February 20, 2003, the Company
effected a 1 for 20 reverse stock split.

      The variable  portion of the capital  stock may never exceed ten times the
amount  represented by the fixed portion.  The fixed portion of Simec's  capital
stock  may be  increased  or  decreased  by a  resolution  passed  at a  general
extraordinary  shareholders'  meeting.  The  variable  portion of the  Company's
capital stock may be increased or decreased by a resolution  passed at a general
ordinary  shareholders'  meeting.  Any  increases or decreases in the  Company's
capital stock must be recorded in the Company's registry of capital variations.


                                     - 32 -
<PAGE>

      Voting Rights

      Each series B common share  entitles its holder to one vote at any meeting
of Simec's  shareholders.  Each series L common share entitles its holder to one
vote at any meeting at which  holders of series L common  shares are entitled to
vote.  Holders of series L common  shares are entitled to vote only to elect one
member of Simec's board of directors and the  corresponding  alternate  director
and on the following matters:

      o     transformation of Simec from one type of company to another;

      o     extension of Simec's corporate existence;

      o     any merger or  corporate  split in which Simec is not the  surviving
            entity;

      o     dissolution or liquidation of Simec;

      o     cancellation of the registration of Simec's shares with the National
            Registry of Securities and Intermediaries; and

      o     any action  that would  prejudice  the rights of holders of series L
            common  shares  and  not  prejudice  the  other  classes  of  shares
            similarly.  A resolution on any such action requires the affirmative
            vote of both a  majority  of all  outstanding  series L shares and a
            majority of the series B common shares voting together.

      Shareholders  may vote by proxy duly  appointed in writing.  Under Mexican
law, holders of shares of any series are also entitled to vote as a class on any
action that would  prejudice  the rights of holders of shares of such series but
not rights of holders of shares of other series,  and a holder of shares of such
series  would be  entitled  to judicial  relief  against  any such action  taken
without such a vote.  The  determination  of whether an action  requires a class
vote on these grounds  would  initially be made by Simec's board of directors or
other party calling for shareholder  action. A negative  determination  would be
subject to judicial challenge by an affected shareholder,  and the necessity for
a class vote  would  ultimately  be  determined  by a court.  There are no other
procedures for  determining  whether a proposed  shareholder  action  requires a
class vote, and Mexican law does not provide extensive  guidance on the criteria
to be applied in making such a determination.

      The holders of common stock of any series have equal pecuniary  rights and
obligations, including appraisal rights. See "--Other Provisions."

      Shareholders' Meetings

      General   shareholders'   meetings  can  be  ordinary  or   extraordinary.
Shareholders' meetings may be called by:

Simec's Board of Directors or the statutory auditors;

shareholders representing at least 10% of the then outstanding shares of Simec's
capital  stock by requesting  the Company's  Board of Directors or the statutory
auditors to call a meeting;

any  shareholder if no meeting has been held for two  consecutive  years or when
the matters  referred to in Article 181 of the Mexican  corporation law have not
been dealt with; or

a Mexican  court in the event that Simec's  board of directors or the  statutory
auditors  do not comply  with the valid  request of the  shareholders  indicated
above.

      Notice of shareholders' meetings must be published in the official gazette
for the state of Jalisco,  Mexico or any major newspaper  located in the City of
Guadalajara,  Jalisco,  Mexico.  The notice must be  published  at least 15 days
prior to the date of any shareholders' meeting,  unless the meeting is qualified
as urgent  by  Simec's  Board of  Directors,  in which  case the  notice  may be
published at least five days in advance. Meetings called to approve the


                                     - 33 -
<PAGE>

Company's annual report or financial  statements may not be qualified as urgent.
Publication  of a notice is not required if  shareholders  representing  100% of
Simec's capital stock attend a meeting.

      An annual general ordinary  shareholders'  meeting must be held during the
first four months after the end of each of Simec's fiscal years to consider:

      o     the  annual  report of Simec's  Board of  Directors,  including  the
            Company's financial statements for the preceding fiscal year;

      o     the annual report of the audit committee.

      o     the annual report of the statutory examiners.

      o     the election of Simec's  Directors,  members of the audit  committee
            and statutory examiners and set their compensation; and

      o     determine  the  allocation  of  Simec's  profits,  if  any,  of  the
            preceding year, including the payment of dividends.

      In addition,  general  ordinary  shareholders'  meetings  must approve the
following matters:

      o     the sale of shares of one of Simec's subsidiaries, if the sale value
            exceeds, in the aggregate, 20% of the Company's stockholders' equity
            as set forth in its most recent balance sheet;

      o     the purchase of shares of a company,  if the purchase value exceeds,
            in the aggregate, 20% of Simec's stockholders equity as set forth in
            its most recent balance sheet; and

      o     the exercise of withdrawal  rights  regarding stock of a subsidiary,
            if the  exercise  value,  in the  aggregate,  exceeds 20% of Simec's
            stockholders' equity as set forth in its most recent balance sheet.

      At the annual general  shareholders'  meeting, any shareholder or group of
shareholders  representing 10% or more of Simec's  outstanding  voting stock has
the right to appoint one regular and one  alternate  director in addition to the
directors  elected by the  majority.  The  alternate  director  appointed by the
minority  holders  may  only  substitute  for  the  director  appointed  by that
minority.

      Extraordinary  shareholders'  meetings  may be  called at any time to deal
with any of the matters specified by Article 182 of the Mexican corporation law,
which include, among other things:

      o     extending Simec's corporate existence;

      o     Simec's early dissolution;

      o     increasing or reducing Simec's fixed capital stock;

      o     changing Simec's corporate purpose;

      o     changing Simec's country of incorporation;

      o     changing Simec's capital structure;

      o     a proposed merger;

      o     issuing preferred shares;

      o     any  redemption by the Company of its own shares and the issuance of
            preferred shares;


                                     - 34 -
<PAGE>

      o     any other  amendment to Simec's  articles of association  (including
            amendments to the rights of Simec's shareholders); and

      o     any other matter for which a special quorum is required by law or by
            Simec's articles of association.

      The   foregoing   matters   may  only  be  dealt  with  at   extraordinary
shareholders' meetings.

      In order to vote at a meeting of shareholders,  shareholders  must deposit
prior to that  meeting  the  certificates  representing  their  shares  with the
secretary of Simec's Board of Directors,  a Mexican  credit  institution or S.D.
Indeval, S.A. de C.V. ("Indeval").

      The quorum for an ordinary  general  meeting of  shareholders  is 50%, and
action may be taken by a majority of the series B shares present. If a quorum is
not available,  a second meeting may be called at which action may be taken by a
majority of series B shares  present,  regardless  of the number of such shares.
Special  meetings  of holders of series L shares are  governed by the same rules
applicable to extraordinary  general meetings of holders of series B shares. The
quorum for an extraordinary  general meeting at which holders of series L shares
may not vote is 75% of the series B shares,  and the quorum for an extraordinary
general  meeting at which holders of L shares are entitled to vote is 75% of the
outstanding capital stock. If a quorum is not available in either case, a second
meeting may be called and action may be taken, provided a majority of the shares
entitled  to vote is  present.  Whether on first or second  call,  actions at an
extraordinary  general  meeting may generally be taken by a majority vote of the
series B shares outstanding and, on matters which holders of series L shares are
entitled to vote, a majority vote of all the capital stock.  Certain  actions at
an extraordinary  general meeting require the vote of at least 75% of the series
B shares and, on matters  which holders of series L shares are entitled to vote,
a majority of the series L shares.  These matters include  amendments to certain
by-law provisions relating to:

      o     quorum and voting requirements for extraordinary general meetings of
            shareholders;

      o     calling requirements for general meetings of shareholders;

      o     the composition of the Simec's Board of Directors;

      o     the transformation of Simec from one type of company to another;

      o     any merger or  corporate  split in which Simec is not the  surviving
            entity;

      o     the capital  structure of the Company,  excluding  capital increases
            and  decreases  in the  variable  portion of the  Company's  capital
            stock; o the rights of series L shares; and

      o     the  cancellation  of the  registration  of Simec's  shares with the
            Registro Nacional de Valores e Intermediarios;

      Under Mexican law, holders of at least 33% of Simec's  outstanding capital
stock entitled to vote on a particular  matter may seek to have any  shareholder
action with respect to that matter suspended, by filing a complaint with a court
of law  within 15 days after the close of the  meeting at which that  action was
taken and showing that the  challenged  action  violates  Mexican law or Simec's
articles of  association.  Relief under these  provisions  is only  available to
holders  who were  entitled  to vote on, or whose  rights as  shareholders  were
adversely  affected by, the challenged  shareholder action and whose shares were
not represented when the action was taken or, if represented, voted against it.

      Under Mexican law, an action for civil  liabilities  against directors may
be initiated by a resolution of the general ordinary  shareholders'  meeting. In
the event  shareholders  decide to bring an action  of this  type,  the  persons
against  whom that action is brought  will  immediately  cease to be  directors.
Additionally, series B shareholders


                                     - 35 -
<PAGE>

representing not less than 15% of the outstanding  shares may directly  exercise
that action against the directors; provided that:

those  shareholders  shall not have voted against  exercising such action at the
relevant shareholders' meeting; and

the claim covers all of the damage  alleged to have been caused to Simec and not
merely the damage suffered by the plaintiffs.

      Any  recovery  of damage  with  respect to these  actions  will be for the
benefit of Simec and not that of the shareholders bringing the action.

      Preemptive Rights

      In the event of an  increase  in the  capital  stock of the  Company,  its
shareholders will have preemptive rights to subscribe a sufficient number of new
shares to maintain the shareholder's existing proportionate holdings,  except in
the  case  of  shares  issued  (i) in  connection  with  mergers,  (ii)  for the
conversion  of  convertible  debentures  or  (iii)  for  the  resale  of  shares
maintained  in the  Company's  treasury  as a result  of  repurchase  of  shares
conducted  on the  Mexican  Stock  Exchange.  In  accordance  with  the  Mexican
Securities Market Law,  shareholders who do not attend the general extraordinary
shareholders  meeting at which a resolution is passed waiving  preemptive rights
in connection with the issuance of new shares for placement in a public offering
are bound by such waiver.

      Under  Mexican Law,  preemptive  rights must be  exercised  within 15 days
following  the  publication  of notice of the capital  increase in the Periodico
Oficial del Estado de Jalisco (the "Official Gazette"). Preemptive rights cannot
be waived in advance  and  cannot be traded  separately  from the  corresponding
shares that give rise to such  right.  Holders of ADSs may  exercise  preemptive
rights in limited  circumstances.  See Item 12 "Description of Securities  Other
than Equity Securities--Description of American Depositary  Receipts--Dividends,
Other  Distributions  and  Rights." If a holder of series B common stock or ADSs
were unable or unwilling to exercise its  preemptive  rights in connection  with
such a capital  increase,  such  holder's  proportionate  share of dividends and
other distributions and voting rights would decline.  In addition,  depending on
the series of common stock increased and the pattern in which preemptive  rights
were exercised,  such a capital increase might increase or reduce the portion of
the  Company's  capital stock  represented  by series B common stock and ADSs or
increase or reduce the proportionate voting rights of such holder.

      Redemption

      Any holder of shares is  entitled  to have those  shares  redeemed at that
holder's  option,  but  solely to the  extent  that  redemption  does not reduce
Simec's aggregate  capital below the amount of the minimum fixed capital,  for a
price equal to the lower of:

95% of the average  market value of those shares on the Mexican  Stock  Exchange
obtained  for a period  of 30  trading  days  preceding  the  date on which  the
exercise  of the  redemption  option is  effective;  and the book value of those
shares at the end of the fiscal  year that  includes  the date that  shareholder
exercises its option to have its shares  redeemed as set forth in Simec's annual
financial statements approved at the ordinary meeting of the shareholders.

      If a shareholder  exercises its  redemption  option during the first three
quarters of a fiscal year,  that exercise is effective at the end of that fiscal
year,  but if a shareholder  exercises its  redemption  option during the fourth
quarter,  that  exercise is effective at the end of the next  succeeding  fiscal
year.  The  redemption  price is  payable  as of the day  following  the  annual
ordinary  meeting  of  shareholders  at  which  the  relevant  annual  financial
statements  were  approved.  In the  event  Simec  receives  redemption  notices
simultaneously  which,  in the aggregate,  would reduce Simec's capital to below
the amount of the minimum fixed capital, then those redemptions will be effected
on a pro rata basis.

      Purchase of Common Stock by the Company

      According to the bylaws,  Simec may  repurchase  its shares on the Mexican
Stock  Exchange  at any  time at the  then  prevailing  market  price.  Any such
repurchase must be approved by the Board of Directors,  and the amount of shares
to be repurchased must be approved by the general ordinary shareholders meeting.
In the event of any


                                     - 36 -
<PAGE>

such  repurchase,  Simec's  capital  stock will be reduced  automatically  in an
amount equal to the assumed par value of each repurchased  share  (determined by
dividing  the  Company's  outstanding  capital  stock by the  number  of  shares
outstanding immediately prior to such repurchase). If the purchase price of such
shares  exceeds the assumed par value,  the difference  will be charged  against
amounts  allocated  from net  earnings  to a  special  reserve  created  for the
repurchase of shares. Repurchased shares will be held as treasury stock, pending
future  sales of such shares on the  Mexican  Stock  Exchange  or  cancellation.
Simec's capital stock is automatically  increased upon the resale of such shares
in an amount equal to their assumed par value; any excess amount is allocated to
the  special  reserve   referred  to  above.  The  economic  and  voting  rights
corresponding  to repurchased  shares may not be exercised  during the period in
which Simec owns such shares,  and such shares are not deemed to be  outstanding
for  purposes of  calculating  any quorum or vote at any  shareholders'  meeting
during such period.

      Unless the  repurchase  is conducted  through a tender  offer,  Directors,
executive  officers,  Statutory  Examiners  and the  Secretary  of the  Board of
Directors,  and holders of 10% or more of the  outstanding  Common Stock may not
sell Common  Stock to, or purchase  repurchased  Common  Stock from the Company.
Regulations under the Mexican Securities Market Law require that, if the Company
decides to repurchase Common Stock representing 3% or more of its share capital,
such repurchase must be conducted by means of a public tender offer.

      Companies or other entities controlled by Simec may not purchase shares of
Simec's capital stock or of the capital stock of companies or entities which are
Simec's shareholders.

      Registration and Transfer

      Simec's common stock is evidenced by share certificates in registered form
with registered dividend coupons attached.  Simec's  shareholders may hold their
shares in the form of physical  certificates or through  institutions  that have
certificates  deposited  with Indeval.  Accounts may be maintained at Indeval by
brokers,  banks and other entities approved by the Mexican securities authority.
The Company  maintains a stock  registry,  and, in accordance  with Mexican law,
only those holders listed in the stock  registry and those holding  certificates
issued by Indeval indicating ownership are recognized as Simec shareholders. ADR
holders,  as such,  will not be holders of record of the series B common  stock.
For a discussion of the  availability of registered  shares to ADR holders,  see
Item 12 "Description of Securities Other than Equity  Securities--Description of
American  Depositary  Receipts--Deposits  and  Withdrawals of Shares of Series B
Common Stock."

      Dividends

      At the  annual  general  ordinary  shareholders'  meeting,  the  board  of
directors  submits  Simec's  financial  statements for the previous fiscal year,
together  with a report  on them by the  Company's  board of  directors,  to the
holders of series B common stock for approval. Under Simec's by-laws and Mexican
law,  Simec's  annual net income,  based upon the  Company's  audited  financial
statements  prepared in  accordance  with  Mexican  GAAP,  is applied by Simec's
shareholders as follows:  (i) five percent of the Company's net earnings must be
allocated to a legal reserve fund,  until such fund reaches an amount equal to a
least 20% of Simec's then current capital stock (which level, as of December 31,
2002,  was  approximately  Ps.  2,630  million),  (ii)  thereafter,   a  certain
percentage  of net earnings may be allocated to any general or specific  reserve
fund,  and (iii) the remainder of any net earnings is allocated as determined by
the majority of Simec's  shareholders  and may be distributed as dividends.  All
shares  of  common  stock  that are  fully  paid and  outstanding  at the time a
dividend or other distribution is declared are entitled to share equally in that
dividend or other  distribution.  Cash  dividends  on common  stock held through
Indeval will be distributed by the Company through  Indeval.  Any cash dividends
on common stock evidenced by physical  certificates will be paid by surrendering
to us the relevant dividend coupon registered in the name of its holder.

      To the extent that the Company  declares and pays  dividends on its common
stock,  owners of ADSs at the time a dividend or other  distribution is declared
will be  entitled to receive  any  dividends  payable in respect of the series B
common  stock  underlying  their  ADSs,  subject  to the  terms  of the  Deposit
Agreement.  Cash dividends will be paid to the Depositary in pesos,  and, except
as otherwise  described  under Item 12  "Description  of  Securities  Other than
Equity  Securities--Description of American Depositary Shares--Dividends,  Other
Distribution  and Rights," will be converted by the Depositary  into dollars and
paid to the owners net of currency expenses and applicable fees.


                                     - 37 -
<PAGE>

      A shareholder's  entitlement to uncollected  dividends  lapses within five
years following the stated payment date, in favor of the Company.

      Liquidation

      In the event the Company is liquidated, the surplus assets remaining after
payment  of  all  Simec's   creditors   will  be  divided  among  the  Company's
shareholders  in proportion to the respective  shares held by them.  Shares that
are only partially paid will  participate in the  distribution in the proportion
that they were paid. The general  extraordinary  shareholders'  meeting at which
the liquidation resolution is made, will appoint one or more liquidators to wind
up the Company's affairs.

      Foreign Investment

      Ownership  by  non-Mexicans  of shares of Mexican  enterprises  in certain
economic  sectors is regulated by the 1993 Foreign  Investment  Law and the 1998
Regulations thereunder.  The Ministry of the Economy and the National Commission
on Foreign  Investment are  responsible  for the  administration  of the Foreign
Investment Law and Regulations.

      Pursuant to the Foreign Investment Law and Regulations,  foreign investors
may acquire up to 100% of the capital stock of Mexican  companies or entities in
the steel industry. In accordance with Simec's by-laws,  shares of all series of
the Company's  common stock can be acquired and held by Mexican and  non-Mexican
nationals.  Simec  has  registered  any  foreign  owner of its  shares,  and the
depositary  with  respect  to the ADSs  representing  Simec's  shares,  with the
Registro  Nacional de Inversion  Extranjera  (the  National  Registry of Foreign
Investment).

      Directors' and Shareholders' Conflict of Interest

      Under  Mexican law, any  shareholder  that has a conflict of interest with
respect to any transaction  must abstain from voting on that  transaction at the
relevant  shareholders'  meeting.  A shareholder  who votes on a transaction  in
which its interest  conflicts  with the  Company's  interests  may be liable for
damages  in the  event the  relevant  transaction  would not have been  approved
without that shareholder's vote.

      Under  Mexican law, any director who has a conflict of interest with Simec
in any  transaction  must disclose that fact to the other  directors and abstain
from  voting.  Any director who  violates  those  provisions  will be liable for
damages.  Additionally,   Simec's  directors  and  statutory  auditors  may  not
represent shareholders in the shareholders' meetings.

      Other Provisions

      Appraisal Rights.  Whenever the shareholders approve a change of corporate
purposes,  change of nationality of the corporation or  transformation  from one
form of corporate  organization to another, the Mexican corporation law provides
that any  shareholder  entitled to vote on that change that has voted against it
may  withdraw  from the  Company and receive the book value (as set forth in the
latest  balance  sheet  approved at a general  ordinary  shareholders'  meeting)
attributable to its shares, provided that it exercises that right within 15 days
following the adjournment of the meeting at which the change was approved.

      Forfeiture of Shares.  As required by Mexican law,  Simec's bylaws provide
that  "any  alien  who at the time of  incorporation  or at any time  thereafter
acquires an interest or participation in the capital of the corporation shall be
considered, by virtue thereof, as Mexican in respect thereof and shall be deemed
to have  agreed  not to  invoke  the  protection  of his own  government,  under
penalty,  in case of breach of such  agreement,  of  forfeiture to the nation of
such interest or participation." Under this provision a non-Mexican  shareholder
is deemed to have agreed not to invoke the  protection of his own  government by
asking such  government  to  interpose a  diplomatic  claim  against the Mexican
government with respect to the shareholder's rights as a shareholder, but is not
deemed to have waived any other rights it may have,  including  any rights under
the U.S.  securities  laws,  with  respect to its  investment  in Simec.  If the
shareholder invokes such governmental protection in violation of this agreement,
its shares could be forfeited  to the Mexican  government.  Mexican law requires
that such a provision  be  included  in the bylaws of all  Mexican  corporations
unless  such  bylaws  prohibit  ownership  of shares by  non-Mexican  persons or
entities.


                                     - 38 -
<PAGE>

      Duration.  Simec's existence under the bylaws is 99 years from the date of
registration with the Public Registry of Commerce, extending through 2089.

      Tender Offer in the Event of Delisting.  Simec's  by-laws  provide that in
the event the Company decides to cancel the  registration of the series B common
stock with the Registro Nacional de Valores e Intermediarios  ("RNVI") or if the
CNBV requires such cancellation, the controlling shareholders must make a tender
offer to  purchase  the series B common at the higher of (i) the  average of the
price at which  transactions have been conducted in the series B common stock on
the  Mexican  Stock  Exchange  during the 30 days prior to the date on which the
tender  offer  is made or (ii)  the book  value  of the  series  B common  stock
determined pursuant to the latest quarterly financial information of the Company
filed with the CNBV and the Mexican Stock Exchange.  However,  a different basis
may be used to  determine  the  purchase  price,  if  approved  by  shareholders
representing at least 95% of the Company's capital stock, with the prior consent
of the CNBV.

      The  controlling  shareholders  will not be  obligated  to make the tender
offer in the event that all the shareholders  consent to the cancellation of the
registration of the series B common stock.

Exchange Controls

      Ownership by non-Mexicans  of shares of Mexican  companies is regulated by
the  Ley  de  Inversion  Extranjera  (the  "Foreign  Investment  Law")  and  the
regulations  set forth in the  Reglamento  de la Ley para  Promover la Inversion
Mexicana  y  Regular  la   Inversion   Extranjera   (the   "Foreign   Investment
Regulations").  The  Secretaria de Economia (the  "Ministry of the Economy") and
the Comision Nacional de Inversion  Extranjera (the "National Foreign Investment
Commission") are responsible for the  administration  of the Foreign  Investment
Law and the Foreign Investment Regulations. In accordance with recent changes to
the Foreign Investment  Regulations,  up to 100% of the capital stock of Mexican
companies in the steel industry may be acquired and held by non-Mexicans.

      As required by Mexican law, the corporate  charter of the Company provides
that "current or future foreign  shareholders  formally bind themselves with the
Ministry of Foreign Relations to consider  themselves as Mexican with respect to
the  shares  of the  Company  which  they  acquire  or  hold,  as well as to the
property, rights, concessions, participations or interests which the Company may
hold, or to the rights and obligations  which derive from the contracts to which
the Company is a party with Mexican  authorities and not to invoke therefore the
protection  of their  governments  under  penalty of  forfeiting  the  corporate
participation  that they have  acquired  to the  benefit  of the  Nation if they
invoke such protection."

      The Series B Common Stock and the ADRs do not have any  limitation  on the
right of non-Mexicans to own or vote such securities.

Taxation

      Mexican Tax Considerations

      Effective January 1, 2002, dividends, either in cash or in any other form,
paid with  respect to the Series B Common Stock  represented  by ADSs to holders
will not be subject to Mexican  withholding  tax. Simec is required to pay a 35%
(34%,  effective January 1, 2003) tax on 1.4706 times the amount of any dividend
if the  dividend is not paid from  earnings  that have been  already  subject to
income tax.

      The sale or other  disposition of ADSs by holders who are not residents of
Mexico (as defined below) will not be subject to Mexican tax. Deposits of Series
B Common  Stock in  exchange  for ADSs  will  not give  rise to  Mexican  tax or
transfer duties.

      The  sale or other  disposition  of  shares  of  Series B Common  Stock by
nonresidents  of Mexico  will not be subject to any  Mexican  tax if the sale is
carried out by an individual through the Mexican Stock Exchange.  Sales or other
dispositions  of  shares of Series B Common  Stock  made in other  circumstances
would be subject to Mexican income tax. Under the Tax Treaty (as defined below),
gains  attributable to permanent  establishment  that a United States enterprise
(as defined in the Tax Treaty) has or had in Mexico,  or which are  attributable
to a fixed  base  which is or was  available  to a United  States  resident  (as
defined in the Tax Treaty) in Mexico for the purpose of  performing  independent
personal services are taxable in Mexico. Also under the Tax Treaty gains derived
by a United States


                                     - 39 -
<PAGE>

resident (as defined in the Tax Treaty) may be taxed in Mexico if such  resident
during the 12-month period preceding the sale or disposition  giving rise to the
gain  had a  participation,  directly  or  indirectly,  of at  least  25% of the
Company's  capital.  The Tax Treaty  further  provides  that such gains shall be
deemed to be Mexican sourced to the extent necessary to avoid double taxation.

      For purposes of Mexican taxation, a natural person is a resident of Mexico
if he or she has  established  his or her home in  Mexico,  unless he or she has
resided in another country for more than 183 calendar days during a year and can
demonstrate  that he or she had  become  a  resident  of  that  country  for tax
purposes  and  a  legal  entity  is  a  resident  of  Mexico  if  its  principal
administrative  office is located in Mexico. A Mexican citizen or a legal entity
with its  corporate  domicile  in Mexico and  established  under  Mexican law is
presumed  to  be a  resident  of  Mexico,  unless  the  citizen  or  entity  can
demonstrate otherwise.  If a legal entity has a permanent establishment or fixed
base in Mexico,  its  permanent  establishment  or fixed base is required to pay
taxes  in  Mexico  with  respect  to  income   attributable  to  such  permanent
establishment or fixed base in accordance with relevant tax provisions.

      Tax Treaties and Information Exchange

      The United  States and Mexico are parties to an income tax treaty to avoid
double taxation and a protocol thereto (the "Tax Treaty") which became effective
on January 1, 1994. In general, the Tax Treaty does not adversely affect the tax
treatment of U.S.  holders of ADSs or Series B Common  Stock.  The United States
and Mexico have also  entered  into an  agreement  that  covers the  exchange of
information  with respect to tax matters.  Mexico has also executed  treaties to
avoid double  taxation  with other  countries,  some of which are in force.  The
foregoing summary does not take into account the effects of any such treaties.

      Other Mexican Taxes

      Other than income tax, there are no other  inheritance taxes applicable to
the  ownership,  transfer  or  disposition  of ADSs or shares of Series B Common
Stock.  There are no Mexican  stamp,  issuer,  registration  or similar taxes or
duties payable by holders of ADSs or the shares of Series B Common Stock.

      Reimbursement  of capital  pursuant to a redemption  of shares will not be
subject  to tax if the  corresponding  amount  is not  more  than  the  adjusted
contributed  capital  corresponding to the redeemed  shares.  Any excess of that
amount will be  considered  as a dividend  for tax purposes and will be taxed as
described above.

Documents on Display

      Statements  contained in this Annual Report  regarding the contents of any
contract or other document are not necessarily complete, and, where the contract
or other document is an exhibit to the Annual Report,  each of these  statements
is qualified in all respects by the  provisions of the actual  contract or other
documents.

      Simec  is  subject  to the  information  requirements  of  the  Securities
Exchange Act of 1934  applicable to a foreign private  issuers,  and accordingly
Simec files or furnishes reports,  information  statements and other information
with the U.S.  Securities  and  Exchange  Commission.  These  reports  and other
information  filed by Simec can be  inspected  at, and subject to the payment of
any required fees,  copies may be obtained from, the public Reference Section of
the U.S. Securities and Exchange Commission,  450 Fifth Street, N.W., Room 1024,
Washington,  D.C. 20549,  and at the U. S. Securities and Exchange  Commission's
Regional  Offices  located  at 233  Broadway,  New York,  New York  10279 and at
Citicorp Center, 500 West Madison Street,  Suite 1400, Chicago,  Illinois 60661.
These  reports and other  information  may also be  inspected  and copied at the
offices of the New York Stock  Exchange,  20 Broad  Street,  New York,  New York
10005.  As a foreign  private  issuer,  however,  Simec is exempt from the proxy
requirements of Section 14 of the Exchange Act and from the  short-swing  profit
recovery rules of Section 16 of the Exchange Act,  although the rules of the New
York Stock Exchange may require Simec to solicit  proxies from its  shareholders
under some circumstances.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

      The Company is exposed to market risk, which is the potential risk of loss
in fair  values,  cash flows or earnings  due to changes in  interest  rates and
foreign currency rates (primarily the peso/dollar exchange rate), as a result of
its  holdings  of  financial  instrument  positions.   The  Company's  financial
instruments include cash and cash


                                     - 40 -
<PAGE>

equivalents,  trade and other accounts receivable,  accounts payable,  long-term
debt  securities and related party debt. The Company does not maintain a trading
portfolio.  The Company's  borrowings are entirely  denominated in dollars.  The
Company does not utilize derivative  financial  instruments to manage its market
risks.  Historically,  based on the last ten years of data,  inflation in Mexico
has been 37% higher than the Mexican peso's devaluation relative to the dollar.

Market Risk Measurement

      The Company measures its market risk related to its financial  instruments
based on changes in  interest  rates and  foreign  currency  rates  utilizing  a
sensitivity  analysis.  The sensitivity  analysis measures the potential loss in
fair  values,  cash  flows and  earnings  based on a  hypothetical  increase  in
interest rates and a decline in the peso/dollar  exchange rate. The Company used
market rates as of December 31, 2002 on its financial instruments to perform the
sensitivity  analysis.  The Company  believes  that these  potential  changes in
market rates are reasonably  possible in the near-term (one year or less). Based
upon the  Company's  analysis  of the impact of a 100 basis  point  increase  in
interest rates and a 10% decline in the  peso/dollar  exchange rate, the Company
has  determined  that such  increase in interest  rates and such  decline in the
peso/dollar  exchange rate would have a material adverse effect on the Company's
earnings.  Because  there is no active  trading  market for the  Company's  debt
instruments, the Company is not able to determine the impact of these changes on
the fair  value of those debt  instruments.  The  sections  below  describe  the
Company's  exposure to interest rates and currency rates including the impact of
changes in these rates on the Company's earnings.

Interest Rate Exposure

      The Company's  primary  interest  rate  exposure  relates to its long-term
debt.  On the asset  side,  the  Company is  exposed  to  changes in  short-term
interest rates as it invests in short-term  dollar-denominated  interest bearing
investments.  On the  liability  side,  the Company  utilizes a  combination  of
floating  rate debt and fixed rate debt.  The  floating  rate debt is exposed to
changes in  interest  expense  and cash flows from  changes in LIBOR,  while the
fixed rate debt is mostly  exposed  to  changes  in fair  value from  changes in
medium  term  interest  rates.  Based on an  immediate  100 basis  point rise in
interest  rates,  the Company  estimates  that its earnings  before taxes over a
one-year time horizon would decrease by Ps. 3 million ($0.3 million).

Currency Rate Exposure

      The Company's  primary foreign currency  exchange rate exposure relates to
its debt  securities as well as its  dollar-denominated  trade  receivables  and
trade payables.  The Company's  principal currency exposure is to changes in the
peso/dollar  exchange  rate.  The  Company  estimates  that a 10% decline in the
peso/dollar  exchange rate would result in a decrease in the Company's  earnings
before taxes of Ps. 34 million ($3.3 million).

         The  sensitivity  analysis is an  estimate  and should not be viewed as
predictive of the Company's  future  financial  performance.  Additionally,  the
Company cannot assure that the Company's  actual losses in any  particular  year
will not exceed the amounts indicated above.  However,  the Company does believe
that these amounts are reasonable based on the financial instrument portfolio at
December  31,  2002 and  assuming  that the  hypothetical  market  rate  changes
selected by the Company in its market  risk  analysis  occur  during  2003.  The
sensitivity  analysis  does not give  effect to the impact of  inflation  on its
exposure  to  increases  in  interest  rates or the  decline in the  peso/dollar
exchange rate.

Item 12. Description of Securities Other than Equity Securities

      Although a response to this item is not  required  in an Annual  Report on
Form  20-F,  solely  for  convenience  of the reader a summary of the rights and
restrictions of the American  Depositary  Shares  representing  Simec's Series B
Common Stock is provided below.


                                     - 41 -
<PAGE>

Description of American Depositary Receipts

      American Depositary Receipts

      ADRs evidencing a specified  number of ADSs are issuable by the Depositary
pursuant to the Deposit  Agreement.  Each ADS  represents  one share of Series B
Common Stock (or evidence of rights to receive Series B Common Stock)  deposited
with the Custodian. Only persons in whose names ADRs are registered on the books
of the  Depositary  will be treated by the company and the  Depositary as owners
and holders of ADRs.  On February  20, 2003,  Simec  effected a 1 for 20 reverse
stock split. Before that reverse stock split was completed, each ADS represented
20 shares of Series B Common Stock.

      Deposit and Withdrawal of Shares of Series B Common Stock

      The shares of Series B Common Stock that are  represented  by the ADSs are
deposited  with the Custodian or with Indeval and  registered in the name of the
Custodian,  who is the  holder of  record of all such  shares of Series B Common
Stock.  Subject  to the terms and  conditions  of the  Deposit  Agreement,  upon
transfer of such shares of Series B Common Stock to the Custodian or the account
of the Custodian at Indeval,  the Depositary  will execute and deliver the ADRs.
Ownership of the  beneficial  interest in the shares of Series B Common Stock so
transferred  will be  shown  on,  and all  transfers  of the  ownership  of such
beneficial interests will be effected through, records maintained by, Indeval or
Indeval Participants, as applicable.

      Subject  to the  terms  and  conditions  of  the  Deposit  Agreement,  the
Depositary  has agreed  that,  upon  deposit  (i) by  delivery  of  certificates
evidencing shares of Series B Common Stock to the Custodian,  accompanied by any
appropriate  instrument  or  instruments  of  transfer or  endorsement,  in form
satisfactory  to the Custodian;  (ii) through  electronic  transfer of shares of
Series B Common Stock to the account  maintained by the Custodian at Indeval for
such purpose; or (iii) by delivery to the Custodian of evidence  satisfactory to
the Custodian that irrevocable instructions have been given to cause such Series
B Common Stock to be transferred to such account, in each case accompanied by an
appropriate  instrument  or  instruments  of  transfer  or  endorsement  in form
satisfactory to the Custodian and any  certifications  as may be required by the
Depositary  or the  Custodian,  the  Depositary  will execute and deliver at its
Corporate Trust Office,  upon payment of the fees, charges and taxes provided in
the Deposit  Agreement,  to or upon the  written  order of the person or persons
entitled  thereto,  an ADR  registered in the name of such person or persons for
the number of ADSs issuable in respect of such deposit.

      Every person  depositing Series B Common Stock under the Deposit Agreement
shall be deemed to  represent  and warrant  that such Series B Common  Stock and
each certificate  therefor are validly issued and outstanding,  fully paid, non-
assessable and free of preemptive rights, such person is duly authorized to make
such deposit,  and the deposit of such Series B Common Stock or sale of the ADRs
evidencing ADSs by that person is not restricted under the Securities Act.

      Upon surrender of the ADR at the Corporate Trust Office of the Depositary,
and upon payment of the fees  provided in the Deposit  Agreement  and subject to
the terms and conditions of the Deposit Agreement,  the corporate charter of the
Company and the Series B Common  Stock,  ADR  Holders  are  entitled to physical
delivery or electronic  delivery  through  Indeval or Indeval  Participants  (if
electronic  delivery is available)  of  certificates  representing  the Series B
Common  Stock and any other  securities,  property or cash that the  surrendered
ADRs evidence the right to receive.  Delivery to the  Corporate  Trust Office of
the  Depositary  shall  be made  at the  risk  and  expense  of the  ADR  Holder
surrendering ADRs. At the request,  risk and expense of ADR Holders surrendering
ADRs, the Depositary  shall direct the Custodian to forward any cash,  rights or
other  property  comprising,  and to forward a Certificate or  Certificates  and
other proper  documents of title for Series B Common Stock to such ADR Holder at
the Corporate Trust Office of the Depositary.

      The  Depositary  has agreed not to lend ADRs or deposited  Series B Common
Stock.  However,  the Depositary may issue ADRs prior to the receipt of Series B
Common  Stock  and  deliver  Series B Common  Stock  prior  to the  receipt  and
cancellation  of ADRs if each such  transaction is (i)  accompanied by a written
representation from the person to whom such ADRs or Series B Common Stock are to
be  delivered  that such person or its  customer  beneficially  owns the ADRs or
Series B Common  Stock to be  remitted,  (ii) at all times fully  collateralized
with  cash or other  collateral  deemed  appropriate  by the  Depositary,  (iii)
terminable by the Depositary on not more than five


                                     - 42 -
<PAGE>

business days' notice,  and (iv) subject to such further  indemnities and credit
regulations as are deemed  appropriate by the  Depositary.  The Depositary  will
impose such limitations as it deems appropriate on the number of ADRs and shares
of Series B Common Stock involved in such transactions,  with any one person and
with all persons in the  aggregate  (normally not to exceed 30% of the ADRs then
outstanding,  without giving effect to ADRs issue but for which shares of Series
B Common Stock have not been  received).  The  Depositary may retain for its own
account  any  compensation  received  by it in  connection  with  the  foregoing
transactions.

      Dividends, Other Distributions and Rights

      The  Depositary  is  required  to  convert or cause to be  converted  into
dollars,  to the extent that in its judgment it can do so on a reasonable  basis
and can transfer the resulting dollars to the United States,  all cash dividends
and other cash  distributions  denominated in pesos (or any other currency other
than  dollars)  that it  receives  in respect of the  deposited  Series B Common
Stock, and to distribute the amount received net of any reasonable and customary
expenses  incurred by the Depositary in connection  with conversion and a fee of
not in excess of $.02 per ADS (or portion  thereof) for such cash  distribution,
subject to the terms of the Deposit Agreement,  to the ADR Holders in proportion
to the number of ADSs that are  evidenced by such ADRs.  The amount  distributed
will be reduced by any amounts to be  withheld by the Company or the  Depositary
for applicable  taxes,  and net of expenses of conversion  into dollars.  If the
Depositary  determines  that in its  reasonable  judgment  any foreign  currency
received by it cannot be so converted on a reasonable basis and transferred,  or
if any  required  approval  or license  of any  government  authority  or agency
thereof  is  denied  or not  obtained  within  a  reasonable  period  of time as
determined by the Depositary or is not  obtainable in the reasonable  opinion of
the  Depositary,  the  Depositary may  distribute  such foreign  currency (or an
appropriate  document  evidencing  the right to receive such  foreign  currency)
received by it or, in its reasonable discretion,  hold such foreign currency for
the respective  accounts of the ADR Holders entitled to receive the same. If any
such conversion of foreign currency, in whole or in part, cannot be effected for
distribution to some of the ADR Holders entitled thereto,  the Depositary may in
its discretion  make such  conversion and  distribution in dollars to the extent
permissible to the ADR Holders  entitled  thereto and may distribute the balance
of such foreign currency received by the Depositary to, or hold such balance for
the respective accounts of, the ADR Holders entitled thereto.

      If the Company  declares a dividend or free  distribution,  of  additional
shares  of  Series  B Common  Stock,  the  Depositary  may,  with the  Company's
approval, and shall, if the Company so requests, deposit, or cause such stock to
be  deposited  with  the  Custodian  or  with  Indeval  for the  account  of the
Custodian,  and distribute to the ADR Holders entitled thereto, in proportion to
the  number  of ADSs  that are  evidenced  by such  ADRs  held by such  Holders,
additional ADRs evidencing an aggregate number of ADSs that represent the number
of  shares  of  Series  B  Common  Stock  received  as  such  dividend  or  free
distribution,  after  deduction  or upon  payment  of the  applicable  fees  and
expenses of the Depositary and subject to the terms of the Deposit Agreement. In
lieu  of  delivering  ADRs  for  fractional  ADSs  in  the  event  of  any  such
distribution,  the  Depositary  will sell the  amount  of Series B Common  Stock
represented  by the  aggregate of such  fractions  and will  distribute  the net
proceeds to ADR Holders in accordance with the Deposit Agreement.  If additional
ADRs are not so  distributed,  each ADS  shall  thereafter  also  represent  the
additional shares of Series B Common Stock distributed  together with the shares
of Series B Common Stock represented by such ADS prior to such distribution.  If
for any reason the Depositary  deems a distribution of additional ADRs not to be
feasible,  the  Depositary  may adopt such  method as it may deem  equitable  or
practical for the purpose of effecting  such  distributions,  including the sale
(public or private) of the additional  shares of Series B Common Stock received.
The  Depositary  may,  and  will  if  the  Company  so  requests,  withhold  any
distribution of ADRs subject to its satisfaction that such distribution does not
require  registration  under the Securities  Act or is exempt from  registration
under the provisions of the Securities Act.

      In  the  event  that  the  Custodian  or  the   Depositary   receives  any
distribution  upon any deposited  Series B Common Stock in property  (other than
cash,  Series B Common Stock or rights),  the  Depositary  is obliged  under the
Deposit  Agreement  to  distribute  such  property to the ADR  Holders  entitled
thereto,  after  deduction  or upon  payment  of the  fees and  expenses  of the
Depositary,  in proportion to their holdings,  in any manner that the Depositary
reasonably deems equitable and practicable. If in the opinion of the Depositary,
however, the distribution of such property cannot be made proportionately  among
such ADR Holders, or if for any other reason (including any requirement that the
Company,  the Depositary or the Custodian withhold an amount on account of taxes
or other  governmental  charges or that such securities must be registered under
the  Securities  Act in order to be distributed to the ADR Holders or beneficial
owners) the Depositary reasonably deems such distribution not feasible, the


                                     - 43 -
<PAGE>

Depositary  may  adopt  such  method as it may  reasonably  deem  equitable  and
practicable in order to effect such distribution,  including the sale (public or
private) of all or any part of such property and the distribution to ADR Holders
of the net proceeds of any such sale.

      If the  Company  offers or causes to be offered to the holders of Series B
Common Stock any rights to subscribe  for  additional  shares of Series B Common
Stock or any rights of any other nature, the Depositary shall have discretion as
to the  procedure to be followed in making such rights  available to ADR Holders
or in  disposing  of such  rights for the benefit of such ADR Holders and making
the net proceeds available to such ADR Holders or, if the Depositary may neither
make such rights  available nor dispose of such rights and make the net proceeds
available,  allow the rights to lapse; provided,  however, if at the time of the
offering  any rights the  Depositary  determines  in its  discretion  that it is
lawful and  feasible  to make such  rights  available  to all ADR  Holders or to
certain ADR Holders but not to other ADR Holders,  the Depositary may distribute
to any ADR  Holder to whom it  determines  the  distribution  to be  lawful  and
feasible in proportion  to the number of ADSs held by such ADR Holder,  warrants
or  other  instruments  therefor  in such  forms it  deems  appropriate.  If the
Depositary  determines in its  discretion  that it is not lawful and feasible to
make such rights  available to certain ADR Holders or if the rights  represented
by such warrants or other  instruments  are not exercised and appear to be about
to lapse,  the Depositary may,  subject to any applicable laws, sell the rights,
warrants or other  instruments  in  proportion to the number of ADSs held by the
ADR Holder to whom it has  determined  it may not lawfully or feasibly make such
rights  available,  and allocate the net proceeds of such sales (net of the fees
of the  Depositary  and all taxes and  governmental  charges  and subject to the
terms of the Deposit  Agreement)  for the  account of such ADR  Holders  upon an
averaged or other practical basis (without regard to any distinctions among such
ADR Holders because of exchange  restrictions or the date of delivery of any ADR
or  otherwise).  The  Depositary  will not be  responsible  for any  failure  to
determine  that it may be lawful and  feasible to make such rights  available to
ADR Holders in general or any ADR Holder in particular.

      If  an  ADR  Holder  requests  the   distribution  of  warrants  or  other
instruments  in order to exercise  the rights  allocable to the ADSs of such ADR
Holder,  the Depositary will make such rights  available to such ADR Holder upon
written  notice  from the  Company to the  Depositary  that (i) the  Company has
elected in its sole  discretion  to permit such rights to be exercised  and (ii)
such ADR Holder has executed such documents as the Company has determined in its
sole discretion are reasonably  required under  applicable law. Upon instruction
pursuant to such warrants or other  instruments to the Depositary  from such ADR
Holder  to  exercise  such  rights,  upon  payment  by such  ADR  Holder  to the
Depositary for the account of such ADR Holder of an amount equal to the purchase
price of the shares of Series B Common  Stock or other  property  to be received
upon the exercise of the rights,  and upon payment of the fees of the Depositary
as set forth in such warrants or other  instruments,  the Depositary  shall,  on
behalf of such ADR Holder, exercise the rights and purchase the shares of Series
B Common  Stock or other  property  and the  Company  shall  cause the shares of
Series B Common  Stock or other  property so  purchased  to be  delivered to the
Depositary  on behalf of such ADR  Holder.  As agent  for such ADR  Holder,  the
Depositary  will cause the shares of Series B Common  Stock so  purchased  to be
deposited under the Deposit  Agreement,  and shall issue and deliver to such ADR
Holder the  appropriate  ADRs, with any applicable  legends and  restrictions on
transfer.

      If  registration  under the Securities Act or other  applicable law of the
securities  to which any rights to subscribe for  additional  shares of Series B
Common Stock or any rights of any other  nature  relate is required in order for
the  Company to offer such rights to an ADR Holder  and/or  sell the  securities
issuable upon the exercise of such rights to an ADR Holder,  the Depositary will
not offer such rights or other rights to the ADR Holder  unless and until such a
registration  statement is in effect.  The Company may, in its sole  discretion,
decide  not to  register  under  the  Securities  Act or  other  applicable  law
securities to which any  subscription or other rights relate where  registration
under the Securities  Act or other  applicable law may be required in connection
with the offer or sale of such  securities.  In such  case,  ADR  Holders in the
United States and certain other jurisdictions would not be permitted to purchase
such securities or otherwise exercise such rights. Under Mexican law, preemptive
rights cannot be represented by an instrument that is negotiable separately from
the corresponding share certificate. Because the Depositary would, therefore, be
prohibited  from  disposing of such rights the ADR Holders would not receive the
value of such rights.  Additionally,  such ADR Holders'  share of dividends  and
other  distributions  and voting  rights  expressed as a  percentage  of all the
Company's   capital  stock  may  be  reduced  under  such   circumstances.   See
"Description of Capital Stock -- Changes in Capital Stock, Preemptive Rights and
Redemption."


                                     - 44 -
<PAGE>

      If the Depositary  determines that any distribution of property in respect
of the  Series B Common  Stock  (including  shares of  Series B Common  Stock or
rights to subscribe therefor) is subject to any tax or other governmental charge
that the Depositary is obligated to withhold,  the Depositary  may, by public or
private sale, dispose of all or a portion of such property,  including shares of
Series B Common Stock and rights to subscribe  therefor,  in such amounts and in
such manner as the Depositary  deems  necessary and  practicable to pay any such
taxes or charges.  The Depositary  will  distribute the net proceeds of any such
sale  after  deduction  of any  taxes or  charges  to the ADR  Holders  entitled
thereto.

      Subject  to the terms of the  Deposit  Agreement,  upon any  change in par
value,  split-up,  consolidation or any other  reclassification  of the Series B
Common  Stock,  or  upon  any   recapitalization,   reorganization,   merger  or
consolidation or sale of assets affecting the Company or to which it is a party,
any  securities  that shall be received by the  Depositary  or the  Custodian in
exchange  for or in  conversion  of or in  respect  of shares of Series B Common
Stock  shall be treated as  deposited  Series B Common  Stock  under the Deposit
Agreement,  and ADRs shall  thenceforth  represent  the right to receive the new
securities  so received in respect of Series B Common Stock,  unless  additional
ADRs are delivered or the Depositary calls for the surrender of outstanding ADRs
to be exchanged for new ADRs.

      Record Dates

      Whenever  any  cash  dividend  or other  cash  distribution  shall  become
payable,  any distribution other than cash shall be made or rights shall be made
or rights shall be issued with respect to the Series B Common Stock, or whenever
for any reason the  Depositary  shall  cause a change in the number of shares of
Series  B Common  Stock  that are  represented  by each  ADS,  or  whenever  the
Depositary shall receive notice of any meeting, or matter requiring the vote of,
holders  of Series B Common  Stock or ADR  Holders,  the  Depositary  will fix a
record date, which date shall to the extent practicable, be the same date as the
record date fixed by the Company,  (i) for the  determination of the ADR Holders
who shall be entitled (a) to receive such  dividend,  distribution  or rights or
the net  proceeds  of the  sale  thereof,  or (b) to give  instructions  for the
exercise of voting rights at any such meeting or (ii) on or after which each ADS
will represent the changed number of shares of Series B Common Stock.

      Reports and Other Communications

      The Company will furnish to the  Depositary  and the Custodian all notices
of shareholders'  meetings  (including any proxy soliciting  material) and other
reports and communications  that are made generally  available to the holders of
Series B Common  Stock.  The  Depositary  will make such  notices,  reports  and
communications  available for  inspection by ADR Holders at its Corporate  Trust
Office when furnished by the Company pursuant to the Deposit Agreement and, upon
request by the Company,  will mail such notices,  reports and  communications to
ADR Holders.

      Voting of the Underlying Series B Common Stock

      Upon  receipt of notice of any  meeting,  or  solicitation  of consents or
proxies,  of holders of Series B Common Stock,  the Depositary  will, as soon as
practicable  thereafter,  mail  to all  ADR  Holders  a  notice  containing  the
information  included in such notice of meeting or solicitation,  a statement as
to the  manner in which  each such ADR Holder may  instruct  the  Depositary  to
exercise  any  right  to vote  held by such  ADR  Holder  and a brief  statement
discussing the consequences of the failure to give voting instructions. Each ADR
Holder at the close of business on a specified record date is entitled under the
Deposit Agreement,  subject to any applicable  provisions of Mexican law, of the
Series B Common Stock and of the corporate  charter of the Company,  to instruct
the  Depositary as to the exercise of the voting rights,  if any,  pertaining to
the number of shares of Series B Common Stock  represented  by the ADSs that are
evidenced  by the ADRs held by such ADR Holder.  Upon the written  request of an
ADR Holder on such record date received on or before the date established by the
Depositary for such purpose, the Depositary will endeavor to vote or cause to be
voted the shares of Series B Common Stock  represented  by the ADSs held by such
ADR Holder in accordance  with such  instructions.  If the  Depositary  does not
receive  instructions  from any one or more ADR  Holders  then,  subject  to the
then-applicable  rules and  regulations  of the  exchange  on which the ADSs are
listed, the Depositary will vote the shares of Series B Common Stock represented
by the ADRs for which no  instructions  are  received  in the same manner as the
majority of instructions  which the Depositary has received with respect to such
meeting, or if no such instructions have been received or if there is no


                                     - 45 -
<PAGE>

such  majority,  in the same manner as the Depositary is informed by the Company
that the majority of shares of Series B Common  Stock is voted at such  meeting.
Holders of the ADRs have no right to attend  Shareholders'  Meetings  or to vote
any  shares  of  Series  B  Common  Stock  directly.  For a  discussion  of  the
availability  of  registered  shares  to  ADR  Holders,  See " --  Deposits  and
Withdrawals of Shares of Series B Common Stock."

      Amendment and Termination of the Deposit Agreement

      The form of the ADRs and the  terms of the  Deposit  Agreement  may at any
time be amended by  agreement  between  the Company  and the  Depositary  in any
respect  they deem  necessary  or  desirable.  Any  amendment  that  imposes  or
increases any fees or charges (other than taxes or other governmental  charges),
or that otherwise prejudices any substantial existing right of ADR Holders, will
not take effect as to  outstanding  ADRs until the  expiration  of three  months
after  notice of such  amendment  has been given to the ADR  Holders.  Every ADR
Holder and beneficial owner at the time such amendment becomes effective will be
conclusively  presumed, by continuing to hold such ADRs, to consent and agree to
such amendment and to be bound by the Deposit  Agreement as amended thereby.  In
no event will any amendment  impair the right of any ADR Holder to surrender the
ADRs held by such Holder and receive therefor the underlying  shares of Series B
Common  Stock and any other  property  represented  thereby,  except in order to
comply with mandatory provisions of applicable law.

      Whenever  so  directed  by the  Company,  the  Depositary  has  agreed  to
terminate the Deposit Agreement by mailing notice of such termination to the ADR
Holders then outstanding at least 30 days prior to the date fixed in such notice
for such  termination.  The  Depositary  may  similarly  terminate  the  Deposit
Agreement by mailing  notice of such  termination.  The Depositary may similarly
terminate the Deposit  Agreement by mailing  notice of such  termination  to the
Company an ADR.

      Holders then outstanding if at any time 90 days after the Depositary shall
have  delivered to the Company a written  notice of its election to resign and a
successor  depositary shall not have been appointed an accepted its appointment.
On and after the date of termination,  an ADR Holder, upon surrender of such ADR
at the Corporate Trust Office of the Depositary, upon payment of the fees of the
Depositary, and upon payment of any applicable tax or governmental charges, will
be  entitled  to  transfer  to an account in the name of such ADR Holder or such
name as designated by such ADR Holder of the number of shares of Series B Common
Stock and other property represented by such ADR. If any ADRs remain outstanding
after the date of termination,  the Depositary  thereafter will  discontinue the
registration of transfer of ADRs, will suspend the  distribution of dividends to
the Holders thereof and will not give any further notices or perform any further
acts under the Deposit  Agreement,  except (i) the  collection  of dividends and
other distributions,  (ii) the sale of rights and other property,  and (iii) the
delivery of shares of Series B Common  Stock,  together  with any  dividends  or
other  distributions  received with respect  thereof and the net proceeds of the
sale of any rights or other property,  in exchange for surrendered ADRs, subject
to the terms of the Deposit  Agreement.  At any time after the expiration of one
year from the date of  termination,  the Depositary may sell the Series B Common
Stock and any other property and hold uninvested the net proceeds, together with
any cash then held by it under the Deposit  Agreement,  unsegregated and without
liability  for  interest,  for the pro rata benefit of the ADR Holders that have
not theretofore surrendered their ADRs and such ADR Holders shall become general
creditors of the Depositary with respect to such net proceeds. After making such
sale, the Depositary shall be discharged from all obligations  under the Deposit
Agreement,  except to account for net proceeds  and other cash (after  deducting
certain  fees  of  the  Depositary)  and  except  for  certain  obligations  for
indemnification set forth in the Deposit Agreement.  Upon the termination of the
Deposit  Agreement,  the Company will also be  discharged  from all  obligations
thereunder, except for certain obligations to the Depositary.

      Charges of Depositary

      The  Company  will pay the fees,  reasonable  expenses  and  out-of-pocket
charges of the  Depositary  and those of any registrar  only in accordance  with
agreements in writing  entered into between the  Depositary and the Company from
time to time. The following charges shall be incurred by any party depositing or
withdrawing shares of Series B Common Stock or by any party surrendering ADRs or
to whom ADRs are issued (including,  without limitation,  issuance pursuant to a
stock  dividend or stock  split  declared by the Company or an exchange of stock
regarding the ADRs or deposited  Series B Common Stock or a distribution of ADRs
pursuant to the terms of the Deposit  Agreement):  (i) any applicable  taxes and
other governmental  charges,  (ii) any applicable transfer or registration fees,
(iii) certain cable, telex and facsimile transmission charges as provided in the
Deposit Agreement,


                                     - 46 -
<PAGE>

(iv) any expenses incurred in the conversion of foreign  currency,  (v) a fee of
$5.00 or less per 100 ADSs (or  portion  thereof)  for the  delivery  of ADRs in
connection with the deposit of shares of Series B Common Stock or  distributions
on Series B Common  Stock or the  surrender of ADRs and (vi) a fee not in excess
of $.02 per ADS (or portion thereof) for any cash  distribution made pursuant to
the Deposit Agreement.

      The Depositary,  subject to the Deposit Agreement, may own and deal in any
class of securities of the Company and its affiliates and in ADRs.

      Liability of Holders for Taxes, Duties and Other Charges

      Any tax or other governmental charge with respect to ADRs or any deposited
shares of Series B Common Stock  represented  by any ADR shall be payable by the
ADR Holder to the Depositary.  The Depositary may and upon instructions from the
Company shall refuse to effect  transfer or any split-up or  combination of such
ADR or  any  withdrawal  of the  deposited  shares  of  Series  B  Common  Stock
represented  by such ADR  until  such  payment  is made,  and may  withhold  any
dividends or other  distributions in respect thereof or may sell for the account
of the ADR Holder  thereof any part or all of the  deposited  shares of Series B
Common  Stock   represented  by  such  ADR  and  may  apply  such  dividends  or
distributions  or the  proceeds  of any such sale in  payment of any such tax or
other  governmental  charge  and the ADR  Holder  shall  remain  liable  for any
deficiency.

      Transfer of American Depositary Receipts

      The ADRs are  transferable on the books of the  Depositary,  provided that
the  delivery  of ADRs  against  deposits  of shares  of  Series B Common  Stock
generally or against deposits of particular  shares of Series B Common Stock may
be  suspended,  or the deposit of share of Series B Common Stock may be refused,
or the  registration of transfer of outstanding ADRs generally may be suspended,
during any period when the books of the Depositary or the Company are closed, or
if any such action is deemed  necessary or advisable  by the  Depositary  or the
Company  at any time or from time to time  subject  to the terms of the  Deposit
Agreement.  The surrender of outstanding ADRs and withdrawal of deposited shares
of Series B Common  Stock may not be  suspended  subject  only to (i)  temporary
delays  caused by closing  the books of the  Depositary  or the  Company for the
deposit  of shares  of  Series B Common  Stock in  connection  with  voting at a
shareholders'  meeting or the  payment of  dividends,  (ii) the payment of fees,
taxes and  similar  charges,  and (iii)  compliance  with any  United  States or
foreign  laws  or  governmental  regulations  relating  to  the  ADRs  or to the
withdrawal of the deposited shares of Series B Common Stock.  Without limitation
of the foregoing,  the Depositary  shall not knowingly  accept for deposit under
the  Deposit  Agreement  any  shares of  Series B Common  Stock  required  to be
registered  under the  provisions of the Securities  Act,  unless a registration
statement  is in effect  as to such  shares.  As a  condition  precedent  to the
execution and  delivery,  registration  of transfer,  split-up,  combination  or
surrender  of any ADR or  withdrawal  of shares of  Series B Common  Stock,  the
Depositary or the Custodian may require  payment from the person  presenting the
ADR or the  Depositor  of the  Series B  Common  Stock  of a sum  sufficient  to
reimburse it for any tax or other governmental  charge and any stock transfer or
registration  fee with respect  thereto,  payment of any applicable  fees of the
Depositary  payable by the ADR Holders and the production of proof  satisfactory
to the  Depositary as to the identify and  genuineness  of any signature and may
also require  compliance  with any  reasonable  regulations  the  Depositary may
establish consistent with the provisions of the Deposit Agreement and applicable
law. The  Depositary  may, and at the  reasonable  request of the Company shall,
withhold the delivery or registration of transfer of any ADR or the distribution
or sale of any dividend or other  distribution or rights or the proceeds thereof
or the delivery of any shares of Series B Common Stock until it or the Custodian
has received  proof of citizenship or residence,  exchange  control  approval or
other  information as it may deem  necessary or proper.  ADR Holders may inspect
the transfer books of the Depositary for the  registration  and transfer of ADRs
at any  reasonable  time,  provided  that such  inspection  shall not be for the
purpose of  communicating  with ADR  Holders in the  interest  of a business  or
object other than the business of the Company or a matter related to the Deposit
Agreement, the ADRs, the Series B Common Stock or the by-laws of the Company.

      General

      Neither  the  Depositary  nor  the  Company  nor any of  their  directors,
officers,  employees,  agents or affiliates  will be liable to the ADR Holder or
any owners of beneficial interests of ADRs if by reason of any present or future
law  or  regulation  of  the  United  States  or  any  other  country  or of any
governmental or regulatory authority or any


                                     - 47 -
<PAGE>

stock exchange by reason of, any provision, present or future, of the by-laws of
the  Company  or of the  Series B Common  Stock or any  circumstance  beyond its
control,  the  Depositary or the Company or any of their  respective  directors,
officers,  employees, agents or affiliates is prevented or delayed in performing
its obligations or exercising its discretion  under the Deposit  Agreement or is
subject  to  any  civil  or  criminal  penalty  on  account  of  performing  its
obligations under the Deposit  Agreement.  Where, by the terms of a distribution
or and offering subject to the Deposit  Agreement,  or for any other reason, the
distribution  or offering on or in respect of the Series B Common Stock made not
be made available to one or more ADR Holders, and the Depositary may not dispose
of such  distribution or offering on behalf of such ADR Holders and make the net
proceeds available to such ADR Holders,  then the Depositary shall not make such
distribution  or offering to such ADR  Holders,  and shall allow any rights,  in
respect  thereof  held by  such  ADR  Holders,  if  applicable,  to  lapse.  The
obligations  of the Company and the Depositary  under the Deposit  Agreement are
expressly  limited to using their best judgment and diligence and acting in good
faith in the performance of their respective duties specified therein.

      So long as any ADRs or ADSs  evidenced  thereby  are listed on one or more
stock  exchanges in the United States,  the Depositary  will act as registrar or
appoint a registrar or one or more co-registrars,  for registration of such ADRs
in accordance with any requirement of such exchanges.


                                     - 48 -
<PAGE>

                                    PART II.

Item 13. Defaults, Dividends Arrearages and Delinquencies

      See Item 9 for information with respect to Simec's payment defaults on the
Remaining MTNs.

Item 14.  Material  Modifications  to the Rights of Security  Holders and Use of
Proceeds

      None.

Item 15. Controls and Procedures

      Evaluation of Disclosure Controls and Procedures

      Within 90 days prior to the filing date of this  report  (the  "Evaluation
Date"),  the  Company's  Chief  Executive  Officer and Chief  Financial  Officer
evaluated  the  effectiveness  of the  design  and  operation  of the  Company's
"disclosure  controls  and  procedures"  (as  defined  in  Rules  13a-14(c)  and
15d-14(c) under the Securities Exchange Act of 1934, as amended).  Based on that
evaluation,  these officers have  concluded that as of the Evaluation  Date, the
Company's  disclosure  controls  and  procedures  were  effective to ensure that
material  information  relating to the Company  and the  Company's  consolidated
subsidiaries would be made known to them by others within those entities.

      Changes in Internal Controls

      There were no significant  changes in the Company's  internal controls or,
to the Company's knowledge, in other factors that could significantly affect the
Company's  internal  controls  subsequent to the Evaluation  Date. There were no
significant  deficiencies  or  material  weaknesses  in the  Company's  internal
controls and as a result, no corrective actions were required or undertaken.

Item 16. Reserved


                                     - 49 -
<PAGE>

                                   PART III.

Item 17. Financial Statements

      The Company has responded to Item 18 in lieu of responding to this item.

Item 18. Financial Statements

      Reference  is  made  to the  Consolidated  Financial  Statements  included
herein.

Item 19. Exhibits

      The  Consolidated  Financial  Statements,  together  with the  independent
auditors' report, are filed as part of this Annual Report.


                                     - 50 -
<PAGE>

List of Exhibits:

Exhibit
Number      Item
------      ----

1(a)        By-laws  (estatutos  sociales)  of Simec,  together  with an English
            translation.*

8(a)        List of subsidiaries,  their jurisdiction of incorporation and names
            under which they do business.

12(a)       Certification  pursuant to Section 906 of the  Sarbanes-Oxley Act of
            2002 (furnished  under Section 18 of the Securities  Exchange Act of
            1934).

----------
*     Incorporated  by  reference  to the  exhibits  included in Simec's  Annual
      Report  on Form  20-F for the year  ended  December  31,  1997  (File  No.
      1-11176) filed with the Securities and Exchange Commission.


                                     - 51 -
<PAGE>

                                   SIGNATURES

      The registrant  hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized  the  undersigned
to sign this Annual Report on its behalf.

                                           GRUPO SIMEC, S.A. DE C.V.

                                           By: /s/ Luis Garcia Limon
                                               ---------------------------
                                               Luis Garcia Limon
                                               Chief Executive Officer

                                           By: /s/ Adolfo Luna Luna
                                               ---------------------------
                                               Adolfo Luna Luna
                                               Chief Financial Officer

Dated: June 30, 2003
<PAGE>

                              Annual Certifications
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

      I, Adolfo Luna Luna, certify that:

      1. I have reviewed this annual report on Form 20-F of Grupo Simec, S.A. de
C.V.;

      2. Based on my  knowledge,  this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

      3. Based on my knowledge,  the financial  statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

      a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

      b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the registrant's internal controls; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: June 30, 2003

                                               /s/ Adolfo Luna Luna
                                               ---------------------------
                                               Adolfo Luna Luna
                                               Chief Financial Officer


                                     - 2 -
<PAGE>

                              Annual Certifications
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

      I, Luis Garcia Limon, certify that:

      1. I have reviewed this annual report on Form 20-F of Grupo Simec, S.A. de
C.V.;

      2. Based on my  knowledge,  this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

      3. Based on my knowledge,  the financial  statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

      a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

      b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the registrant's internal controls; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: June 30, 2003

                                               /s/ Luis Garcia Limon
                                               ---------------------------
                                               Luis Garcia Limon
                                               Chief Executive Officer


                                     - 3 -
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                (Constant Mexican Pesos as of December 31, 2002)

Grupo Simec, S.A. de C.V.

Report of KPMG Cardenas Dosal, S.C......................................  F-2

Consolidated Balance Sheets as of December 31, 2002 and 2001............  F-3

Consolidated Statements of Operations for the years ended
   December 31, 2002, 2001 and 2000.....................................  F-4

Consolidated Statements of Changes in Stockholders' Equity
   for the years ended December 31, 2002, 2001 and 2000.................  F-5

Consolidated Statements of Changes in Financial Position for
   the years ended December 31, 2002, 2001 and 2000.....................  F-6

Notes to Consolidated Financial Statements..............................  F-7

Schedules to Financial Statements

Schedule I-   Condensed Parent Company Balance Sheets as of
                 December 31, 2002 and 2001.............................  S-1

Schedule I-   Condensed Parent Company Statements of Operations
                 for the years ended December 31, 2002, 2001 and 2000...  S-2

Schedule I-   Condensed Parent Company Statements of Changes in
                 Financial Position for the years ended
                 December 31, 2002, 2001 and 2000........................ S-3

Schedule I-   Note to Parent Company Financial Statements for the
                 years ended December 31, 2002, 2001 and 2000...........  S-4

                (Constant Mexican Pesos as of December 31, 2001)

Grupo Simec, S.A. de C.V.

Report of Arthur Andersen...............................................    F-2

Consolidated Balance Sheets as of December 31, 2000 and 1999............    F-3

Consolidated Statements of Operations for the years ended
   December 31, 2000, 1999 and 1998.....................................    F-4

Consolidated Statements of Changes in Stockholders' Equity
   for the years ended December 31, 2000, 1999 and 1998.................    F-5

Consolidated Statements of Changes in Financial Position for
   the years ended December 31, 2000, 1999 and 1998.....................    F-6

Notes to Consolidated Financial Statements..............................    F-7

Schedules to Financial Statements

Schedule I-   Condensed Parent Company Balance Sheets as of
                 December 31, 2000 and 1999.............................     S1

Schedule I-   Condensed Parent Company Statements of Operations
                 for the years ended December 31, 2000, 1999 and 1998...     S2

Schedule I-   Condensed Parent Company Statements of Changes in
                 Financial Position for the years ended
                 December 31, 2000, 1999 and 1998.......................     S3

Schedule I-   Note to Parent Company Financial Statements for the
                 years ended December 31, 2000, 1999 and 1998...........     S4


                                     - i -
<PAGE>

                          Independent Auditors' Report

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

We have audited the  accompanying  consolidated  balance  sheets of Grupo Simec,
S.A. de C.V. and  subsidiaries  (the  Company) as of December 31, 2002 and 2001,
and the related consolidated statements of operations,  changes in stockholders'
equity and  changes  in  financial  position  for the years  then  ended.  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.

On February 7, 2001, the Company's  Board of Directors  approved the issuance of
492,852,025  shares of Series "B"  variable  capital  stock in exchange  for the
extinguishment  of  indebtedness   amounting  to  US$95,369,788   dollars.  This
transaction was completed on March 29, 2001.

As discussed in Note 7 to the consolidated financial statements, at December 31,
2002  and  2001  the  Company  was in  violation  of  certain  covenants  to the
industrial  mortgage loan agreement dated October 24, 1997. The Company obtained
waivers from the financial creditors through May 1, 2002.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Grupo Simec, S. A.
de C. V. and  subsidiaries  as of December 31, 2002 and 2001, and the results of
their operations,  the changes in their stockholders'  equity and the changes in
their financial  position for the years then ended in conformity with accounting
principles generally accepted in Mexico.


                                      F-2
<PAGE>

                                       -2-


Accounting  principles  generally accepted in Mexico vary in certain significant
respects from accounting  principles  generally accepted in the United States of
America.  Application of accounting  principles generally accepted in the United
States of America would have affected  results of operations for the years ended
December 31, 2002 and 2001 and stockholders'  equity as of December 31, 2002 and
2001  to  the  extent  summarized  in  Note  14 to  the  consolidated  financial
statements.

                                             KPMG CARDENAS DOSAL, S. C.

                                             David Barragan Arteaga

Guadalajara, Mexico
    April 14, 2003, except as to Notes 13
    (f) and (g), which are as of April 24,
    2003 and May 21, 2003 respectively.


                                      F-2A
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                           Consolidated Balance Sheets

                           December 31, 2002 and 2001

          (Thousands of constant Mexican pesos as of December 31, 2002)

                  Assets                               2002             2001
                                                    -----------     -----------
Current assets:
  Cash and cash equivalents (note 2d)               $   109,059          64,765

  Accounts receivable:
     Trade                                              431,074         370,159
     Other                                               53,681          76,931
                                                    -----------     -----------
                                                        484,755         447,090

  Less- allowance for doubtful accounts                  25,647          53,199
                                                    -----------     -----------
          Total accounts receivable                     459,108         393,891

  Inventories, net (note 5)                             269,148         286,972
  Prepaid expenses                                        5,978           7,000
                                                    -----------     -----------
          Total current assets                          843,293         752,628

Non-current inventories (note 2e)                       116,161         101,318

Property, plant and equipment, net (note 6)           3,993,192       3,731,426

Other assets, net                                       269,373         299,814
                                                    -----------     -----------
                                                    $ 5,222,019       4,885,186
                                                    ===========     ===========

    Liabilities and Stockholders' Equity                2002            2001
                                                    -----------     -----------
Current liabilities:
Current installments of long-term
       debt (note 7)                                $    49,871         140,543
Long-term debt, classified as
       current (note 7)                                 294,394         711,778
Accounts payable                                        208,348         137,331
Other accounts payable and accrued expenses             133,904         111,996
Related parties (note 4)                                166,227         143,276
                                                    -----------     -----------
          Total current liabilities                     852,744       1,244,924
                                                    -----------     -----------

Seniority premiums (note 8)                               4,743           4,609
Other long-term liabilities                               3,592           4,450
Deferred income taxes (note 9)                          766,262         697,069
                                                    -----------     -----------
          Total long-term liabilities                   774,597         706,128
                                                    -----------     -----------
          Total liabilities                           1,627,341       1,951,052
                                                    -----------     -----------

Stockholders' equity (note 10):
     Capital stock                                    2,630,014       2,350,514
     Additional paid-in capital                         599,658         599,658
     Retained earnings                                1,280,600       1,162,537
     Cumulative deferred income taxes                  (796,386)       (796,386)
     Equity restatement                                (119,450)       (382,419)
                                                    -----------     -----------

          Majority interest                           3,594,436       2,933,904

          Minority interest                                 242             230
                                                    -----------     -----------

          Total stockholders' equity                  3,594,678       2,934,134
                                                    -----------     -----------

Commitments and contingent liabilities (note 12)

Subsequent events (note 13)

New accounting pronouncements (note 15)
                                                    -----------     -----------
                                                    $ 5,222,019       4,885,186
                                                    ===========     ===========

See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                      Consolidated Statements of Operations

                  Years ended December 31, 2002, 2001 and 2000

                      (Thousands of constant Mexican pesos
               as of December 31, 2002, except per share figures)

<TABLE>
<CAPTION>
                                                            2002               2001               2000
                                                      ---------------    ---------------    ---------------
<S>                                                   <C>                      <C>                <C>
Net sales (note 11)                                   $     2,112,457          2,011,305          2,430,978
Direct cost of sales                                        1,413,509          1,350,361          1,606,031
                                                      ---------------    ---------------    ---------------
         Marginal profit                                      698,948            660,944            824,947

Indirect overhead, selling, general and
  administrative expenses (note 4)                            443,773            471,045            538,576
                                                      ---------------    ---------------    ---------------
         Operating income                                     255,175            189,899            286,371
                                                      ---------------    ---------------    ---------------

Comprehensive financial result:
     Interest expense, net (note 4)                           (53,360)          (165,747)          (338,996)
     Foreign exchange (loss) gain, net                        (99,734)            98,982            (17,099)
     Monetary position gain                                    29,377             71,788            241,722
                                                      ---------------    ---------------    ---------------
         Comprehensive financial result, net                 (123,717)             5,023           (114,373)

Other (expenses) income, net                                  (35,730)            64,269            (64,027)
                                                      ---------------    ---------------    ---------------
         Income from continuing operations,
           before taxes, discontinued operations
           and minority interest                               95,728            259,191            107,971
                                                      ---------------    ---------------    ---------------

Income and asset taxes (note 9):
     Current                                                   34,059             20,721             73,675
     Deferred                                                 (56,711)            (5,202)            57,878
                                                      ---------------    ---------------    ---------------
         Total income and asset taxes                         (22,652)            15,519            131,553
                                                      ---------------    ---------------    ---------------

Employee statutory profit sharing, current (note 9)               308              1,403              1,308
                                                      ---------------    ---------------    ---------------
         Income (loss) from continuing operations,
           before discontinued operations and
           minority interest                                  118,072            242,269            (24,890)
                                                      ---------------    ---------------    ---------------

Discontinued operations (note 1h):
     Income from discontinued operations                           --                 --              7,626
     Loss on sale of subsidiaries, net of
       expenses and other fees                                     --                 --            (22,401)
                                                      ---------------    ---------------    ---------------
                                                                   --                 --            (14,775)
                                                      ---------------    ---------------    ---------------
         Income (loss) before minority interest               118,072            242,269            (39,665)

Minority interest                                                   9                 18                 (7)
                                                      ---------------    ---------------    ---------------
         Majority interest net income (loss)          $       118,063            242,251            (39,658)
                                                      ===============    ===============    ===============

Income (loss) per share:
     Weighted average shares outstanding                1,999,344,447      1,096,322,680        414,300,890

         Income (loss) per share from
           continuing operations (pesos)              $          0.06               0.22              (0.06)
                                                      ===============    ===============    ===============

         Income (loss) per share from
           discontinued operations (pesos)            $            --                 --              (0.03)
                                                      ===============    ===============    ===============
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Equity

                  Years ended December 31, 2002, 2001 and 2000

         (Thousands of constant Mexican pesos as of December 31, 2002)

<TABLE>
<CAPTION>
                                                                        Cumulative                                         Total
                                                 Additional              deferred                  Total                   stock-
                                       Capital    paid-in    Retained     income      Equity      majority    Minority    holders'
                                        stock     capital    earnings      taxes    restatement   interest    interest     equity
                                      ---------- ---------- ----------  ----------  ----------   ----------   --------   ----------
<S>                                   <C>                      <C>                     <C>        <C>           <C>       <C>
Balances at December 31, 1999         $1,266,896        --     959,944          --     (53,674)   2,173,166     31,992    2,205,158

Decrease in minority interest
  from sale of shares of
  subsidiary companies (note 1h)              --        --          --          --          --           --    (27,549)     (27,549)

Net comprehensive loss (note 10b)             --        --     (39,658)   (796,386)   (147,412)    (983,456)    (4,223)    (987,679)
                                      ----------  --------  ----------   ---------   ---------   ----------   --------   ----------
Balances at December 31, 2000          1,266,896        --     920,286    (796,386)   (201,086)   1,189,710        220    1,189,930

Increase in capital stock (note 10a)   1,083,618   599,658          --          --          --    1,683,276         --    1,683,276

Net comprehensive income (note 10b)           --        --     242,251          --    (181,333)      60,918         10       60,928
                                      ----------  --------  ----------   ---------   ---------   ----------   --------   ----------
Balances at December 31, 2001          2,350,514   599,658   1,162,537    (796,386)   (382,419)   2,933,904        230    2,934,134

Increase in capital stock (note 10a)     279,500        --          --          --          --      279,500         --      279,500

Net comprehensive income (note 10b)           --        --     118,063          --     262,969      381,032         12      381,044
                                      ----------  --------  ----------   ---------   ---------   ----------   --------   ----------
Balances at December 31, 2002         $2,630,014   599,658   1,280,600    (796,386)   (119,450)   3,594,436        242    3,594,678
                                      ==========  ========  ==========   =========   =========   ==========   ========   ==========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       F-5
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

            Consolidated Statements of Changes in Financial Position

                  Years ended December 31, 2002, 2001 and 2000

          (Thousands of constant Mexican pesos as of December 31, 2002)

<TABLE>
<CAPTION>
                                                                        2002          2001          2000
                                                                     ----------    ----------    ----------
<S>                                                                  <C>              <C>           <C>
Operating activities:
    Net income (loss)                                                $  118,072       242,269       (39,665)
    Add charges (deduct credits) to operations not
      requiring (providing) funds:
        Depreciation and amortization                                   155,917       140,215       152,958
        Amortization of goodwill                                             --            --         2,063
        Deferred income taxes                                           (56,711)       (5,202)       57,878
        Gain on sale of property and transportation equipment                --          (259)           --
        Loss on sale of segment operations                                   --            --        22,401
        Write-down of idle machinery                                     10,056            --            --
        Adjustment of land to net realizable value                       19,837            --            --
        Accrual for seniority premiums                                      134            --            --
                                                                     ----------    ----------    ----------
                  Funds provided by operations                          247,305       377,023       195,635

    Net financing from (investing in) operating accounts:
        Trade receivables, net                                          (74,552)       17,650        45,770
        Other accounts receivable and prepaid expenses                   10,357        13,154       (27,919)
        Inventories, net                                                 17,824         6,831        28,608
        Intercompany receivables                                             --            --         7,226
        Accounts payable, other accounts payable and
          accrued expenses                                               92,925      (143,915)       10,924
        Intercompany payables                                            22,951       142,422            --
                                                                     ----------    ----------    ----------
                  Funds provided by operating activities                316,810       413,165       260,244
                                                                     ----------    ----------    ----------

Financing activities:
    Increase in capital stock                                           279,500     1,083,618            --
    Additional paid-in capital                                               --       599,658            --
    (Decrease) increase in convertible debt                                  --    (1,009,654)       57,326
    Foreign exchange (loss) gain                                         70,449       (75,884)       17,526
    Financial debt repayment                                           (547,416)     (951,204)     (325,750)
    Decrease in debt due to restatement to constant
      Mexican pesos as of year end                                      (31,089)      (65,444)     (286,254)
    Seniority premium payments                                               --          (487)           --
    Other long-term liabilities                                            (858)         (289)          817
                                                                     ----------    ----------    ----------
                  Funds used in financing activities                   (229,414)     (419,686)     (536,335)
                                                                     ----------    ----------    ----------

Investing activities:
    Long-term inventories                                               (14,843)       (4,216)        1,388
    Acquisition of plant and equipment                                   (8,917)      (40,180)      (38,609)
    Proceeds from sale of property and transportation equipment              --           865
    Proceeds from sale of shares of subsidiary companies                     --            --        63,519
    Increase in other noncurrent assets                                 (19,342)      (13,243)      (16,428)
                                                                     ----------    ----------    ----------
                  Funds (used in) provided by investing activities      (43,102)      (56,774)        9,870
                                                                     ----------    ----------    ----------
                  Increase (decrease) in cash and cash equivalents       44,294       (63,295)     (266,221)

Cash and cash equivalents:
    At beginning of year                                                 64,765       128,060       429,213
    Cash and cash equivalents at beginning of the year of
        subsidiary companies sold                                            --            --       (34,932)
                                                                     ----------    ----------    ----------
    At end of year                                                   $  109,059        64,765       128,060
                                                                     ==========    ==========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

          (Thousands of constant Mexican pesos as of December 31, 2002)

(1)   Description of business and significant transactions -

      Description of business-

      The  principal  activities of Grupo Simec,  S.A. de C.V. and  subsidiaries
      (the Company or Simec) are the  manufacture and sale of steel products for
      the construction sector in Mexico and other countries.

      The Company was a subsidiary  of Grupo Sidek,  S.A. de C.V.  (Sidek) until
      March 29, 2001 when it became a subsidiary of Industrias  CH, S.A. de C.V.
      (ICH).

      Significant transactions-

      (a)   On August 25, 2000, the Company once more  restructured  its debt as
            follows:

            -     A portion of the total debt payable by Compania Siderurgica de
                  Guadalajara,  S.A. de C.V.  (CSG)  (subsidiary)  equivalent to
                  119,725,099  dollars was  restructured.  The payment  term was
                  extended  by two years from 2007  through  2009 and the annual
                  interest rate was increased by 0.75% (See note 7).

            -     Grupo Simec,  S.A. de C.V.  (Simec) assumed debt of 93,046,681
                  dollars payable by CSG,  (90,156,963 dollars for principal and
                  2,889,718 dollars for interest accrued at the debt restructure
                  date)  either  on May 15,  2001 or on the  date of sale of the
                  Company's shares owned by Grupo Sidek,  S.A. de C.V.  (Sidek),
                  whichever  occurred first.  Simec had the option to repay this
                  debt either in cash or by delivering  shares  representing its
                  capital stock.

      (b)   At the Extraordinary Board of Directors' Meeting held on February 7,
            2001,  it  was  agreed  to  issue  492,852,025   Series  "B"  shares
            representing  the variable  capital  stock of Simec in order for the
            creditor  banks to  subsequently  capitalize  the debt of 95,369,788
            dollars  (90,156,963  dollars and 5,212,825 dollars of principal and
            accrued interest thereon,  respectively)  mentioned in paragraph (a)
            above.  The exchange rate for this  transaction  was $9.5315 per one
            dollar.  The debt was  capitalized  on the date  that the  Company's
            shares were sold, as mentioned in paragraph (c) below.  (See notes 7
            and 10).


                                      F-7
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (c)   On December 22, 2000, Sidek entered into a stock purchase  agreement
            with ICH for 200,995,159  common Series "A" and  547,913,326  Series
            "B"  Simec  shares,  which  includes  492,852,025  shares  that  the
            creditors had  capitalized  for the debt  mentioned in paragraph (b)
            above.  The purchase of shares was completed on March 29, 2001. As a
            result,  ICH acquired  82.5% of the Company's  capital stock at such
            date.

      (d)   At the General Ordinary and Extraordinary Stockholders' Meeting held
            on  August  27,  2001,  the  stockholders  agreed  to  increase  the
            Company's variable capital stock by $691,301  ($642,819  historical)
            represented by 881,298,609 Series "B" shares (See note 10).

      (e)   At the General Extraordinary Stockholders' Meeting held on April 30,
            2002, the stockholders agreed to a reverse split of the total number
            of shares representing the capital stock of Simec as of that date by
            issuing 89,422,606 Series "B" shares without par value. Shareholders
            were to  exchange  twenty of their  outstanding  shares  for one new
            share.  For  this  to  be  possible,   the  Company's   stockholders
            authorized  the  conversion  of all Series "A"  shares  into  common
            Series "B" shares (see notes 10(a)(i) and 13(d).

      (f)   At the General Ordinary  Stockholders' Meeting held on June 5, 2002,
            the stockholders resolved to:

            -     Increase  the  variable  capital  stock by $306,423  ($297,498
                  historical) through the issue of 407,867,548 common Series "B"
                  shares, of which ICH subscribed and paid up 336,396,918 shares
                  by capitalizing  the debt of Simec.  The remaining  71,470,630
                  shares were  offered to all other Simec  stockholders  who had
                  preemptive  rights and thus  subscribed and paid up 35,775,960
                  shares to which they were entitled;  therefore,  the remaining
                  35,694,670  shares  were  cancelled.   As  a  result  of  this
                  transaction, the Company's capital stock increased by $279,500
                  ($271,462 historical) (See note 10 (a)(ii)).

            -     Ratify and modify the instruction  given to the Company at the
                  General Extraordinary  Stockholders' Meeting held on April 30,
                  2002 mentioned in paragraph (e) above;  the shares relating to
                  the reverse  split  should now be issued in a number  equal to
                  that  of  common   Series  "B"  shares,   without  par  value,
                  representing the total number of shares  outstanding (See note
                  10 (a)(ii)).


                                      F-8
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (g)   On March 20, 2002, Banco Nacional de Mexico, S.A. (Banamex),  acting
            as the financial  creditors' agent regarding CSG's debt,  authorized
            the  Company  and  CSG  to   undertake   the   Company's   corporate
            reorganization in order to optimize operations.

            Some of the transactions  authorized and performed during 2002, were
            as follows:

            -     To spin-off CSG to form  Compania  Siderurgica  de  Occidente,
                  S.A. de C.V. (CSO) (newly formed corporation) to which certain
                  assets and bank loans were  transferred.  Moreover,  CSG would
                  lease certain of the remaining assets to Compania  Siderurgica
                  de California, S.A. de C.V. (CSC). To this end, at the General
                  Extraordinary Stockholders' Meeting held on April 5, 2002, the
                  stockholders  agreed to spin-off CSG to form CSO. The spin-off
                  was  effective  as  of  July  5,  2002,   since  the  deadline
                  established by the General  Corporations  Law for the spin-off
                  to take legal and accounting effect fell due on that date.

            -     To merge CSO into CSC; to this end,  at the  General  Ordinary
                  Stockholders' Meeting held on August 7, 2002, the stockholders
                  agreed  to merge  CSC,  as  surviving  company,  with its then
                  related  company  CSO,  as  merged  entity.   The  merger  was
                  effective  as  of  January  15,   2003,   since  the  deadline
                  established by the General  Corporations Law for the merger to
                  take  legal  and  accounting  effect  fell  due on that  date.
                  Therefore, CSC took on the rights and obligations of CSO. (See
                  note 13b).

            -     To change the name of Disenos y Construcciones  Industriales y
                  Comerciales,  S.A. de C.V. (DICOISA) and merge  Administradora
                  de Servicios de la Industria Siderurgica,  S.A. de C.V. (ASIS)
                  into  DICOISA;  to this end, on April 9, 2002,  at the General
                  Extraordinary    Stockholders'   Meeting   of   DICOISA,   the
                  stockholders   agreed  to  change  such   company's   name  to
                  Administradora  de Servicios de la Industria  Siderurgica ICH,
                  S.A. de C.V. (ASIS ICH).

                  As of September 1, 2002, the ASIS  employees were  transferred
                  without being paid off to ASIS ICH, their substitute employer.


                                      F-9
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


            On September 30, 2002, the stockholders agreed to merge ASIS (former
            related party) into ASIS ICH. The merger was effective as of October
            1,  2002 on which  date the  rights  and  obligations  of ASIS  were
            transferred to ASIS ICH.

            -     To change the  corporate  purpose of Industria del Acero y del
                  Alambre,  S.A. de C.V.  (IAASA),  in order for IAASA to assume
                  all the  activities of Metalica las Torres,  S.A. de C.V. (Las
                  Torres);  in May  2002,  the  operations  of Las  Torres  were
                  transferred to IAASA.

            -     To sell a building owned by Consorcio  Internacional,  S.A. de
                  C.V.  (COINSA)  and to  subsequently  liquidate  such  entity.
                  COINSA put the building up for sale; however, the sale had not
                  been  closed  at April  14,  2003.  Moreover,  at the  General
                  Extraordinary  Stockholders' Meeting held on June 7, 2002, the
                  stockholders   of  COINSA   agreed  on  the   entity's   early
                  dissolution and liquidation, which is effective as of July 16,
                  2002.

            -     Additionally, to authorize the mergers of Compania Siderurgica
                  del Pacifico,  S.A. de C.V. (CSP) and Las Torres (after a plot
                  of land of Las Torres is sold) into CSC. These mergers had not
                  taken place at April 14, 2003.

      (h)   On June 15, 2000, the Company sold to GS Industries Inc. (GS) shares
            representing  49% of the capital stock of Moly-Cop  Mexico,  S.A. de
            C.V. and Simec Moly-Cop,  S.A. de C.V. for 2,352,000 dollars.  These
            shares  represented  98% of the equity of CSG in such  subsidiaries.
            The  remaining  2% equity  was sold to GS in  November  2000.  After
            considering  the  reserve at December  31,  1999,  this  transaction
            resulted in a loss of $2,516 ($2,280 historical), which was recorded
            in the statement of  operations  of CSG for the year ended  December
            31, 2000.

            On November  30, 2000,  CSG sold its 100% equity in Estral,  S.A. de
            C.V.  to  Contenedores  Industrial  Mezquital,   S.A.  de  C.V.  for
            3,500,000  dollars.  After  considering  the reserve at December 31,
            1999,  this  transaction  resulted  in a loss  of  $19,885  ($18,020
            historical),  which was recorded in the  statement of  operations of
            CSG for the year ended December 31, 2000.

      (i)   As part of its  reorganization  process,  on  January  1,  2000  the
            Company transferred all of its employees to ASIS (formerly Operadora
            de Sistemas de Almacenamiento  Integral,  S.A. de C.V.). In turn, on
            September 1, 2002,  ASIS  transferred its employees to ASIS ICH, who
            retained their  employment  rights and did not qualify for severance
            pay.


                                      F-10
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (j)   As of January 1, 2000, the Company's  management was  transferred to
            the new subsidiary,  Servicios  Simec,  S.A. de C.V.  (SERSIM),  the
            substitute  employer.  Through  December  31,1999,  the  members  of
            management were employed by Servicios  Corporativos  Palma,  S.A. de
            C.V.,  (an  affiliate  of Sidek) to which the Company  paid fees for
            administrative  services.  The  transfer  did not require  severance
            payments.

      (k)   During  the  year  ended  December  31,  2002,  CSG and  CSO  repaid
            6,676,247  dollars in connection  with the industrial  mortgage loan
            agreement relating to the restructuring process of CSG. Furthermore,
            during the same year both companies prepaid 47,941,199 dollars.

      (l)   Pacific Steel,  Inc (PS) (a US  subsidiary)  has been sued regarding
            the generation,  storage,  transportation  and disposal of materials
            classified  as hazardous  waste by the  California  government.  The
            Company  has  appealed  against  these  claims;  however,  it cannot
            currently   predict  what  the  outcome  of  this  matter  will  be.
            Consequently,  and due to the  imminent  expropriation  of the  land
            where PS conducted its  operations,  during the year ended  December
            31, 2002 PS recorded its land at net realizable value,  based on the
            appraisal made by independent appraisers. This resulted in a $19,837
            ($19,750, historical) decrease in the value of the land and a charge
            to income by the same  amount.  Furthermore,  because  the price the
            authorities  are  willing to pay for the land is equal to the land's
            value less its clean up expenses and costs incurred, at December 31,
            2002 PS recognized a 816,877 dollars ($8,424) provision for clean up
            expenses.

(2)   Summary of significant accounting policies-

      (a)   Financial statement presentation-

            The  accompanying   consolidated   financial  statements  have  been
            prepared in accordance with accounting principles generally accepted
            in Mexico  (Mexican  GAAP),  which  require the  recognition  of the
            effects of inflation in the financial  information and are expressed
            in Mexican  pesos of constant  purchasing  power as of December  31,
            2001,  based on the Mexican  National  Consumer  Price Index  (NCPI)
            published  by Banco de Mexico  (Central  Bank).  The indexes used in
            recognizing inflation were as follows:

            December 31             NCPI          Inflation
            -----------             ----          ---------
                2002              102.904           5.70%
                2001               97.354           4.40%
                2000               93.248           8.96%


                                      F-11
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


            For purposes of disclosures,  pesos or "$" means Mexican pesos,  and
            dollars means US dollars.

      (b)   Principles of consolidation-

            The  consolidated   financial   statements   include  the  financial
            statements  of Grupo  Simec,  S.A. de C.V.  and its  majority  owned
            and/or  controlled   subsidiaries.   All  significant   intercompany
            balances and transactions have been eliminated in consolidation. The
            consolidation was based on the audited  financial  statements of the
            issuing companies, which were prepared under Mexican GAAP.

            As a result of the 1997  financial  reorganization,  CSG assumed the
            total of Simec's  debt in  exchange  for an equity  interest  in its
            subsidiaries. Accordingly, Simec became the main stockholder of CSG,
            which through  December 31, 2001,  was the principal  stockholder of
            the remaining  subsidiaries that Simec controlled  directly prior to
            the corporate reorganization. Subsequently, and due to the corporate
            reorganization  of Simec in 2002,  CSG and CSO became the  principal
            stockholders of the indirect Simec subsidiaries.

            The Company's subsidiaries and its equity percentage are as follows:

                                                                         Equity
                                                                        --------
       - Compania Siderurgia de Guadalajara, S.A. de C.V.                99.99%
          - Compania Siderurgica de California, S.A. de C.V.              100%
             - Undershaft Investments, N.V                                100%
                 - Pacific Steel, Inc.                                    100%

       - Compania Siderurgica de Occidente, S.A. de C.V.                 99.99%
          - Compania Siderurgica del Pacifico, S.A. de C.V.              99.99%
          - Consorcio Internacional, S.A. de C.V.                        99.79%
          - Coordinadora de Servicios Siderurgicos de Calidad,
            S.A. de C.V.                         100%
          - Administradora  de Servicios de la Industria
            Siderurgica  ICH,  S.A. de C.V. (formerly Disenos y
            Construcciones Industriales y Comerciales, S.A. de C.V.)     99.99%
          - Industrias del Acero y del Alambre, S.A. de C.V.             99.99%
          - Metalica las Torres, S.A. de C.V.                            99.99%
          - Procesadora Mexicali, S.A. de C.V.                           99.99%
          - Servicios Simec, S.A,. de C.V.                                100%
          - Sistemas de Transporte de Baja California, S.A. de C.V.       100%


                                      F-12
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (c)   Translation of financial statements of foreign subsidiary -

            For consolidation  purposes, the financial statements of the foreign
            subsidiary  were  translated  into pesos in conformity with Bulletin
            B-15, "Transactions in Foreign Currency and Translation of Financial
            Statements  of  Foreign   Operations"  The  foreign  subsidiary  was
            considered to be an "Integral Part of the Operations of the Company"
            as the term is defined in Bulletin B-15.  Therefore,  such financial
            statements were translated into pesos as follows:

            -     Monetary  items - rate of  exchange  in effect at the  balance
                  sheet date.

            -     Non-monetary items and stockholders'  equity - at the exchange
                  rate  prevailing  on the date  generated,  while  statement of
                  operations  items were  translated  at the  period's  weighted
                  average   exchange   rate,   except   items   resulting   from
                  non-monetary assets, for which the exchange rate used was that
                  of the related asset.

            -     The resulting  translation effect is recorded in the statement
                  of operations as part of the comprehensive financial result.

            -     The  resulting  amounts  were  restated  using NCPI factors in
                  conformity with Bulletin B-10 of Mexican GAAP.

      (d)   Cash equivalents-

            Cash equivalents consist of checking accounts,  foreign currency and
            other  highly  liquid  instruments.  At the  date  of the  financial
            statements,  interest income and expense and foreign  exchange gains
            and  losses  are  included  in  the  results  of  operations   under
            comprehensive financial result.

      (e)   Inventories and cost of sales-

            Inventories are initially  recorded at average cost and subsequently
            adjusted at the lower of  replacement  or market value.  Such values
            were determined as follows:

            Billet, finished goods and       At   the   most    recent    direct
            work in process-                 production costs.

            Raw materials-                   At purchase  prices  prevailing  at
                                             the balance sheet date.

            Materials, spare parts           At  historical  costs  restated  by
            and rollers-                     applying the inflation  indexes for
                                             the steel industry.


                                      F-13
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


            The  Company   classifies  rollers  and  spare  parts  as  long-term
            inventories, which in accordance with historical data and production
            trends will not be used in the short-term (one year).

            Direct cost of sales  represents the replacement cost of inventories
            at the  time of sale,  expressed  in  constant  pesos as of the most
            recent year-end.

      (f)   Property, plant and equipment-

            Property,  plant and equipment is initially  recorded at acquisition
            cost and adjusted for inflation by applying NCPI factors, except for
            foreign  machinery  and  equipment,  which is adjusted for inflation
            using the  inflation  indexes of their country of origin and changes
            in the  foreign  exchange  rate of the  particular  currency  of the
            country to the peso.

            Depreciation  on property,  plant and equipment is calculated on the
            straight-line  method over the estimated useful lives of the assets,
            determined  by  independent  appraisers  in the  case of  plant  and
            machinery and the Company's management in the case of equipment.

            The comprehensive  financial result of assets under  construction or
            installation  is capitalized as part of the value of such assets and
            is restated  using NCPI  factors from the date  capitalized  through
            year-end and is amortized  over the average  depreciation  period of
            the related assets. During 2002 and 2001 no comprehensive  financial
            result was capitalized.

            The total  estimated  useful  lives of the  principal  assets are as
            follows:

                                                                      Years
                                                                     --------
            Buildings                                                15 to 50
            Machinery and equipment                                  10 to 40
            Transportation equipment                                    4
            Furniture and fixtures                                      10

            Repair and maintenance costs are expensed as incurred.

      (g)   Other assets-

            Other assets include mainly organization and pre-operating  expenses
            and are restated  for  inflation  based on factors  derived from the
            NCPI.  Amortization is calculated on the straight-line method over a
            20-year period.


                                      F-14
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (h)   Pension plan-

            Until 1995, the Company  provided pension benefits for all personnel
            with a  minimum  of 10 years  of  service  and 35 years of age.  For
            purposes  of the plan,  the  Company  established  a trust  based on
            actuarial  calculations.  On December 1995,  the Company's  Board of
            Directors in agreement with the union,  discontinued  these benefits
            and related  contributions to the trust fund. This decision was made
            mainly  because  of the  legal  provisions  that  establish  similar
            benefits  through Company  contributions to the  Administradoras  de
            Fondos de Ahorro para el Retiro (Pension Fund  Administrators).  The
            trust fund  balance at December  31, 2002 and 2001  amounted to $991
            and $1,592, respectively and will be used to make retirement pension
            payments to eligible  employees until  depleted,  due to the trust's
            irrevocable nature.

            The  Company  does not have any  contractual  pension or  retirement
            obligations.

      (i)   Seniority premiums-

            Seniority  premium  benefits  to which  employees  are  entitled  in
            accordance with the law are charged to operations for the year based
            on actuarial  computations of the present value of this  obligation.
            Amortization  of  unrecognized  prior  service costs is based on the
            expected  years of service of existing  personnel.  At December  31,
            2002, the estimated service lives of eligible employees approximates
            to 8 to 9 years (see note 8).

            Other  compensation  to  which  employees  may be  entitled,  mainly
            severance,  is charged to  operations  of the year in which they are
            paid.

      (j)   Income (IT) and asset (AT) taxes and employee profit sharing (ESPS)-

            Income taxes are accounted for under the asset and liability method.
            Deferred tax assets and  liabilities  are  recognized for the future
            tax consequences  attributable to differences  between the financial
            statement  carrying  amounts of existing  assets and liabilities and
            their  respective  tax bases and operating  loss and tax credit (AT)
            carryforwards.  Deferred  tax assets and  liabilities  are  measured
            using enacted tax rates  expected to apply to taxable  income in the
            years  in which  those  temporary  differences  are  expected  to be
            recovered  or  settled.  The  effect  on  deferred  tax  assets  and
            liabilities  of a change in tax rates is recognized in income in the
            period that includes the enactment date.

            Deferred ESPS is recognized only for timing differences arising from
            the  reconciliation  of book  income to income  for  profit  sharing
            purposes,  on which  it may be  reasonably  estimated  that a future
            liability or benefit will arise and there is no indication  that the
            liabilities or benefits will not materialize.


                                      F-15
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (k)   Restatement of capital stock, other  stockholders  contributions and
            retained earnings-

            Capital stock, other stockholder contributions and retained earnings
            are adjusted using the NCPI, by the amount necessary to maintain the
            purchasing power of equivalent pesos from the dates such capital was
            contributed, contributions were made or income (loss) generated. The
            resulting  amounts  represent  the constant  value of  stockholders'
            equity.

      (l)   Cumulative deferred income taxes-

            Represents  the  cumulative  effect of the  adoption of the deferred
            taxes accounting principles.

      (m)   Equity restatement-

            Represents  the  difference  between  non-monetary  assets  restated
            through specific costs and the values determined using NCPI factors,
            reduced  by the  related  deferred  tax  effects  from  the date the
            related Bulletin was adopted.

      (n)   Comprehensive financial result (CFR) -

            The CFR includes all interest income and expense,  foreign  exchange
            gains and losses and monetary position gains and losses.

            Transactions  in  foreign  currency  are  recorded  at the  rate  of
            exchange prevailing on the date of execution or settlement.  Foreign
            currency  assets and liabilities are translated at the exchange rate
            in force at the balance  sheet date.  Exchange  differences  arising
            from assets and  liabilities  denominated in foreign  currencies are
            reported in operations for the year.

            Monetary position gains and losses are determined by multiplying the
            difference  between monetary assets and liabilities at the beginning
            of each month by inflation factors through  year-end.  The aggregate
            of these results  represents  the monetary gain or loss for the year
            arising  from  inflation,  which is reported in  operations  for the
            year.

      (o)   Revenue recognition-

            Revenue from the sale of goods is generally recognized upon delivery
            of the products to the customers.  The Company  provides for freight
            expenses,  sales  returns  and  discounts  at the time  the  related
            revenue is recognized.  These provisions are deducted from sales, or
            included in selling expenses as applicable.


                                      F-16
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (p)   Business and credit concentrations-

            The  Company's  principal  activity is the  manufacture  and sale of
            steel products  primarily to the construction  sector. The Company's
            products are sold to a large number of customers without significant
            concentration  with any of them.  The Company  provides an allowance
            for  doubtful  accounts  based on  analyses  and  estimates  made by
            management.

      (q)   Income (loss) per share-

            The basic income  (loss) per share of each period has been  computed
            by dividing the net income (loss) from continuing  operations by the
            weighted  average number of shares  outstanding of each period.  The
            effect per share of income (loss) from  discontinued  operations has
            been determined by dividing those items by the corresponding  number
            of shares determined as mentioned above.

      (r)   Contingencies -

            Liabilities for loss  contingencies are recorded when it is probable
            that a liability has been incurred and the amount of the  assessment
            and/or  remediation can be reasonably  estimated.  When a reasonable
            estimation  can not be made,  qualitative  disclosure is provided in
            the  notes  to the  consolidated  financial  statements.  Contingent
            revenues,   earnings  or  assets  are  not  recognized  until  their
            realization is virtually assured.

      (s)   Impairment of long-lived assets,  property,  plant and equipment and
            other non-current assets -

            The  Company  evaluates  periodically  the  adjusted  values  of its
            long-lived   assets,   property,   plant  and  equipment  and  other
            non-current  assets to determine  whether  there is an indication of
            potential  impairment.  Recoverability of assets to be held and used
            is measured by a comparison  of the  carrying  amount of an asset to
            future  revenues  expected  to be  generated  by the asset.  If such
            assets  are  considered  to  be  impaired,   the  impairment  to  be
            recognized is measured by the amount by which the carrying amount of
            the asset  exceeds the expected  revenues.  Assets to be disposed of
            are  reported  at the lower of the  carrying  amount  or  realizable
            value.


                                      F-17
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (t)   Use of estimates -

            The  preparation of financial  statements in conformity with Mexican
            GAAP requires management to make estimates and assumptions affecting
            the reported  amounts of assets and  liabilities,  the disclosure of
            contingent  assets  and  liabilities  at the  date of the  financial
            statements and the reported  amounts of revenues and expenses during
            the  reporting  period.  Actual  results  could  differ  from  those
            estimates and assumptions.

(3)   Foreign currency exposure-

      Monetary  assets and liabilities  denominated in foreign  currencies as of
      December 31, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                       Thousands of             Thousands of           Thousands of pounds          Thousands of
                                         dollars                   euros                 pounds sterling           Deutsche Marks
                                  ---------------------     ---------------------     ---------------------     --------------------
                                    2002         2001         2002         2001         2002         2001         2002        2001
                                  --------     --------     --------     --------     --------     --------     --------    --------
<S>                                <C>         <C>          <C>          <C>          <C>          <C>          <C>         <C>
Current assets                       9,485        6,588           --           --           --           --           44          32

Current liabilities                (52,641)    (108,566)         (48)         (60)        (141)        (174)          --          --
                                  --------     --------     --------     --------     --------     --------     --------    --------
   Net (liabilities)
    assets                         (43,156)    (101,978)         (48)         (60)        (141)        (174)          44          32
                                  ========     ========     ========     ========     ========     ========     ========    ========
</TABLE>

      The exchange rate of the peso to these  foreign  currencies as of December
      31, 2002 and 2001 was as follows:

                                                    2002                  2001
                                                   -------              --------
      Dollar                                       10.3125               9.1423
      Euro                                         10.0260               8.2674
      Pound sterling                               16.9130              13.3783
      Deutsche Mark                                 5.6375               4.2237


                                      F-18
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)

       At April 14, 2003, foreign exchange rates were as follows:


      Dollar                                                       10.7020
      Euros                                                        11.5890
      Pound sterling                                               16.9060
      Deutsche Mark                                                 5.9253

      At December 31, 2002,  the Company did not have foreign  exchange  hedging
      instruments.

      At December 31, 2002 and 2001, the Company had the non-monetary  assets of
      foreign origin, which replacement cost may only be determined in dollars.

                                                     Thousands of dollars
                                                   -----------------------
                                                     2002           2001
                                                   --------       --------
      Machinery and equipment, net                 $187,264        165,759
      Inventories                                     7,599          8,985
                                                   --------       --------
                                                    194,863        174,744
                                                   ========       ========

      Below is a summary of transactions  carried out with foreign  entities for
      the years  ended  December  2002,  2001 and  2000,  excluding  imports  of
      machinery and equipment:

                                                Thousands of dollars
                                         --------------------------------
                                           2002        2001        2000
                                         --------    --------    --------
      Sales                              $ 25,655      15,513      22,930
      Purchases (raw materials)           (22,255)    (20,944)    (25,867)
      Other expenses (spare parts)         (4,037)     (6,013)     (8,849)
      Interest expense                     (5,190)    (11,997)    (33,822)
                                         --------    --------    --------
                                           (5,827)    (23,441)    (45,608)
                                         ========    ========    ========

      The  exchange  rate of the  peso  to the  foreign  currencies  used by the
      Company is based on the weighted average of free market rates available to
      settle its overall foreign currency transactions.


                                      F-19
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      The Company has a foreign  subsidiary,  which assets and  liabilities  are
      summarized as follows:

                                                    Thousands of dollars
                                                    ---------------------
                                                      2002          2001
                                                    -------       -------
      Current monetary assets                           379           399
      Inventories                                   $     8             8
      Current liabilities                            (3,124)       (2,025)
                                                    -------       -------
              Working capital                        (2,737)       (1,618)

      Property, plant and equipment                   1,963         2,089
                                                    =======       =======

(4)   Related-party transactions and balances-

      Transactions  carried  out with  related  parties  during the years  ended
      December 31, 2002, 2001 and 2000 were as follows:

                                            2002        2001        2000
                                          --------    --------    --------
      Sales                               $ 32,272         112      54,170
      Purchases                                 --          --       3,371
      Interest (expense) income, net        (9,014)    (11,137)        405
      Administrative services received      (7,809)      1,403          --
                                          ========    ========    ========

      Balances payable to related companies as of December 31, 2002 and 2001 are
      as follows:

      Accounts payable:                               2002          2001
      -----------------                             --------      --------
      Industrias CH, S.A. de C.V. (i)               $166,227       142,658
      Other                                               --           618
                                                    --------      --------
                                                    $166,227       143,276
                                                    ========      ========

      (i)   At December 31, 2002, the account payable to ICH comprises six loans
            for  agreements  between CSO and ICH,  totaling  4,399,534  dollars,
            bearing an annual  interest rate of 5.875%,  available  from July 5,
            2002 and payable from July 5 through November 14, 2003.


                                      F-20
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


            At December  31,  2001,  the account  payable to ICH related to four
            loans  between  CSG and ICH  totaling  14,597,700  dollars,  bearing
            annual  interest  of 7.5%,  available  from  September  25, 2001 and
            payable from September 25,  through  December 28, 2002. As explained
            below, this debt was capitalized.

            From  January 29  through  March 31,  2002,  CSG  entered  into four
            additional  loan agreements  with ICH totaling  10,000,000  dollars,
            bearing  annual  interest of 7.5%,  payable  from January 29 through
            March 31,  2003.  However,  these  loans were  assigned to Simec and
            subsequently capitalized as mentioned in the following paragraph.

            As mentioned in note 10 to the consolidated financial statements, at
            the General Ordinary Stockholders' Meeting held on June 5, 2002, the
            stockholders  agreed  to  increase  the  variable  capital  stock by
            $306,423 ($297,498  historical) by issuing 407,867,548 common Series
            "B" shares,  of which  336,396,918  were  subscribed and paid by ICH
            through the  capitalization  of CSG's debt  (principal  and interest
            thereon)  with ICH as of that date,  as mentioned  in the  preceding
            paragraphs  and amounting to 25,453,631  dollars.  The exchange rate
            used was $9.6398 to one dollar.

(5)   Inventories -

      Inventories are comprised as follows:

                                                       2002         2001
                                                     --------     --------
      Finished goods                                 $ 64,783       75,952
      Work in process                                  15,612       19,342
      Billets                                          31,410       15,291
      Raw materials                                    48,284       32,694
      Materials, spare parts and rollers               73,304      109,155
      Advances to suppliers and others                 35,372       19,319
      Goods in transit                                  4,433       19,599
                                                     --------     --------
                                                      273,198      291,352

      Less allowance for obsolescence                   4,050        4,380
                                                     --------     --------
                                                     $269,148      286,972
                                                     ========     ========


                                      F-21
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      Inventories secure the debt originally payable by CSG and then transferred
      to CSO,  related to the  industrial  mortgage loan the latter entered into
      with several bank creditors.

(6)   Property, plant and equipment-

      Property, plant and equipment comprise the following:

                                                    2002           2001
                                                 ----------     ----------
      Building                                   $1,486,546      1,484,372
      Machinery and equipment                     3,600,794      2,995,758
      Transportation equipment                       39,337         37,882
      Furniture and fixtures                         31,637         34,794
                                                 ----------     ----------
                                                  5,158,314      4,552,806

      Less accumulated depreciation               1,604,569      1,312,536
                                                 ----------     ----------
                                                  3,553,745      3,240,270

      Land                                          350,512        371,386
      Construction in progress                       28,607         45,374
      Idle machinery and equipment                   60,328         74,396
                                                 ----------     ----------
                                                 $3,993,192      3,731,426
                                                 ==========     ==========

      Through  December 31, 2002 and 2001,  the Company has  capitalized  CFR of
      $450,070 and $475,227, respectively, supplementary to the acquisition cost
      of property, plant and equipment.

      At December 31, 2002, the specific price level adjustment of machinery and
      equipment was higher than that of the NCPI, since a significant portion of
      such machinery is imported and because the inflation factor of the country
      of origin and the decrease of the peso versus the respective currency were
      higher.  Notwithstanding  the foregoing,  the effects at December 2001 and
      2000 were offsetting.

      The industrial  plant secures the debt originally  payable by CSG and then
      transferred to CSO,  related to the industrial  mortgage loan entered into
      with several bank creditors.


                                      F-22
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


(7)   Long-term debt -

      At December 31, 2002 and 2001, the Company's  long-term debt classified as
      current is as follows:

                                                        2002        2001
                                                      --------    --------
      Industrial mortgage loan (a)                    $341,151     811,605
      Medium-term notes  (b)                             3,114       4,851
      Equipment loans(c)                                    --      35,865
                                                      --------    --------
          Total long-term debt                         344,265     852,321

      Less current installments                         49,871     140,543
                                                      --------    --------
          Long-term debt excluding current
            installments classified as current        $294,394     711,778
                                                      ========    ========

      (a)   Industrial mortgage loan -

            On October 24,  1997,  the Company and its  creditor  banks signed a
            debt  restructuring  agreement,   whereby  CSG  assumed  the  entire
            consolidated debt of the Company.  The renegotiated debt amounted to
            220,736,023  dollars and was divided into two  classes:  Class A and
            Class B,  with  variable  interest  rates at  Libor  plus a  margin.
            Principal is payable in sixteen semiannual installments beginning in
            May 2000,  except for the Class B-2  tranche,  which is payable in a
            single  payment  in 2009.  During  2000 and  1998 the  Company  paid
            18,932,973   dollars   and   17,952,537    dollars,    respectively.
            Furthermore,   in  accordance  with  the  restructuring   agreement,
            7,422,760   dollars,   7,391,545   dollars  and  7,485,186   dollars
            corresponding to amortizations of the "Linea del Rey" line of credit
            in 2002, 1999 and 1998, respectively, were refinanced.


                                      F-23
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


            On August 25,  2000,  the Company  and its  creditor  banks  further
            restructured the debt. The restructuring includes,  among others, an
            extension of two additional  years to repay  119,725,099  dollars of
            CSG's  Class A debt,  with a 0.75%  increase in  interest  rate.  In
            addition,  Simec assumed CSG debt for 93,046,681 dollars (90,156,963
            dollars of principal  and 2,889,718  dollars of accrued  interest at
            the date of the  restructuring).  Maturity  of this debt  would take
            place  at the  earliest  of May 15,  2001 or the date of sale of the
            Company's  shares  owned by  Sidek.  Settlement  of this debt may be
            either in cash or with shares  representing  its capital stock.  The
            new  annual  interest  rate  chargeable  by  Simec  to CSG  would be
            11.3125%.

            On  February  7, 2001,  the Company  issued  492,852,025  Series "B"
            shares   representing   its   variable   capital   stock   for   the
            capitalization  of  the  convertible  debt  of  95,369,788   dollars
            (90,156,963  dollars of principal and  5,212,825  dollars of accrued
            interest at that date)  mentioned  in the  previous  paragraph.  The
            exchange rate of this  transaction  was 9.5315 pesos per one dollar.
            The convertible  debt was capitalized on March 29, 2001, the closing
            date for the sale of Company shares owned by Sidek to ICH.

            Debt  amortizations paid by the Company in 2002 and 2001 amounted to
            6,676,247  dollars and 12,428,379  dollars,  respectively.  Also, in
            2002 and 2001, the Company made certain  prepayments  for 47,941,199
            dollars and  27,000,000  dollars,  respectively,  plus interest (see
            note 13a).

            At December 31, 2002 and 2001, the outstanding  industrial  mortgage
            loan  amounted  to  33,081,356   dollars  and  83,987,425   dollars,
            respectively.


                                      F-24
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


            On July 3, 2002, the Company and its bank creditors  entered into an
            agreement to modify the industrial mortgage loan agreement, lowering
            the  interest  rate for the Class "A" portion from Libor plus 5.125%
            to Libor plus 4.125%.

            The new interest rates for each type of debt are as follows:

                                                              Amount in
                                                             thousands of
           Class        Tranche           Libor plus(1)        dollars
           -----        -------           -------------      ------------
            A              A'                4.125%            31,324
            B             B-1                4.375%               296
            B             B-2                4.375%             1,461
                                                               ------
                                                               33,081
                                                               ======

            (1)   Six-month Libor rate.

            The Company and all of its subsidiaries that own property, plant and
            equipment took an industrial mortgage as security for this loan.

            Loan prepayment priorities are as follows:

                  Tranche                                   Priority
                  -------                                   --------
                     A'                                      Second
                     B                                       Third


                                      F-25
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


            The financial debt  restructuring  agreement provides for compliance
            with certain requirements and obligations, which CSG has met, except
            for noncompliance by CSG and CSO of certain  financial  covenants in
            2001 and 2002.  In accordance  with the  agreement,  this  situation
            could result in the acceleration of the debt.  Mexican GAAP requires
            one-year  waivers from  creditors,  otherwise,  the  long-term  debt
            should  be  classified  as  current.  Therefore,  long-term  debt of
            $294,394  and  $711,778  was  classified  as current in the  balance
            sheets as of December 31, 2002 and 2001, respectively.

      (b)   New notes and medium-term notes -

            On October 22, 1997 and August 17, 1998,  CSG offered the holders of
            medium-term  notes issued by Simec to exchange their notes 1 to 1 in
            the amount of  68,000,000  dollars for new notes  issued by CSG (New
            Notes) ranked as third priority notes (pari-passu with the Tranche B
            of the industrial mortgage loan described above). The New Notes bore
            interest  semiannually  at an annual  rate of 10.5%.  Principal  was
            payable semiannually from May 15, 2000 through November 15, 2007.

            On  May  15,  2001,  CSG  paid  the  corresponding  amortization  of
            4,026,438  dollars;  likewise,  as a result  of the  sale of  shares
            representing the capital stock of Simec to ICH mentioned in note 1d,
            from June 8 to July 13,  2001,  CSG paid the total notes  exchanged,
            which amounted to 52,343,687 dollars.

            The remaining  balance of notes that were not exchanged  amounted to
            3,577,000  dollars  and,  because  Simec had not made the  scheduled
            principal and interest payments, the holders of medium-term notes in
            the principal  amount of 2,955,000  dollars  brought lawsuit against
            the  Company.  As a result,  in December  2000 the Company  paid the
            respective  principal and interest together with the legal costs and
            expenses.

            On December 14, 2001, Simec cancelled 120,000 dollars of its debt by
            paying 60,000 y and obtaining forgiveness for another 60,000 dollars
            plus accrued interest.

            Also, on May 15, 2002,  Simec cancelled  200,000 dollars of its debt
            with another  medium-term  note holder by paying 100,000 dollars and
            obtaining  forgiveness  for another  100,000  dollars  plus  accrued
            interest.  At December 31, 2002 the remaining medium-term notes that
            were not exchanged  amount to 302,000  dollars and accrued  interest
            approximates 227,666 dollars.


                                      F-26
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (c)   Equipment loans -

            In 1991,  CSC,  obtained  a secured  line of  credit  of  54,500,000
            dollars from Banco Nacional de Comercio  Exterior,  S.N.C. and Banco
            Nacional de Mexico,  S.A. to finance the purchase of equipment.  The
            Government  of Spain  provides  the funds at  preferential  interest
            rates.  This line is known as "Linea  del Rey".  Past-due  principal
            amounts at the date of restructuring  were included as a part of the
            new debt, while the remaining payments will be financed according to
            their  original  maturities  as  part of the  Tranche  A'  debt.  At
            December 31, 2002 the  outstanding  balance had been  transferred to
            the debt's Tranche A'.

            Original  maturities of long-term  debt after the new  restructuring
            are as follows:

                                                              Amounts in
                                                             thousands of
            Year                                               dollars
            ----------------------                           ------------
            2003 (current portion)                               4,534
            2004                                                 4,534
            2005                                                 4,534
            2006                                                 4,534
            2007 and thereafter                                 14,945
                                                                ------
                                                                33,081
                                                                ======


                                      F-27
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


(8)   Seniority premiums -

      The cost,  obligations and other seniority premium elements,  mentioned in
      note  2i,  have  been  determined   based  on  computations   prepared  by
      independent actuaries at December 31, 2002 and 2001.

      The  components of the net periodic cost for the years ended  December 31,
      2002, 2001 and 2000 are as follows:

                                                        2002      2001      2000
                                                        ----      ----      ----
Net periodic cost:
   Service cost                                         $338       367       424
   Financial cost                                        220       242       228
   Amortization of transition liability                   76        29        --
   Amortization of prior service cost
      and plan modifications                             290       260       279
                                                        ----      ----      ----
      Net periodic cost                                 $924       898       931
                                                        ====      ====      ====

      The actuarial present value of benefit obligations is as follows:

                                                             2002         2001
                                                           -------      -------
Projected benefit obligation (PBO)
                                                           $ 5,364        5,173

Unamortized items:
   Transition asset                                         (2,112)      (2,377)
   Variances in assumptions and
     experience adjustments
                                                              (741)        (484)
   Additional liability                                      2,232        2,297
                                                           -------      -------

Unfunded accrued pension liability
  included on the consolidated balance sheets              $ 4,743        4,609
                                                           =======      =======


                                      F-28
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      The most  significant  assumptions used to determine the net periodic cost
      of the plan are as follows:

                                                             2002       2001
                                                             ----       ----
      Discount rate                                           4.0%      4.50%

      Rate of compensation increase                            0%        0%

      Expected return on plan assets                           6%        6%

(9)   Income (IT) and asset (AT) taxes, employee statutory profit sharing (ESPS)
      and tax loss carryforwards-

      ICH, the holding  company of Grupo  Simec,  S.A. de C.V. is subject to the
      tax  consolidation  regime. On April 24, 2001, ICH filed with the Servicio
      de Administracion  Tributaria  (Internal  Revenue Service),  notice of the
      Company's incorporation to such regime, effective as of January 1, 2002.

      Under current tax regulations,  companies must pay the greater of their IT
      and  AT.  Both  taxes   recognize  the  effects  of  inflation,   although
      differently from Mexican GAAP.

      ESPS is calculated  practically on the same basis as IT, however,  without
      recognizing the effects of inflation.

      The AT law  provides  for a 1.8% tax on the value of assets,  restated for
      inflation, less certain liabilities.


                                      F-29
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      At December 31, 2002 and 2001 the IT and profit sharing expense  (benefit)
      attributable  to income  from  continuing  operations  before IT and ESPS,
      discontinued  operations and minority  interest,  differed from the amount
      computed by applying the Mexican IT rate of 35% to income from  continuing
      operations, before these provisions,  discontinued operations and minority
      interest, as a result of the following:

                                                             2002        2001
                                                           --------    --------
Computed "expected" tax expense                            $ 33,505      90,717
Increase (decrease) resulting from:
   Effects of inflation, net                                  8,112     (14,566)
   Non-deductible expenses                                    4,227       4,264
   Adjustments for enacted changes in tax laws and rates
                                                            (22,537)         --
   Majority asset tax                                        14,087     (24,685)
   Change in valuation reserve of deferred tax assets
                                                            (50,917)     45,875
   Other, net                                                (9,129)    (86,086)
                                                           --------    --------
     IT (benefit) expense                                  $(22,652)     15,519
                                                           ========    ========


                                      F-30
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      The tax effects of  temporary  differences  that give rise to  significant
      portions of the deferred tax assets and  liabilities  at December 31, 2002
      and 2001, are presented below:

                                                            2002         2001
                                                         ----------   ----------
Deferred tax assets:
   Allowance for doubtful receivables                    $    8,720       18,620
   Accrued expenses                                           9,450        5,196
   Advances from customers                                       --       11,039
   Net operating loss carryforwards                         421,954      479,300
   Recoverable AT                                           152,226      136,437
   Other                                                     72,840       67,852
                                                         ----------   ----------
           Total gross deferred tax assets                  665,190      718,444

   Less valuation allowance                                 219,079      269,996
                                                         ----------   ----------
          Net deferred tax assets                           446,111      448,448
                                                         ----------   ----------

Deferred tax liabilities:
  Inventories, net from the balance as of December 31,
      1986 not yet deducted                                 156,422      183,944
   Property, plant and equipment                            937,152      841,849
   Preoperating expenses                                    103,140      114,024
   Others                                                    15,659        5,700
                                                         ----------   ----------
          Total gross deferred tax liabilities            1,212,373    1,145,517
                                                         ----------   ----------
          Net deferred tax liability                     $  766,262      697,069
                                                         ==========   ==========

      Based  on  calculations  made by the  Company's  management  the  deferred
      employee  statutory  profit sharing is immaterial at December 31, 2002 and
      2001. The valuation  allowance for deferred tax assets as of December 2002
      and 2001 was $219,079 and  $269,996,  respectively.  The net change in the
      total  valuation  allowance for the years ended December 31, 2002 and 2001
      was a decrease of $50,917 and an  increase  of $45,875,  respectively.  In
      assessing the realizability of deferred tax assets,  management  considers
      whether  it is more  likely  than  not  that  some  portion  or all of the
      deferred tax assets will not be  realized.  The  ultimate  realization  of
      deferred tax assets is dependent  upon the  generation  of future  taxable
      income  during the periods in which  those  temporary  differences  become
      deductible.  Management  considers the scheduled  reversal of deferred tax
      liabilities,  projected future taxable income, and tax planning strategies
      in making this assessment.


                                      F-31
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      At December  31,  2002,  tax loss  carryforwards  and  recoverable  AT not
      affecting ESPS, expire as follows:

                                              Restated through December 31, 2002
                                              ----------------------------------
                                                 Tax loss            Recoverable
      Expiring in                             carryforwards               AT
      -----------                             -------------          -----------
         2003                                  $   46,013                  2,565
         2004                                     754,885                  2,532
         2005                                     325,388                  1,886
         2006                                       1,060                  6,864
         2007                                       8,904                 17,497
         2008                                      22,450                 28,724
         2009                                       9,414                 15,683
         2010                                       2,655                 44,427
         2011                                       1,313                 15,219
         2012                                      68,960                 16,829
                                               ----------             ----------
                                               $1,241,042                152,226
                                               ==========             ==========

      During the year ended  December  31,  2001,  recoverable  AT  increased in
      $113,798  because on March 28, 2001, the Company ceased to consolidate its
      results for tax purposes with Sidek, generating majority recoverable AT in
      that amount.

      A new Income Tax Law was enacted on January 1, 2002. This law provides for
      a 1% annual  reduction in the income tax rate  beginning in 2003,  so that
      the rate will be 32% in 2005.  As a result of these  changes,  during  the
      year ended  December  31, 2002 the Company  recognized  an increase in net
      deferred tax  liabilities of $22,130,  which was charged to the results of
      operations in 2002.


                                      F-32
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


(10)  Stockholders' equity -

      The principal characteristics of stockholders' equity are described below:

      (a)   Structure of capital stock -

            i)    At the  Extraordinary  General  Stockholders'  Meeting held on
                  April 30,  2002,  the  stockholders'  agreed to  undertake  an
                  reverse split of the total number of shares  representing  the
                  Company's capital stock as of that date by issuing  89,422,606
                  Series "B" shares  without  par  value.  Shareholders  were to
                  exchange twenty of their outstanding shares for one new share.
                  For this to be possible, the Company's stockholders authorized
                  the conversion of all Series "A" shares into common Series "B"
                  shares.

            ii)   At the Ordinary General  Stockholders' Meeting held on June 5,
                  2002, the stockholders resolved to:

                  -     Increase   the  variable   capital   stock  by  $306,423
                        ($297,498  historical)  through the issue of 407,867,548
                        common Series "B" shares,  of which ICH  subscribed  and
                        paid up 336,396,918  shares by capitalizing  the debt of
                        Simec. The remaining  71,470,630  shares were offered to
                        all other Simec  stockholders who had preemptive  rights
                        and thus subscribed and paid up the 35,775,960 shares to
                        which  they  were  entitled;  therefore,  the  remaining
                        35,694,670  shares were  cancelled.  As a result of this
                        transaction,  the Company's  capital stock  increased by
                        $279,500 ($271,462 historical).

                  -     Ratify and modify the  instruction  given to the Company
                        at the Extraordinary  General Stockholders' Meeting held
                        on April 30, 2002 mentioned in paragraph (i) above;  the
                        shares  relating  to the  inverse  split  should  now be
                        issued in a number  equal to that of common  Series  "B"
                        shares, without par value, representing the total number
                        of shares outstanding (See note 13 (d)).


                                      F-33
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


            iii)  At the  Extraordinary  Board  of  Directors'  meeting  held on
                  February 7, 2001,  the Board members  approved the  creditors'
                  capitalization  of the debt and accrued interest  thereon,  by
                  subscribing  492,852,025  Series "B" Treasury  shares provided
                  that simultaneously the stock-purchase agreement between Sidek
                  and ICH was  brought to a close,  which  occurred on March 29,
                  2001.  The  capitalization   amounted  to  95,369,788  dollars
                  (90,156,963  dollars of  principal  and  5,212,825  dollars of
                  accrued  interest  thereon).  The  exchange  rate used in this
                  transaction was 9.5315 per one dollar,  generating an increase
                  in capital stock of $392,304 ($359,501 historical).

                  At that same meeting, it was informed that the theoretical par
                  value of the  Company's  shares  was  0.7294  pesos per share;
                  moreover,  it was agreed that in the event of any  differences
                  between such  theoretical par value and the equivalent  amount
                  in pesos of the  subscription  price  would be  considered  as
                  additional   paid-in  capital.   This  agreement  resulted  in
                  additional paid-in capital of $599,658  ($549,516  historical)
                  on March 29, 2001.

            iv)   At  the  Ordinary  General  and  Extraordinary   Stockholders'
                  Meeting held on August 27, 2001,  the  stockholders  agreed to
                  increase  the  Company's  variable  capital  stock by $691,314
                  ($642,819  historical),  represented by 881,298,609 Series "B"
                  shares of which  726,145,989  were  subscribed and paid by ICH
                  through debt capitalization on the aforementioned date. Of the
                  remaining 155,152,620 shares,  155,079,759 were subscribed and
                  paid by ICH through debt  capitalization on September 24, 2001
                  once the term granted to the general  public to exercise their
                  rights to subscribe  and pay for the shares had expired.  This
                  right was exercised for 72,861 shares.

            v)    At  the  Ordinary  General  and  Extraordinary   Stockholders'
                  Meeting  held on April  27,  2000 the  stockholders  approved,
                  among other things, the following:

                  -     To convert  5,667,000  Series "B" shares into Series "A"
                        shares.

                  -     To increase the fixed capital stock to $222,962 (nominal
                        value)  decreasing  the  variable  capital  stock in the
                        required proportion.

                  -     To increase the  variable  capital  stock by  $1,458,859
                        (nominal  value),   issuing   2,000,000,000  Series  "B"
                        shares,  to be  subscribed  and  paid  by the  Company's
                        creditors if opted by the Company at the debt's maturity
                        date,  as mentioned  in note 1b. The stock  issuance was
                        adjusted  to the  issuance  mentioned  in  paragraph  i)
                        above.

            After the above  activity,  the  Company's  capital stock amounts to
            $2,630,014 (nominal) represented by 2,160,625,003 common, Series "B"
            shares with no par value.  Such shares may be subscribed and paid by
            Mexican or foreign individuals or corporations.


                                      F-34
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


            Each share has the right to one vote at  stockholder  meetings.  The
            minimum fixed  capital  stock not subject to  withdrawal  amounts to
            $222,962 (nominal).

      (b)   Comprehensive income (loss) -

            The  comprehensive  income  (loss)  reported  on the  statements  of
            changes  in  stockholders'  equity,  represents  the  results of the
            Company's  activities  during  the  year,  and  includes  the  items
            mentioned below which, in accordance with Mexican GAAP, are reported
            directly in stockholders' equity, except for the net income (loss):

                                                2002        2001         2000
                                             ---------   ---------    ---------
            Net income (loss)                $ 118,063     242,251      (39,658)

            Results from holding non-
              monetary assets                  388,873    (216,654)    (188,597)
            Deferred income taxes on the
              result from holding non-
              monetary assets                 (125,904)     35,321       41,185
                  Cumulative deferred
                    income taxes                    --          --     (796,386)
                                             ---------   ---------    ---------
                   Total                     $ 381,032      60,918     (983,456)
                                             =========   =========    =========

      (c)   Restrictions on stockholders' equity -

            Five percent of net income for the year must be  appropriated to the
            statutory  reserve,  until it reaches one-fifth of capital stock. At
            December 31, 2002 the statutory reserve amounts to $6,717.

            Stockholder  contributions  restated as provided for by tax law, may
            be refunded to the stockholders tax-free, to the extent that the tax
            bases of such contributions equal or exceed stockholders' equity.

            Retained earnings of Simec, on which no income taxes have been paid,
            and other stockholders'  equity accounts are subject to income taxes
            in the event of  distribution,  at the rate of 34%,  payable  by the
            Company; consequently, the stockholders may only receive 66% of such
            amounts.

            According  to the loan  restructuring  contracts,  the  Company  has
            restrictions as to the payment of dividends (See note 7).


                                      F-35
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


(11)  Segment information-

      The Company's  sales are made primarily in Mexico and the United States of
      America,  and are  directed  basically  to the  construction  industry  or
      sector.

      The  Company's  net sales to customers  in Mexico or foreign  countries or
      regions were as follows:

                                         2002         2001         2000
                                      ----------   ----------   ----------
      Mexico                          $1,856,238    1,856,353    2,181,210
      United States of America           248,019      148,777      235,764
      Latin America                        6,949        4,949        4,409
      Canada                                 439           --        1,153
      Other                                  812        1,226        8,442
                                      ----------   ----------   ----------
                                      $2,112,457    2,011,305    2,430,978
                                      ==========   ==========   ==========

(12)  Commitments and contingent liabilities -

      Commitments-

      (a)   On February 8, 2001,  CSG entered  into a three-year  contract  with
            Petroleos Mexicanos for monthly gas purchases.

      (b)   At December 31, 2002,  the Company has a number of supply  contracts
            whereby  it  undertakes  to  supply  certain  customers  with  steel
            products during 2003.  Noncompliance  by the Company could result in
            the   merchandise   being   rejected   and/or   returned   with   no
            responsibility for the supplier.

      Contingent liabilities -

      (c)   Pacific Steel, Inc (PS) (a US wholly owned subsidiary) has been sued
            regarding the generation,  storage,  transportation  and disposal of
            materials   classified   as  hazardous   waste  by  the   California
            government.  The Company has appealed against these claims; however,
            it cannot currently predict what the outcome of this matter will be.
            Consequently,  and due to the  imminent  expropriation  of the  land
            where PS conducts its operations, during the year ended December 31,
            2002  PS  recorded  its  land  at  realizable  value,  based  on the
            appraisal made by independent appraisers. This resulted in a $19,837
            ($19,750, historical) decrease in the value of the land and a charge
            to income by the same  amount.  Furthermore,  because  the price the
            authorities  are  willing to pay for the land is equal to the land's
            value less its clean up expenses and costs incurred, at December 31,
            2002 PS recognized a 816,877 dollars ($8,424) provision for clean up
            expenses.


                                      F-36
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (d)   The Federal Bureau of Environmental  Protection  (PROFEPA)  required
            CSC to dispose of the excess dust  generated  during its  production
            process.  PROFEPA  accepted a proposal  from CSC to comply  with the
            agency's  requirements  by September  2000. At December 31, 2001 CSC
            has spent  $33,688  ($30,528  historical)  in  disposing of the dust
            accumulated  in  prior  years.  At the  date of  issuance  of  these
            consolidated  financial  statements,  the authority has not issued a
            final resolution regarding the corrective action taken by CSC.

      (e)   On  September  14,  2000,  CSG  filed  an  application   before  the
            "Administracion  Local de  Recaudacion  de  Grandes  Contribuyentes"
            (Local Tax  Collection  Office for Major  Taxpayers) to decrease its
            estimated income taxes. However,  three months after the filing, the
            authorities had not responded. Therefore, on July 13, 2001 CSG filed
            fictitious  denial   nullification   proceedings  before  the  "Sala
            Regional de  Occidente  del  Tribunal  Federal de Justicia  Fiscal y
            Administrativa"  (Regional  Occidental  Court of the Federal Tax and
            Administrative Court of Justice).  However,  this court claimed lack
            of jurisdiction.  On August 27, 2002 the "Sala Superior del Tribunal
            de Justicia Fiscal y Administrativa"  (Superior Courtroom of the Tax
            and  Administrative  Court of Justice) sitting in banc resolved that
            the court with  jurisdiction  to hear and  determine the case is the
            "Decimo  Primera Sala  Regional  Metropolitana"  (Eleventh  Regional
            Metropolitan  Courtroom) of the aforementioned Court. In the opinion
            of the  Company's  management  and  its  legal  counsel,  there  are
            reasonable  defense  elements to obtain a favorable  resolution  for
            CSG.

      (f)   On October 12, 2000,  the  "Administracion  Local de  Recaudacion de
            Guadalajara Sur" (Local Tax Collection Office in South Guadalajara),
            notified the Company that it rejected  the  offsetting  of asset tax
            paid in the ten  previous  years  against  1999  income  taxes,  and
            determined  a tax  liability of $25,806.  On January 24,  2001,  CSG
            filed nullification proceedings before the "Primera Sala Regional de
            Occidente del Tribunal Federal de Justicia Fiscal y  Administrativa"
            (First   Regional   Occidental   Court  of  the   Federal   Tax  and
            Administrative Court of Justice).  Nonetheless, on January 31, 2001,
            CSG was notified  that the First  Regional  Court decided to decline
            the lawsuit;  consequently,  the Company filed a complaint  recourse
            that was  determined to be unfounded by the  above-mentioned  court.
            Therefore, on October 29, 2001, CSG filed relief proceedings against
            such  resolution,  which  was  forwarded  to  the  "Tercer  Tribunal
            Colegiado de Materia  Administrativa  en el Tercer  Circuito" (Third
            Court on  Administrative  Matters of the Third  Circuit)  located in
            Guadalajara,  Jalisco.  On February  12,  2002,  this Court ruled in
            favor of CSG indicating that the First Regional  Occidental Court of
            the Federal  Tax and  Administrative  Court of Justice  will have to
            admit the lawsuit  filed on January 24, 2001.  In the opinion of the
            Company's  management  and its legal  counsel,  there are reasonable
            defense elements to obtain a favorable resolution for CSG.


                                      F-37
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (g)   The Company is involved in a number of lawsuits  and claims  arising
            in the normal  course of  business.  It is  expected  that the final
            outcome of these matters will not have  significant  adverse effects
            on the Company's financial position and results of operations.

      (h)   The  five-year  period  prior to the most  recent  income tax return
            filed is open to governmental tax examination.

      (i)   In  accordance  with the  Income  Tax Law,  companies  carrying  out
            transactions with related parties,  whether domestic or foreign, are
            subject to certain  requirements as to the  determination of prices,
            since  such  prices  must be  similar to those that would be used in
            arm's-length transactions.

            Should the tax authorities  examine the  transactions and reject the
            related-party  prices,  they could assess  additional taxes plus the
            related restatement and interest,  in addition to penalties of up to
            100% of the omitted taxes.

      (j)   There is a contingent  liability  arising from the labor obligations
            mentioned in note 2i.

(13)  Subsequent events -

      (a)   On January 13 and March 18, 2003,  the Company made  prepayments  on
            the  industrial  mortgage  loan  amounting to 8,682,223  dollars and
            3,129,261 dollars, respectively, plus interest (see note 13 (g)).

      (b)   The merger  between the Company and CSO  referred to in note 1a took
            effect as of January 15, 2003.  Also,  as of such date,  CSC assumed
            the Company's obligations and rights.

      (c)   On February 13, 2003, SERSIM, ASIS ICH and Coordinadora de Servicios
            Siderurgicos  de Calidad,  S.A. de C.V.  filed an appeal against the
            unconstitutionality  of the  tax  substituting  the  salary  credit,
            provided  by the IT Law in effect as of January 1, 2002 and in force
            throughout  fiscal  2003.  The  case  has  been  handed  over to the
            "Juzgado Tercero de Distrito en Materia  Administrativa en el Estado
            de  Jalisco"  (Third  District  Court on  Administrative  Matters in
            Jalisco),  which must issue the relevant admission agreement,  after
            which  evidence  will be produced.  In the opinion of the  Company's
            management  and its  legal  counsel,  there are  reasonable  defense
            elements to obtain a favorable resolution for the companies.

      (d)   On  February  20, 2003 the  reverse  split of the total  outstanding
            shares,   mentioned  in  notes  1(f)  and  10(a)(ii)  was  effective
            simultaneously on the Mexican and New York Stock Exchanges.


                                      F-38
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      (e)   At the  Ordinary  General  Stockholders'  Meeting  held on March 26,
            2003, the stockholders agreed to increase the variable capital stock
            in $214,326 issuing  14,691,936  common Series "B" shares,  of which
            ICH paid and  subscribed  12,317,605  shares plus 8 shares that were
            held in the company's  Treasury  through the  capitalization  of the
            Company's  debt with ICH.  The  remaining  2,374,331  shares will be
            offered  to the  rest  of the  shareholders  in  order  for  them to
            exercise  their  preemptive  rights to subscribe and pay for the new
            issue of stock on a  prorate  basis  before  they are  issued to the
            public,  after  the  National  Banking  and  Securities   Commission
            authorizes the updating of capital stock at the National  Securities
            Registry.

      (f)   On  April  24,  2003,  the  Company   received  a  notice  from  the
            "Administracion  Central de Auditoria Fiscal Internacional" (Central
            International  Fiscal Auditing Office) whereby the latter determines
            a tax  liability in  connection  with the  placement of debt abroad,
            documented by the issuance of the "New Notes" in fiscal 1998,  1999,
            2000 and the  months  of  January  to June,  2001.  The  unpaid  tax
            liability  results from an alleged  difference  in the rate used for
            withholding interest payments abroad of 4.9% in the applicable rates
            of 10%,  15% and 40%,  respectively.  The  unpaid  amount is $29,886
            (historical),  plus  restatement and surcharges of $30,090 and a 70%
            penalty of $25,002,  for a total of $84,978. At the date of issuance
            of these financial statements, the Company is analyzing the steps it
            will follow to address this issue.  In the opinion of the  Company's
            management,  there  are  reasonable  defense  elements  to  obtain a
            favorable resolution for the Company.

      (g)   On May 15 and May 21, 2003 the  Company  made an  installment  and a
            prepayment on the  industrial  mortgage loan  amounting to 1,423,329
            dollars and 18,119,033 dollars respectively, plus interest.

(14)  Differences between Mexican and United States accounting principles:

      The Company's consolidated financial statements are prepared in accordance
      with Mexican GAAP,  which differ in certain  significant  respects from US
      GAAP.

      The Mexican GAAP consolidated  financial statements include the effects of
      inflation as provided for under Bulletin  B-10, as amended.  The following
      reconciliation to US GAAP does not include the reversal of the adjustments
      for the effects of  inflation,  since the  application  of  Bulletin  B-10
      represents a  comprehensive  measure of the effects of price level changes
      in the  inflationary  Mexican  economy and, as such,  is considered a more
      meaningful presentation than historical cost-based financial reporting for
      both Mexican and US accounting purposes.

      Other significant  differences between Mexican and US GAAP and the effects
      on consolidated  net income (loss) and consolidated  stockholders'  equity
      are presented below, in thousands of constant Mexican pesos as of December
      31, 2002, with an explanation of the adjustments.


                                      F-39
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      Reconciliation of net income (loss):

<TABLE>
<CAPTION>
                                                                               2002               2001               2000
                                                                           ------------       ------------       ------------
<S>                                                                        <C>                     <C>                <C>
      Net income (loss) as reported under Mexican GAAP-                    $    118,072            242,269            (39,665)
        Minority  interest included in net income (loss)
           under Mexican GAAP                                                        (9)               (18)                 7
        Inventory indirect costs                                                 (3,596)             5,469                797
        Depreciation on restatement of machinery and
           equipment                                                            (42,888)           (51,770)           (59,999)
        Adjustment of land to net realizable value                              (30,052)                --                 --
        Accrued vacation costs                                                     (789)            (2,884)
                                                                                                                        2,723
        Deferred income taxes                                                    83,357            (44,062)            75,450
        Deferred employee profit sharing                                             20                388              7,081
        Loss from  monetary  position of deferred  asset
           effect under Mexican GAAP                                                 --                846              1,395
        Pre-operating expenses, net                                              10,037             23,079             23,079
        Amortization of gain from monetary position and
           exchange loss capitalized under Mexican GAAP
                                                                                  6,364              6,364              6,364
        Gain on extinguishment                                                       --            513,837                 --
                                                                           ------------       ------------       ------------
                Total approximate US GAAP adjustments                            22,444            456,856             51,290
                                                                           ------------       ------------       ------------
      Approximate net income under US GAAP                                 $    140,516            699,125             11,625
                                                                           ============       ============       ============
      Weighted average outstanding basic                                     99,967,222         54,816,134         20,715,044
      Potential shares from convertible debt                                         --                 --         24,642,601
                                                                           ------------       ------------       ------------
      Weighted average shares outstanding                                    99,967,222         54,816,134         45,357,645
                                                                           ============       ============       ============
                Net earnings per share                                     $       1.40              12.75               0.47
                                                                           ============       ============       ============
                Diluted earnings per share                                 $         --                 --               0.56
                                                                           ============       ============       ============
</TABLE>


                                      F-40
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      Reconciliation of stockholders' equity:

<TABLE>
<CAPTION>
                                                                                  2002              2001              2000
                                                                              -----------       -----------       -----------
<S>                                                                           <C>                 <C>               <C>
      Total stockholders' equity reported under
        Mexican GAAP                                                          $ 3,594,678         2,934,134         1,189,930

        Minority interest included in stockholders'
           equity under Mexican GAAP                                                 (242)             (230)             (220)
        Inventory indirect costs                                                   13,261            16,857            11,388
        Restatement of machinery and equipment                                    684,098         1,278,571         1,096,431
        Accrued vacation costs                                                     (4,837)           (4,048)           (6,772)
        Deferred income taxes                                                     (83,805)         (293,064)         (213,607)
        Deferred employee profit sharing                                              408               388                --
        Pre-operating expenses                                                   (265,183)         (275,220)         (298,299)
        Amortization of gain from monetary position and
           exchange loss capitalized under Mexican GAAP                            44,544            38,180            31,817
        Gain from monetary position and exchange loss
           capitalized                                                           (224,174)         (224,174)         (224,174)
                                                                              -----------       -----------       -----------
                 Total approximate US GAAP adjustments                            164,070           537,260           396,564
                                                                              -----------       -----------       -----------

       Total approximate stockholders' equity under US GAAP                   $ 3,758,748         3,471,394         1,586,494
                                                                              ===========       ===========       ===========
</TABLE>


                                      F-41
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      A summary of changes in  stockholders'  equity,  after the  approximate US
      GAAP adjustments described above, is as follows:

<TABLE>
<CAPTION>
                                                                Capital         Retained
                                                               Stock and        Earnings          Cumulative          Total
                                                                Paid-in       (Accumulated        Restatement     Stockholders'
                                                                Capital         Losses)             Effect           Equity
                                                               ----------     ------------        -----------     -------------
<S>                                                            <C>                <C>                <C>             <C>
      Balances as of December 31, 2000                         $1,305,442         (693,597)          974,649         1,586,494

      Increase in capital stock                                 1,169,439               --                --         1,169,439

      Net comprehensive income                                         --          699,125            16,336           715,461
                                                               ----------       ----------        ----------        ----------
      Balances as of December 31, 2001                          2,474,881            5,528           990,985         3,471,394

      Increase in capital stock                                   279,500               --                --           279,500

      Net comprehensive income                                         --          140,516          (132,662)            7,854
                                                               ----------       ----------        ----------        ----------
      Balances as of December 31, 2002                         $2,754,381          146,044           858,323         3,758,748
                                                               ==========       ==========        ==========        ==========
</TABLE>

      Minority interest-

      Under Mexican GAAP, the minority interest in consolidated  subsidiaries is
      presented  as a  separate  component  within  stockholders'  equity on the
      consolidated balance sheet. For US GAAP purposes, minority interest in not
      included  in  stockholders'  equity.  Additionally,   while  the  minority
      interest in  consolidated  earnings is  included in the  consolidated  net
      income (loss) under Mexican GAAP, it is excluded under US GAAP.

      Restatement of prior year financial statements-

      In  accordance  with Mexican GAAP,  prior year  financial  information  of
      foreign  subsidiaries  must be restated  using the  inflation  rate of the
      country in which the foreign  subsidiary  is located,  then  translated to
      pesos at the exchange rate as of year end. This  procedure  results in the
      presentation of prior year amounts  representing  the purchasing  power of
      the respective currencies as of the end of the latest year presented.

      Under US GAAP, prior year financial  information of foreign subsidiary and
      affiliated  companies  must be restated in constant units of the reporting
      currency,  the Mexican peso,  which requires the restatement of such prior
      year amounts using the inflation rate of Mexico.


                                      F-42
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      This difference is not included in the GAAP  reconciliation  of net income
      (loss) and stockholders' equity, since its effect is not significant.

      Inventory costs-

      As permitted by Mexican GAAP, some inventories are valued under the direct
      cost system, which includes material, direct labor and other direct costs.
      For purposes of complying with US GAAP, inventories have been valued under
      the full absorption cost method.

      Restatement of machinery and equipment-

      As  explained  in  note 2,  in  accordance  with  Mexican  GAAP,  imported
      machinery and equipment has been restated during 2002 and 2001 by applying
      devaluation and inflation factors of the country of origin.

      Under US GAAP,  during 2002 and 2001 the  restatement of all machinery and
      equipment,  both domestic and imported, has been done in constant units of
      the  reporting  currency,  the Mexican peso,  using the inflation  rate of
      Mexico.

      Accordingly,  a reconciling  item for the difference in  methodologies  of
      restating   imported   machinery   and   equipment   is  included  in  the
      reconciliation of net income (loss) and stockholders' equity.

      Additionally, and as mentioned in note 12c, the Company adjusted the value
      of  PS  land  at  realizable  value  and  due  to  of  the  difference  in
      methodologies  of  restating  mentioned in the  previous  paragraphs,  the
      Company included a complement to the corresponding adjustment.

      Deferred income taxes and employee profit sharing-

      Beginning January 1, 2000, Bulletin D-4,  "Accounting for Income and Asset
      Taxes and Employee Profit Sharing", went into effect,  eliminating most of
      the differences  with respect to US GAAP.  Until 1999, under Mexican GAAP,
      deferred  income taxes and employee  profit  sharing were  determined by a
      partial  liability  method of accounting,  wherein  deferred  effects were
      provided at the tax rate  expected to be in effect upon  reversal only for
      identifiable,  non-recurring  temporary  differences that were expected to
      reverse within a defined period of time.

      The amount of deferred income taxes and employee profit sharing charged or
      credited to  operations  in each period for US GAAP was  determined  under
      Statement of Financial  Accounting Standards (SFAS) No. 109 based upon the
      difference  between the  beginning  and ending  balances  of the  deferred
      assets or  liabilities  for each  period,  expressed  in constant  Mexican
      pesos.


                                      F-43
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      Additionally,  for US  GAAP  purposes,  employee  profit  sharing  must be
      classified as an operating expense.

      The effects of temporary  differences giving rise to significant  portions
      of the  deferred  assets and  liabilities  at December 31, 2002 y 2001 are
      present below:

<TABLE>
<CAPTION>
                                                                            2002                               2001
                                                                 ---------------------------       ---------------------------
                                                                     IT              ESPS             IT               ESPS
                                                                 ----------       ----------       ----------       ----------
      Deferred tax assets:
<S>                                                              <C>              <C>              <C>              <C>
         Allowance for doubtful receivables                      $    8,720               --           18,620               --
         Accrued expenses                                            11,095              408            6,618              388
         Advances from customers                                         --           11,039               --
         Net operating loss carryforwards                           421,954               --          479,300               --
         Recoverable AT                                             152,226               --          136,437               --
         Others                                                      72,840               --           67,852               --
                                                                 ----------       ----------       ----------       ----------
                Total gross deferred tax
                 assets                                             666,835              408          719,866              388

         Less valuation allowance                                   219,079               --          269,996               --
                                                                 ----------       ----------       ----------       ----------
                Net deferred tax assets                             447,756              408          449,870              388
                                                                 ----------       ----------       ----------       ----------
      Deferred tax liabilities:
        Inventories, net from the balance
          as of December 31, 1986 not yet
          deducted                                                  160,931               --          189,845               --
         Property, plant and equipment                            1,108,672               --        1,226,751               --
         Others                                                      28,218               --           23,407               --
                                                                 ----------       ----------       ----------       ----------
                Total gross deferred tax
                 liabilities                                      1,297,821               --        1,440,003               --
                                                                 ----------       ----------       ----------       ----------
                Net deferred tax liability                       $  850,065              408          990,133              388
                                                                 ==========       ==========       ==========       ==========
</TABLE>


                                      F-44
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      The  deferred  income  taxes of  $1,108,672  and  $1,226,751  result  from
      differences  between the  financial  reporting  and tax bases of property,
      plant and equipment at December 31, 2002 and 2001, respectively. Beginning
      in 1997 the  restatement of property,  plant and equipment and the effects
      thereof on the  statement of  operations  are  determined by using factors
      derived from the NCPI or, in the case of imported machinery and equipment,
      by applying  devaluation  and inflation  factors of the country of origin.
      Until  1996,  for  financial  reporting  purposes,   property,  plant  and
      equipment  were  stated  at  net   replacement   cost  based  upon  annual
      independent   appraisals  and  depreciation  was  provided  by  using  the
      straight-line  method over the  estimated  remaining  useful  lives of the
      assets. For income tax reporting purposes,  property, plant, and equipment
      and  depreciation  are computed by a method which  considers the NCPI, and
      for employee  profit sharing  reporting  purposes,  property,  plant,  and
      equipment and depreciation are computed on the historical cost basis.

      Pre-operating expenses-

      For Mexican GAAP purposes, the Company capitalized  pre-operating expenses
      related to the new production facilities at Mexicali, as well as costs and
      expenses incurred in the manufacturing and design of new products.  For US
      GAAP purposes, these items are expensed when incurred.

      Financial expense capitalized-

      Under  Mexican  GAAP,  financial  expense  capitalized  during  the period
      required  to bring  property,  plant  and  equipment  into  the  condition
      required for their intended use,  includes  interest,  exchange losses and
      gains  from  monetary  position.  Under US GAAP only  interest  expense is
      capitalized as part of the cost of such assets acquired with borrowings in
      foreign  currencies,  and interest,  net of the related gain from monetary
      position,  is  capitalized  as part  the  cost  of  assets  acquired  with
      borrowings in Mexican pesos.


                                      F-45
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      Gain on extinguishment

      On  February  7, 2001,  the  Company's  Board of  Directors  approved  the
      issuance of  492,852,025  shares of Series "B" variable  capital  stock in
      exchange for the  extinguishment of debt amounting to 95,369,788  dollars.
      Under Mexican GAAP, the increase in  stockholders'  equity  resulting from
      the conversion or  extinguishment  of debt is equal to the carrying amount
      of the  extinguished  debt.  The  Company  assigned a value of  95,369,788
      dollars to the Series "B"  capital  stock and,  therefore,  no  difference
      existed between the equity interest granted and the carrying amount of the
      debt extinguished.  Under U.S. GAAP, the difference between the fair value
      of equity interest granted and the carrying amount of extinguished debt is
      recognized as a gain or loss on extinguishment of debt in the statement of
      operations.  For U.S.  GAAP  purposes,  the fair  value of the  Series "B"
      capital  stock was  determined  by reference to the quoted market price on
      March 29, 2001, the date the transaction was effected,  and the difference
      between  the fair value of the Series "B" capital  stock and the  carrying
      amount of the  extinguished  debt is recognized as a gain in the Statement
      of Operations.

      Pension and other retirement benefits-

      The Company records seniority premiums based on actuarial  computations as
      described in note 2.

      For purposes of  determining  seniority  premium costs under US GAAP,  the
      Company  utilized  SFAS  No.  87.  Adjustments  to US GAAP  for  seniority
      premiums were not  individually  or in the aggregate  significant  for any
      period.

      SFAS No. 106,  "Employers'  Accounting for Post-retirement  Benefits Other
      than Pensions",  requires accrual of  post-retirement  benefits other than
      pensions  during the employment  period.  The Company does not provide its
      employees any  post-retirement  benefit  subject to the provisions of SFAS
      No. 106.

      SFAS  No.  112,  "Employers'  Accounting  for  Post-employment  Benefits",
      requires  employers  to  accrue  for  post-employment  benefits  that  are
      provided  to former or  inactive  employees  after  employment  during the
      employment period. The Company does not provide these benefits either.


                                      F-46
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      For the year ended  December 31, 1998,  the Company  adopted SFAS No. 132,
      "Employers'   Disclosures   about   Pensions  and  Other   Post-retirement
      Benefits",  which requires  certain  additional  disclosures,  without any
      changes  in  the   measurement   or  recognition  of  pensions  and  other
      post-retirement  benefit  obligations.  The additional  disclosures are as
      follows:

                                                            2002       2001
                                                          -------    -------
      Change in projected benefit obligation-
      Projected benefit obligation at beginning of year   $ 5,173      5,415
         Service cost                                         338        367
         Financial cost                                       220        242
         Actuarial gain (loss), net                           365        744
         Benefits paid                                       (732)    (1,595)
                                                          -------    -------
         Projected benefit obligation at end of year      $ 5,364      5,173
                                                          =======    =======

      Variable capital common stock-

      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 each year,  to redeem  those shares at a price equal to the
      lesser of either  (i) 95% of the  market  price,  based on an  average  of
      trading  prices during the 30 trading days preceding the end of the fiscal
      year in which the redemption is to become effective or (ii) the book value
      of the Company's  shares approved at the meeting of  shareholders  for the
      latest  fiscal year prior to the  redemption  date.  Although the variable
      capital  common stock is redeemable  by the terms  described  above,  such
      shares have been classified as a component of stockholders'  equity in the
      consolidated balance sheet under both Mexican and US GAAP.

      Company's management believes the variable capital common stock represents
      permanent capital because the timing and pricing mechanism through which a
      shareholder   would  exercise  the  option  to  redeem  are  such  that  a
      shareholder, from the economic standpoint, would not exercise this option.
      At the time, a shareholder is required to give notice of  redemption,  the
      shareholder  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
      shareholder in a public sale.


                                      F-47
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      Statement of cash flows-

      Under  Mexican  GAAP,  the Company  presents a  consolidated  statement of
      changes in financial  position in  accordance  with Bulletin  B-12,  which
      identifies  the generation  and  application of resources as  representing
      differences  between beginning and ending financial  statement balances in
      constant  Mexican  pesos.  It also requires  that monetary and  unrealized
      exchange gains and losses be treated as cash items in the determination of
      resources generated by operations.

      SFAS  No.  95,  "Statement  of Cash  Flows",  requires  presentation  of a
      statement of cash flows.


                                      F-48
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      The following  presents a  reconciliation  of the  resources  generated by
      (used in) operating, investing and financing activities under Mexican GAAP
      to the resources generated by (used in) such activities under US GAAP:

<TABLE>
<CAPTION>
                                                                                 2002               2001               2000
                                                                              ---------          ---------          ---------
<S>                                                                           <C>                  <C>                 <C>
      Net income as reported under US GAAP                                    $ 140,516            699,125             11,625
      Add charges (deduct credits) to operations
       not requiring (providing) funds:
       Amortization of goodwill                                                      --                 --              2,063

       Depreciation and amortization                                            182,404            168,130            183,531
       Unrealized exchange (gain) loss                                           70,449            (75,884)            17,526
       Deferred income taxes                                                   (140,067)            38,861            (17,578)
       Deferred employee profit sharing                                             (20)              (388)            (7,081)
       Gain from monetary position                                                   --                 --           (238,870)
       Minority interest                                                              9                 18                 --
       Gain (loss) on disposal segments                                              --               (260)            22,401
       Adjustment of land realizable value                                       49,889                 --                 --
       Write-down for idle machinery                                             10,056                 --                 --
       Gain on extinguishment                                                        --           (513,837)                --
       Accrual for seniority premium                                                134                 --                 --
                                                                              ---------          ---------          ---------
       Funds provided by (used in) operations
                                                                                313,370            315,765            (26,383)
                                                                              ---------          ---------          ---------
      Net financing from (investing in)
        operating accounts:
        Trade receivables, net                                                  (92,395)            24,794             13,533
        Other accounts receivable and prepaid
          expenses                                                                6,583            (14,058)           (30,428)
        Inventories                                                               2,347             (5,549)             1,294
        Accounts receivable from related parties
                                                                                     --                 --              7,942
        Accounts payable and accrued expenses
                                                                                106,369           (127,328)            41,792
        Accounts payable to related parties                                      30,677            142,422                 --
                                                                              ---------          ---------          ---------
                                                                                 53,581             20,281             34,133
                                                                              ---------          ---------          ---------
      Approximate net resources generated by
       operations under US GAAP                                               $ 366,951            336,046              7,750
                                                                              =========          =========          =========
</TABLE>


                                      F-49
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)

<TABLE>
<CAPTION>
                                                                                 2002               2001               2000
                                                                              ---------          ---------          ---------
<S>                                                                           <C>                 <C>                <C>
      Financing activities under Mexican GAAP                                 $(229,414)          (419,686)          (536,335)
          Decrease in debt due to restatement to
             constant Mexican pesos                                              31,089             65,444            (17,526)
          Exchange gain (loss)                                                  (70,449)            75,884            286,254
                                                                              ---------          ---------          ---------
      Approximate net resources used in financing
       activities under US GAAP                                               $(268,774)          (278,358)          (267,607)
                                                                              =========          =========          =========
      Net resources (used in) generated by
       investing activities under Mexican GAAP-                               $ (43,102)           (56,774)             9,870
       Restatement of non-current inventories                                    (5,462)            (4,095)            (8,098)
       Other non-cash investing activities                                       19,342             13,243             16,429
                                                                              ---------          ---------          ---------
      Approximate net resources (used in) generated
       by investing activities under US GAAP                                  $ (29,222)           (47,626)            18,201
                                                                              =========          =========          =========
</TABLE>

      Net  resources  used in operating  activities  include  cash  payments for
      interest and income taxes as follows:

                                           2002         2001         2000
                                         -------      -------      -------
      Total interest paid                $47,714      317,879      374,234
                                         =======      =======      =======
      Income taxes paid                  $11,496       95,411       35,344
                                         =======      =======      =======

      Accounting  for the  impairment  of  long-lived  assets and for long lived
      assets to be disposed of-

      In 1996 the Company adopted SFAS No. 121 "Accounting for the Impairment of
      Long-lived Assets and for Long-lived assets to be Disposed of" (superseded
      by SFAS 144  "Accounting  for the  impairment  on disposal  of  Long-lived
      Assets").  This  statement  provides  guidance  for  the  recognition  and
      measurement  of  the  impairment  of  the   long-lived   assets,   certain
      identifiable  intangibles  and goodwill  related to both assets to be held
      and used and  assets to be  disposed  of.  The  effect of this  accounting
      policy was  included  in the credit  (provision)  for loss on  disposal of
      segments.


                                      F-50
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      Earnings per share-

      Under the guidelines of SFAS No. 128, "Earnings per Share", the Company is
      required  to  calculate  basic  earnings  per share,  which is computed by
      dividing income  available to common  stockholders by the weighted average
      number of common shares outstanding during the period. The Company is also
      required to compute diluted earnings per share,  which is similar to basic
      earnings  per  share,  except  that the number of shares is  increased  to
      include the number of additional  shares that would have been  outstanding
      if dilutive  potential common shares had been issued.  In addition and for
      US GAAP purposes,  the weighted average shares outstanding were calculated
      giving  rise  to the  reverse  split  effect  mentioned  in note 13 (d) at
      December 31, 2002, 2001 and 2000.

(15)  Newly Issued Accounting Pronouncements under US GAAP

      In June  2001,  FASB  issued  SFAS 143  "Accounting  for Asset  Retirement
      Obligations".  SFAS No. 143 requires an entity to record the fair value of
      an asset  retirement  obligation  as a liability in the period in which it
      incurs a legal  obligation  associated  with the  retirement  of  tangible
      long-lived   assets  that  result  from  the  acquisition,   construction,
      development,  and/or  normal use of the assets.  Such  liability  would be
      recorded  against a corresponding  asset that is depreciated over the life
      of the  long-lived  asset.  Subsequent to the initial  measurement  of the
      asset retirement obligation, the obligation will be adjusted at the end of
      each period to reflect  the  passage of time and changes in the  estimated
      future cash flows  underlying the  obligation.  The Company is required to
      adopt  SFAS  143 on  January  1,  2003.  The  adoption  of SFAS 143 is not
      expected to have a material effect on the Company's financial statements.

      In April 2002, the FASB issued SFAS 145 "Rescission of FASB Statements No.
      4,  44  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
      Corrections". SFAS No. 145 amends existing guidance on reporting gains and
      losses on the extinguishment of debt to prohibit the classification of the
      gain or loss as  extraordinary,  as the use of such  extinguishments  have
      become part of the risk management  strategy of many  companies.  SFAS No.
      145 also  amends  SFAS No. 13 to  require  sale-leaseback  accounting  for
      certain  lease   modifications  that  have  economic  effects  similar  to
      sale-leaseback  transactions.  The provisions of the statement  related to
      the  rescission of Statement  No. 4 are applied in fiscal years  beginning
      after May 15, 2002. Earlier application of these provisions is encouraged.
      The provisions of the statement related to Statement No. 13 were effective
      for  transactions  occurring  after May 15, 2002,  with early  application
      encouraged.  The  adoption  of  SFAS  No.  145 is not  expected  to have a
      material effect on the Company's financial statements.


                                      F-51
<PAGE>

                   GRUPO SIMEC, S.A. DE C.V. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          (Thousands of constant Mexican pesos as of December 31, 2002)


      In June 2002, the FASB issued SFAS 146  "Accounting  for Costs  Associated
      with Exit or Disposal Activities". SFAS 146 addresses financial accounting
      and reporting for costs  associated  with exit or disposal  activities and
      nullifies   Emerging  Issues  Task  Force  (EITF)  Issue  94-3  "Liability
      Recognition for Certain Employee  Termination  Benefits and Other Costs to
      Exit an Activity". The provisions of this Statement are effective for exit
      or disposal  activities  that are initiated  after December 31, 2002, with
      early application encouraged.  The adoption of SFAS 146 is not expected to
      have a material effect on the Company's financial statements.


                                      F-52
<PAGE>

                                                                      SCHEDULE I

GRUPO SIMEC, S.A. de C.V. (Parent Company Only)
Condensed balance sheets as of December 31, 2002 and 2001
(Stated in thousands of constant Mexican pesos as of December 31, 2002)

Assets:                                                  2002           2001
                                                     -----------    -----------
Current assets:
    Cash and cash equivalents                        $       137             86
    Accounts receivable from related parties, net        463,134        149,648
    Other accounts receivable, net                            97            309
                                                     -----------    -----------
         Total current assets                            463,368        150,043

Accounts receivable from related parties long term     1,577,512      1,580,176

Investment in subsidiary companies                     1,575,314      1,223,278

Other assets                                               3,711          4,025
                                                     -----------    -----------
                                                     $ 3,619,905      2,957,522
                                                     ===========    ===========

Liabilities and Stockholders' equity:

Liabilities:
    Financial debt                                   $     3,114          4,851
    Other accrued expenses                                12,758          8,097
    Accounts payable to related parties                    9,597         10,670
                                                     -----------    -----------
         Total current liabilities                        25,469         23,618

Stockholders' equity:
    Capital stock                                      2,630,014      2,350,514
    Additional paid-in capital                           599,658        599,658
    Retained earnings                                  1,280,600      1,162,537
    Cumulative deferred income taxes                    (796,386)      (796,386)
    Equity restatement                                  (119,450)      (382,419)
                                                     -----------    -----------
         Total stockholders' equity                    3,594,436      2,933,904
                                                     -----------    -----------
                                                     $ 3,619,905      2,957,522
                                                     ===========    ===========

    See accompanying note and notes to consolidated financial statements.


                                      S-1
<PAGE>

                                                                      SCHEDULE I

GRUPO SIMEC, S.A. de C.V. (Parent Company Only)
Condensed statements of operations
Years ended December 31, 2002, 2001 and 2000
(Stated in thousands of constant Mexican pesos as of December 31, 2002)

                                                2002        2001         2000
                                             ---------   ---------    ---------
Equity in results of subsidiary companies    $  89,076     205,472       (1,348)
Adminitrative expenses                          (5,510)     (3,591)          --
Financial income                                36,081      21,691          547
Other income (expenses), net                     1,546      35,706      (11,467)
                                             ---------   ---------    ---------
      Income (loss) before taxes               121,193     259,278      (12,268)

Provision for asset tax and deferred
   income taxes                                  3,130      17,027       12,615
                                             ---------   ---------    ---------
      Income (loss) from continuing
        operations                             118,063     242,251      (24,883)

Discontinued operations:
   Equity in results of subsidiary
     companies of discontinued segments             --          --        7,626
   Provision for loss on disposal of
     segments, net of fees                          --          --      (22,401)
                                             ---------   ---------    ---------
                                                    --          --      (14,775)
                                             ---------   ---------    ---------
      Net income (loss)                      $ 118,063     242,251      (39,658)
                                             =========   =========    =========

See accompanying note and notes to consolidated financial statements.


                                      S-2
<PAGE>

                                                                      SCHEDULE I

GRUPO SIMEC, S.A. de C.V. (Parent Company Only)
Condensed statements of changes in financial position
Years ended December 31, 2002, 2001 and 2000
(Stated in thousands of constant Mexican pesos as of December 31, 2002)

<TABLE>
<CAPTION>
                                                          2002          2001          2000
                                                       ----------    ----------    ----------
<S>                                                    <C>              <C>           <C>
   Net income (loss)                                   $  118,063       242,251       (39,658)
   Add charges (deduct credits) to operations
     not requiring (providing) funds:
     Equity in results of subsidiary companies            (89,076)     (205,472)       (6,279)
     Credit (provision) for loss on disposal
       of segments                                             --            --        22,401
     Deferred income taxes                                  3,130         3,640        (3,779)
                                                       ----------    ----------    ----------
       Funds provided by (used in) operations              32,117        40,419       (27,315)

   Changes in current assests and liabilities            (319,008)     (143,088)       60,660
                                                       ----------    ----------    ----------
       Funds (used in) provided by operating
         activities                                      (286,891)     (102,669)       33,345

Financing activities:
   Increase in capital stock                              279,500     1,083,618            --
   Aditional paid-in capital                                   --       599,658            --
   Convertible debt                                            --    (1,009,654)    1,004,000
   Exchange gain (loss)                                       419          (282)        5,800
   Payment of financial debt                               (1,960)       (1,151)      (31,132)
   Decrease in debt due to restatement to
     constant Mexican pesos                                  (196)         (286)       (3,364)
   Compania Siderurgica de Guadalajara, S.A. de C.V         2,664      (570,522)   (1,009,654)
                                                       ----------    ----------    ----------
       Funds provided by (used in)
         financing activities                             280,427       101,381       (34,350)

Investing activities- other noncurrent assets               6,515         1,176             6
                                                       ----------    ----------    ----------

       Increase (decrease) in cash an
         cash equivalents                                      51          (112)         (999)

Cash and cash equivalents at beginning of year                 86           198         1,197
                                                       ----------    ----------    ----------
Cash and cash equivalents at end of year               $      137            86           198
                                                       ==========    ==========    ==========
</TABLE>

See accompanying note and notes to consolidated financial statements.


                                      S-3
<PAGE>

                                                                      SCHEDULE I

Grupo Simec, S.A. de C.V. (Parent Company Only)
For the years ended December 31, 2002, 2001 and 2000
(Stated in thousands of constant Mexican pesos as of December 31, 2002)

1.    Organization of the company and certain other information:

      The accompanying  condensed  financial  statements  reflect the results of
      operations of the Company since its incorporation in August 1990.

      Information  with  respect to the  Company's  material  contingencies  and
      guarantees  is presented in notes 7 and 12 of the  consolidated  financial
      statements.


                                      S-4
<PAGE>

                      [This page intentionally left blank.]

<PAGE>


                          THE REPORT OF ARTHUR ANDERSEN
                     IS A COPY OF A PREVIOUSLY ISSUED REPORT
            AND SUCH REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN

Translation of a report originally issued in Spanish

(See Note 1 to the financial statements)

To the Stockholders of
Grupo Simec, S. A. de C. V.,

We have audited the accompanying consolidated balance sheets of GRUPO SIMEC, S.
A. DE C. V. (a Mexican corporation) AND SUBSIDIARIES (the Company) as of
December 31, 2000 and 1999, and the related consolidated statements of income
(loss), changes in stockholders' equity and changes in financial position for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Mexico and the United States. Those standards require that the audit be
planned and performed to obtain reasonable assurance about whether the financial
statements are free of material misstatement and that they are prepared in
conformity with accounting principles generally accepted in Mexico. 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.

As mentioned in notes 2 and 12 to the accompanying consolidated financial
statements, during 2000 the following events occurred:

1.    On February 7, 2000, the Board of Directors of Grupo Sidek, S. A. de C. V.
      (Sidek), holding company, approved a financial restructuring, which
      included the capitalization of the Company's liabilities and the sale of
      the Company's shares by Sidek.

      Therefore, as described in note 2(g) on August 25, 2000, the Company and
      its bank creditors formalized the restructuring of its debt. The
      restructuring includes, among other things, (i) a two year extension with
      respect to the maturity of US$119.7 million of debt, from 7 to 9 years,
      with a final maturity in November 2009 and a 0.75% increase in the
      interest rate applicable to such debt, (ii) an agreement under which Grupo
      Simec, S. A. de C. V. assumed US$93 million of debt of Compania
      Siderurgica de Guadalajara, S. A. de C. V., the Company's principal
      operating subsidiary, and (iii) at the election of the Company, the
      capitalization at repayment of the debt mentioned in (ii), plus the
      interest accrued, with a maturity date of either May 15, 2001, or the date
      on which Sidek sells the shares of the Company.


                                      F-2

<PAGE>

      Also, on December 22, 2000, Sidek agreed to sell to Industrias CH, S. A.
      de C. V. (ICH), 200,995,159 Series "A" shares and 547,913,326 Series "B"
      shares of the Company, which would include 492,852,025 shares resulting
      from the capitalization of the debt as described in the preceding
      paragraph. On March 29, 2001 Sidek consummated the sale of its entire
      controlling interest in the Company to ICH and, in conjunction therewith,
      ICH acquired additional common shares of the Company held by certain bank
      creditors that converted approximately US$95 million common shares of the
      Company. As a result, ICH now holds an approximate 82.5% interest in the
      Company. As a result of the acquisition by ICH of the controlling interest
      in the Company, on April 9, 2001 the Company commenced an offer to
      purchase all outstanding New Notes at a price of 100% of their principal
      amount plus accrued interest through the date of redemption.

2.    As described in Note 2(f), on December 27, 2000, the Company paid US$4
      million of principal and accrued interest to the holders of the
      medium-term notes who filed a lawsuit in 1998 against the Company and
      Sidek. As a result, the uncertainty related to this prior contingent
      liability has been eliminated.

3.    As mentioned in Note 2, during 2000 the Company adopted the regulations of
      the modified Bulletin D-4, "Accounting for Income and Asset Taxes and
      Employee Profit Sharing". As explained in such note, the adoption of this
      new accounting principle required the recognition of a long-term liability
      and a decrease in the stockholders' equity of $724,610,000 and the
      provision for income taxes for the year increased by $55,543,000
      ($52,449,000 and $3,094,000 for the continued and discontinued operations,
      respectively), for the deferred effect of the year. Also a credit to the
      accumulated effect from holding nonmonetary assets of $109,919,000 was
      recorded.

Accounting practices used by the Company in preparing the accompanying
consolidated financial statements conform with the accounting principles
generally accepted in Mexico but do not conform with the accounting principles
generally accepted in the United States (US GAAP). A description of these
differences and a reconciliation of consolidated net income (loss) and
stockholders' equity to US GAAP as permitted by Form 20-F, which allows omission
of the requirement to quantify, in the US GAAP reconciliation, the differences
attributable to the effects of comprehensive inflation adjustments recorded
locally, are set forth in Note 19.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grupo Simec, S. A.
de C. V. and Subsidiaries as of December 31, 2000 and 1999, and the results of
their operations, the changes in their stockholders' equity and the changes in
their financial position for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in Mexico.

Guadalajara, Jalisco, Mexico
  March 2, 2001, except with respect to
  the matters discussed in Notes 8 and 18,
  as to which the date is April 9, 2001


                                      F-2A

<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Consolidated balance sheets as of December 31, 2000 and 1999
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Assets
                                                   2000          1999
                                                   ----          ----

Current assets:
  Cash and cash equivalents-
     Unrestricted                               $  105,837    $  375,119
     Restricted                                     10,210        13,834
                                                ----------    ----------
                                                   116,047       388,953

Accounts receivable-
     Trade                                         348,007       392,518
     Affiliated companies and related parties       43,667        47,176
     Others                                         50,124        30,287
                                                ----------    ----------
                                                   441,798       469,981
Less-Allowance for doubtful accounts                53,411        41,765
                                                ----------    ----------

     Total accounts receivable                     388,387       428,216

  Inventories                                      266,245       328,718

  Prepaid expenses                                   2,817         3,696
                                                ----------    ----------
       Total current assets                        773,496     1,149,583

Noncurrent inventories                              87,993        89,251

Property, plant and equipment                    3,650,315     3,998,295

Other assets                                       278,335       300,032
                                                ----------    ----------
                                                $4,790,139    $5,537,161
                                                ==========    ==========

Liabilities and stockholders' equity
                                                   2000          1999
                                                   ----          ----

Current liabilities

  Financial debt and current portion of
    long-term debt                              $  738,531    $ 389,636
  Accounts payable and accrued liabilities         317,221       307,731
  Affiliated companies                              38,881        18,820
  Income and asset taxes                               --         18,453
  Deferred income taxes                                --            458
  Employee profit sharing                            1,028           455
                                                ----------    ----------

         Total current liabilities               1,095,661       735,553

Long-term debt                                   1,023,896     2,764,893
Grupo Sidek, S. A. de C. V.                            --         27,450
Deferred income taxes                              668,406         2,520
Other accounts payable                               8,912         8,172
                                                ----------    ----------

      Total long-term liabilities                1,701,214     2,803,035
                                                ----------    ----------
      Total liabilities                          2,796,875     3,538,588

  Convertible debt                                 914,949           --

Stockholders' equity:
  Capital stock                                  1,148,062     1,148,062
  Retained earnings                                833,964       869,901
  Effect of restatement of stockholders'
    equity                                        (182,224)      (48,380)
  Accumulated effect of deferred income taxes     (721,686)          --
                                                ----------    ----------
                                                 1,078,116     1,969,583
  Minority interest                                    199        28,990
                                                ----------    ----------
      Total stockholders' equity                 1,078,315     1,998,573
                                                ----------    ----------
                                                $4,790,139    $5,537,161
                                                ==========    ==========

The accompanying notes are an integral part of these consolidated balance sheets

                                      F-3
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Consolidated  statements of income (loss)
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000 except
per share amounts)

<TABLE>
<CAPTION>
                                                                              2000            1999            1998
                                                                              ----            ----            ----

<S>                                                                        <C>             <C>             <C>
Net sales                                                                  $2,202,955      $2,339,518      $2,740,647

Direct cost of sales                                                        1,455,387       1,465,658       1,794,969
                                                                           ----------      ----------      ----------
         Marginal profit                                                      747,568         873,860         945,678

Indirect manufacturing, selling, general and administrative expenses          488,058         487,816         524,900
                                                                           ----------      ----------      ----------
         Operating income                                                     259,510         386,044         420,778

Financial income (expense):
         Interest expense                                                    (334,260)       (342,475)       (417,943)
         Interest income                                                       27,061          35,584          35,685
         Exchange gain (loss) net                                             (15,495)        123,103        (745,229)
         Gain on monetary position                                            219,049         351,071         598,521
                                                                           ----------      ----------      ----------
                                                                             (103,645)        167,283        (528,966)

Other expenses, net                                                           (58,018)        (17,154)        (24,916)
                                                                           ----------      ----------      ----------
         Income (loss) before taxes and employee profit sharing                97,847         536,173        (133,104)

Provisions for:
         Income taxes                                                          25,588         203,986          39,134
         Deferred income taxes                                                 52,449            (458)           (514)
         Application of tax loss carryforwards                                     --        (162,341)        (29,312)
         Asset taxes                                                           41,179          18,140          33,233
         Employee profit sharing                                                1,186             112              39
         Recoverable asset tax benefit                                             --         (12,380)             --
                                                                           ----------      ----------      ----------
                                                                              120,402          47,059          42,580
                                                                           ----------      ----------      ----------
         Income (loss) from continuing operations                             (22,555)        489,114        (175,684)

Discontinued operations:

         Income from discontinued operations                                    6,911           7,305           8,855
         Loss (gain) on disposal of subsidiaries, net of expenses
           and other fees                                                     (20,300)        (10,896)         33,488
                                                                           ----------      ----------      ----------
                                                                              (13,389)         (3,591)         42,343
                                                                           ----------      ----------      ----------
         Net income (loss) for the year                                    $  (35,944)     $  485,523      $ (133,341)
                                                                           ==========      ==========      ==========
</TABLE>

                                      F-4
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Consolidated statements of income (loss)
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000 except
per share amounts)

<TABLE>
<CAPTION>

                                                                      2000               1999              1998
                                                                      ----               ----              ----

Net income (loss) applicable to:
<S>                                                              <C>               <C>                <C>
     Majority interest                                           $    (35,937)     $     484,479      $   (134,800)
     Minority interest                                                     (7)             1,044             1,459
                                                                 ------------      -------------      ------------
       Net income (loss) for the year                            $    (35,944)     $     485,523      $   (133,341)
                                                                 ============      =============      ============

Majority income (loss) per share:
     Weighted average shares outstanding basic                    414,300,890        414,300,890       414,300,890
     Potential shares from convertible debt                       492,852,025        492,852,025       492,852,025
                                                                 ------------      -------------      ------------
     Weighted average shares outstanding diluted                  907,152,915        907,152,915       907,152,915
                                                                 ============      =============      ============

         Basic-
              Income (loss) per share from continuing
                operations                                       $      (0.05)     $        1.18      $      (0.42)
                                                                 ============      =============      ============
              Income (loss) per share from discontinued
                operations                                       $      (0.03)     $        0.01      $      (0.10)
                                                                 ============      =============      ============
         Diluted-

              Income (loss) per share from continuing
                operations                                       $        N/A      $        0.50      $        N/A
                                                                 ============      =============      ============
              Income (loss) per share from discontinued
                operations                                       $        N/A      $        0.00      $        N/A
                                                                 ============      =============      ============
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.


                                      F-4A


<PAGE>


Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Consolidated statements of changes in stockholders' equity
For the years  ended  December  31,  2000,  1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)
<TABLE>
<CAPTION>

                                                    Retained Earnings
                                                ------------------------------
                                                                                 Effect of    Accumulated
                                                             Income             Restatement    Effect of
                                                             (Loss)                 of         Deferred                   Total
                                    Capital      Prior      for the            Stockholders'    Income      Minority   Stockholders'
                                     Stock      Periods      Year      Total      Equity         Taxes      Interest     Equity
                                   ----------   --------   --------   -------- ------------   -----------   --------   -----------

<S>                                <C>          <C>        <C>        <C>        <C>          <C>           <C>        <C>
Balance as of December 31, 1997    $1,148,062   $222,066   $298,156   $520,222   $ 518,075    $      --      $34,159   $2,220,518

   Transfer to retained earnings           --    298,156   (298,156)        --          --           --           --           --
                                   ----------   --------  ---------   --------   ---------   ----------      -------   ----------
                                    1,148,062    520,222         --    520,222     518,075           --       34,159    2,220,518
   Recognition of the effects of
     inflation                             --         --         --         --      41,770           --       (5,334)      36,436
   Net income (loss) for the year          --         --   (134,800)  (134,800)         --           --        1,459     (133,341)
                                   ----------   --------  ---------   --------   ---------   ----------      -------   ----------
     Comprehensive loss                    --         --   (134,800)  (134,800)     41,770           --       (3,875)     (96,905)
                                   ----------   --------  ---------   --------   ---------   ----------      -------   ----------
Balance as of December 31, 1998     1,148,062    520,222   (134,800)   385,422     559,845           --       30,284    2,123,613

   Transfer to retained earnings           --   (134,800)   134,800         --          --           --           --           --
                                   ----------   --------  ---------   --------   ---------   ----------      -------   ----------
                                    1,148,062    385,422         --    385,422     559,845           --           --    2,123,613
   Recognition of the effects of
     inflation                             --         --         --         --    (608,225)          --       (2,338)    (610,563)
   Net income for the year                 --         --    484,479    484,479          --           --        1,044      485,523
                                   ----------   --------  ---------   --------   ---------   ----------      -------   ----------
     Comprehensive loss                    --         --    484,479    484,479    (608,225)          --       (1,294)    (125,040)

Balance as of December 31, 1999     1,148,062    385,422    484,479    869,901     (48,380)          --       28,990    1,998,573

   Transfer to retained earnings           --    484,479   (484,479)        --          --           --           --           --
   Initial recognition of
     accumulated effect of
     deferred income taxes                 --         --         --         --          --     (721,686)      (2,924)    (724,610)

   Decrease of minority interest
     from the sale of shares of
     subsidiary companies                  --         --         --         --          --           --      (24,963)     (24,963)
                                   ----------   --------  ---------   --------   ---------   ----------      -------   ----------
                                    1,148,062    869,901         --    869,901     (48,380)    (721,686)       1,103    1,249,000
   Recognition of the effects of
     inflation                             --         --         --         --    (133,844)          --         (897)    (134,741)
   Net loss for the year                   --         --    (35,937)   (35,937)         --           --           (7)     (35,944)
                                   ----------   --------  ---------   --------   ---------   ----------      -------   ----------
   Comprehensive loss                      --         --    (35,937)   (35,937)   (133,844)          --         (904)    (170,685)
                                   ----------   --------  ---------   --------   ---------   ----------      -------   ----------
Balance as of December 31, 2000    $1,148,062   $869,901  $ (35,937)  $833,964   $(182,224   $ (721,686)     $   199   $1,078,315
                                   ==========   ========  =========   ========   =========   ==========      --=====   ==========
</TABLE>


              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                      F-5
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Consolidated  statements  of changes in  financial  position
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant  Mexican pesos as of December 31, 2000)
<TABLE>
<CAPTION>

                                                                              2000          1999         1998
                                                                              ----          ----         ----
Operating activities:

<S>                                                                        <C>           <C>          <C>
     Net income (loss) for the year                                        $ (35,944)    $ 485,523    $(133,341)
     Add (deduct)- Items that do not require (provide) the use of funds:
        Amortization of goodwill                                               1,870         7,371        1,179
        Depreciation and amortization                                        138,611       158,287      179,640
        Deferred income taxes                                                 52,449          (458)        (514)
        Gain (loss) on disposal of segments                                   20,300        10,896      (37,050)
                                                                            --------      --------     --------
           Net resources generated by income (loss)                          177,286       661,619        9,914
                                                                            --------      --------     --------
     Changes in current assets and liabilities:
        Trade accounts receivable, net                                        41,477        43,558       64,460
        Inventories                                                           25,924        58,927       45,310
        Affiliated companies                                                   6,548         9,028       49,076
        Other accounts receivable and prepaid expenses                       (25,300)        4,941       (8,676)
        Accounts payable and accrued liabilities                               9,899        10,289      (51,849)
                                                                            --------      --------     --------
                                                                              58,548       126,743       98,321
                                                                            --------      --------     --------
           Net resources generated by operating activities                   235,834       788,362      108,235

Financing:
     Convertible debt                                                         51,949            --           --
     Exchange (gain) loss                                                     15,882      (116,263)     682,155
     Payment of financial debt                                              (295,195)       (5,908)    (231,354)
     Decrease in debt due to restatement in constant Mexican pesos          (259,403)     (407,071)    (585,515)

     Payment of (increase in) other liabilities                                  740        (1,281)      (4,741)
                                                                            --------      --------     --------
        Net resources used in financing activities                          (486,027)     (530,523)    (139,455)
</TABLE>


                                      F-6
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Consolidated statements of changes in financial position
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)
<TABLE>
<CAPTION>

                                                                  2000           1999          1998
                                                                  ----           ----          ----
Investing:
<S>                                                                <C>           <C>          <C>
    Noncurrent inventories                                         1,258         16,950       (16,708)
    Sale of shares of subsidiary companies                        57,561             --       207,142
    Acquisition of property, plant and equipment, less
      net book value of retirements                              (34,988)       (88,309)      (51,945)
    Other                                                        (14,887)       (52,053)      (66,804)
                                                               ---------      ---------     ---------
          Net resources generated by (used in)
            investing activities                                   8,944       (123,412)       71,685
                                                               ---------      ---------     ---------
          Net increase (decrease) in cash and
            cash equivalents                                    (241,249)       134,427        40,465

Cash and cash equivalents at the beginning of the year           388,953        254,526       215,244

       Cash and cash equivalents at the beginning of
         the year of subsidiary companies sold                   (31,657)            --        (1,183)
                                                               ---------      ---------     ---------
Cash and cash equivalents at the end of the year               $ 116,047      $ 388,953     $ 254,526
                                                               =========      =========     =========
</TABLE>

              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                      F-6A


<PAGE>


Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

1     Explanation added for translation into English:

The accompanying financial statements have been translated into English for use
outside of Mexico. These financial statements are presented on the basis of
accounting principles generally accepted in Mexico (Mexican GAAP). Certain
accounting practices applied by the Company that conform with Mexican GAAP may
not conform with accounting principles generally accepted in the United States
(US GAAP).

The principal differences between Mexican GAAP and US GAAP are described in Note
19 together with an explanation, where appropriate, of the method used in the
determination of the adjustments that affect net income (loss) and total
stockholders' equity.

2     Operations, major events, basis of presentation and summary of significant
      accounting policies:

Operations and major events-

Grupo Simec, S. A. de C. V. and its subsidiaries (the Company) are indirect
subsidiaries of Grupo Sidek, S. A. de C. V. (Sidek) and are mainly engaged in
the manufacturing and sale of steel products, primarily for the use in the
construction sector of Mexico and other countries.

During 2000, 1999 and 1998, the following major events occurred:

(a)   Beginning on March 30, 1998, Sidek and certain of its subsidiaries
      (excluding the Company) and their creditors entered into debt
      restructuring agreements. In accordance with these agreements, Sidek is
      obligated to sell all of its assets within a term of five years and to
      deposit all resulting proceeds in a trust. Pursuant to the restructuring,
      as amended on March 30, 2000, Sidek agreed to sell assets representing
      65%, 85% and 100% of the determined reorganization value by March 31,
      2001, 2002 and 2003, respectively. Failure to comply with these provisions
      will constitute an event of default under the restructuring agreements.

      On December 22, 2000, Sidek agreed to sell to Industrias CH, S. A. de C.
      V. (ICH), 200,995,159 Series "A" shares and 547,913,326 Series "B" shares
      of the Company, which would include 492,852,025 shares resulting from the
      capitalization of the debt described in paragraph (g) below.

(b)   In June 1999 the Company was relieved of its guarantee of debt of Sidek
      amounting to US$170 million, plus interest.

(c)   On July 17, 1997, as part of the restructuring process, the Board of
      Directors approved the disposition of the entire aluminum segment. The net
      income (loss) of the discontinued operation is included in the
      consolidated statements of income (loss) under the caption "discontinued
      operations". Revenues from such operations prior to its sale were $92,375
      for the year ended December 31, 1998.

      In accordance with the Company's original estimates, the disposition of
      the aluminum segment would have generated a loss of approximately $185,492
      ($110,436 at nominal value), which was recorded as a loss in the
      consolidated statement of income for the year ended December 31, 1996.


                                      F-7
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

      On June 3, 1998, the Company agreed to sell the shares of Aluminio Conesa,
      S. A. de C. V., the subsidiary company engaged in the aluminum business,
      to Industrias Nacobre, S. A. de C. V., a subsidiary of Grupo Carso, S. A.
      de C. V., for US$17.4 million. The sale of the shares resulted in a loss
      of $114,560, after giving effect to transaction costs. Accordingly, in the
      statement of income (loss) for the year ended December 31, 1998, a credit
      of $33,488 was recorded for the cancellation of the excess in the
      provision previously recorded in 1996.

(d)   During 1999, the Board of Directors approved the disposition of Estral, S.
      A. de C. V. (Estral), Moly-Cop Mexico, S. A. de C. V. and Simec Moly-Cop,
      S. A. de C. V. (the Moly-Cop). The net income of these discontinued
      operations is included in the consolidated statements of income (loss)
      under the caption "discontinued operations". Revenues from such operations
      were $131,995, $240,539 and $332,510, for the years ended December 31,
      2000, 1999 and 1998, respectively.

      In accordance with the Company's original estimates, the disposition of
      these subsidiary companies would have generated a loss of approximately
      $10,896 ($10,000 at nominal value), which was recorded as a loss in the
      consolidated statement of income (loss) for the year ended December 31,
      1999.

      On June 15, 2000, the Company agreed to sell to GS Industries Inc. (GS)
      shares representing 49% of the capital stock of the Moly-Cop, which
      represented 98% of the Company's equity participation in such subsidiary
      companies, for US$2.352 million, the remaining 2% was sold to GS in
      November 2000. The sale of the shares, after giving effect to the
      provision previously recorded, resulted in a loss of $2,280, which was
      recorded in the consolidated statement of income (loss) for the year ended
      December 31, 2000.

      On November 30, 2000, the Company agreed to sell to Contenedores
      Industrial Mezquital, S. A. de C. V. shares representing 100% of the
      capital stock of Estral, for US$3.5 million. The sale of the shares, after
      giving effect to the provision previously recorded, resulted in a loss of
      $18,020, which is shown in the consolidated statement of income (loss) for
      the year ended December 31, 2000.

      In order for the accompanying balance sheets as of December 31, 2000 and
      1999 to be comparable, the assets and liabilities (other than intercompany
      balances eliminated in consolidation) of the continuing and the
      discontinued operations as of December 31, 2000 and 1999, are presented as
      follows:

                                                          2000          1999
                                                          ----          ----
 Assets

 Current assets:
      Cash and cash equivalents                        $  116,047    $  357,296
      Accounts receivable                                 388,387       391,746
      Inventories                                         266,245       303,043
      Prepaid expenses                                      2,817         3,696
      Current assets of discontinued operations                --        93,802
                                                       ----------    ----------
                                                          773,496     1,149,583


                                      F-8
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

                                                          2000          1999
                                                          ----          ----

 Noncurrent Inventories                                    87,993        89,251

 Property, plant and equipment, net:
      Continuing operations                             3,650,315     3,947,103
      Discontinued operations                                  --        62,088
      Provision for loss on discontinued operations            --       (10,896)
                                                       ----------    ----------
                                                        3,650,315     3,998,295
 Other assets:
      Continuing operations                               278,335       299,811
      Discontinued operations                                  --           221
                                                       ----------    ----------
                                                          278,335       300,032
                                                       ----------    ----------
          Total assets                                 $4,790,139    $5,537,161
                                                       ==========    ==========

 Liabilities

 Current liabilities:
      Financial debt and current portion of
        long-term debt                                 $  738,531    $  389,636
      Accounts payable and accrued liabilities            317,221       295,136
      Affiliated companies                                 38,881        15,826
      Income and asset taxes                                   --        16,767
      Deferred income taxes                                    --           458
      Employee profit sharing                               1,028           120
      Current liabilities of discounted operations             --        17,610
                                                       ----------    ----------
                                                        1,095,661       735,553

 Long-term debt                                         1,023,896     2,764,893
 Grupo Sidek, S. A. de C. V.                                   --        27,450
 Deferred income taxes                                    668,406         2,520
 Other accounts payable                                     8,912         8,172
                                                       ----------    ----------
                                                        1,701,214     2,803,035
                                                       ----------    ----------
              Total liabilities                        $2,796,875    $3,538,588
                                                       ==========    ==========
 Convertible debt                                      $  914,949    $       --
                                                       ==========    ==========

(e)   During the fourth quarter of 1998, the Company filed a claim with its
      insurer, Grupo Nacional Provincial, regarding the recovery of damages in
      connection with some of the Company's equipment. During 1999, a payment of
      US$1,726,389 was received, which was recorded in the consolidated
      statement of income (loss) for the year ended December 31, 1999.


                                      F-9
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

(f)   On October 22, 1997 and August 17, 1998, Compania Siderurgica de
      Guadalajara, S. A. de C. V. (CSG), the Company's principal operating
      subsidiary, commenced offerings to the holders of medium-term notes
      (MTN's) issued by Grupo Simec, S. A. de C. V. (Simec) to exchange at par
      value their notes for new CSG notes (New Notes), with revised terms and
      conditions. At December 31, 1999, 94.7% of the MTN's had been exchanged.
      Due to the fact that Simec had not paid the scheduled principal and
      interest to the holders who had not exchange their MTN's for the New
      Notes, as mentioned in Note 12, in August 1998 a lawsuit was filed against
      the Company by the holders of US$2,955,000 of the MTN's, demanding the
      payment of principal, accrued interest and related costs, all of which had
      been accrued based on Company estimates. Finally as a result of the
      judgement, on December 27, 2000, Simec paid approximately US$4 million for
      principal and interest to the holders who filed the lawsuit. At December
      31, 2000, the holders of US$622,000 have not exchanged their MTN's and as
      of the date of issuance of these consolidated financial statements Simec
      has not paid the corresponding scheduled interest, which amounts to
      approximately US$287,000.

(g)   On August 25, 2000, the Company and its bank creditors formalized the
      restructuring of its debt, which includes the following:

-     A two-year extension with respect to the maturity of US$119,725,099 of
      debt, from 2007 to 2009, and a 0.75% increase in the interest rate
      applicable to such debt.

-     As explained in Note 8, Simec assumed US$93,046,681 (US$90,156,963 of
      principal and US$2,889,718 of interest accrued at the date of the
      restructuring) of debt Class B of CSG. At the election of the Company, the
      capitalization at repayment of this debt, with a maturity date of either
      May 15, 2001, or the date on which Sidek sells the shares of the Company.
      The new interest rate for this portion of debt is 11.3125%.

(h)   On January 1, 2000, all management personnel were transferred to a new
      subsidiary company, Servicios Simec, S. A. de C. V. Until December 31,
      1999, such personnel were employed by Servicios Corporativos Palma, S. A.
      de C. V., an affiliated company, and the Company had an administrative
      service agreement with this affiliated company. This transfer was made
      through an employer substitution and no severance payments were required.

Geographic concentration of credit risk-

The Company sells its products primarily to distributors for the construction
industry with no specific geographic concentration. Additionally, no single
customer accounted for a significant amount of the Company's sales and there
were no significant accounts receivable due from a single customer or affiliate
at December 31, 2000 and 1999. The Company performs evaluations of its
customers' credit histories and establishes an allowance for doubtful accounts
based upon the credit risk of specific customers and historical trends.

Basis of presentation-

The consolidated financial statements have been prepared in accordance with
Mexican GAAP, which include the recognition of the effects of inflation on the
financial information and the presentation in constant Mexican pesos.


                                      F-10
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

The National Consumer Price Index (NCPI) used to recognize the effects of
inflation was:

                  December 31, 1997                    231.8860
                  December 31, 1998                    275.0380
                  December 31, 1999                    308.9190
                  December 31, 2000                    336.5960

Consolidation principles-

As part of the financial debt restructuring agreement entered into during 1997,
CSG assumed all of the debt of the Company in return for an equity interest in
its subsidiaries. As a result of the above, the Company is the principal
shareholder of CSG, and CSG is the principal shareholder of the other
subsidiaries that Simec controlled before the restructuring.

The main subsidiary of CSG is Compania Siderurgica de California, S. A. de C. V.
(CSC).

All significant intercompany balances and transactions have been eliminated in
consolidation.

Significant accounting policies-

The preparation of these financial statements in conformity with Mexican GAAP
requires management to make certain estimates and use certain assumptions to
determine the valuation of some of the items included in the financial
statements and make the required disclosures therein. While these estimates and
assumptions could differ from actual results, management believes that they were
adequate under the circumstances.

The significant accounting policies and practices followed by the Company that
affect the principal captions of the financial statements are described below.

Change in accounting policy-

During 2000, the Company adopted the regulations of the new Bulletin D-4,
"Accounting for Income and Asset Taxes and Employee Profit Sharing". The initial
effect of the adoption of this bulletin was to record the deferred tax asset
(liability) effect of income and asset taxes, based on the cumulative effect of
temporary items as of January 1, 2000, as a long-term liability of $724,610.
Also, the provisions for income and asset taxes for the year increased by
$55,543 ($52,449 and $3,094 for continuing and discontinued operations), and a
credit to the result for the year from holding nonmonetary assets of $109,919
was recorded for the portion of deferred taxes applicable to the items that were
recorded in the result from holding nonmonetary assets. The result on monetary
position resulting from the restatement of the initial balance of deferred
income and asset taxes was reclassified against the nonmonetary items. The
employee profit sharing provision did not change as there are no items which are
likely to generate a future liability or benefit.

Income (loss) per share-

Basic income (loss) per share is computed by dividing the net majority income
(loss) from continuing operations by the weighted-average number of shares
outstanding during each period. The basic per share effects of income or loss
from discontinued operations have been determined by dividing those items by the
corresponding number of shares determined as mentioned above.


                                      F-11
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Diluted income per share are determined by adding the yield attributable to
convertible debt to the above-mentioned earnings, and to the weighted average
outstanding shares the weighted average of convertible debt outstanding during
the period, converted into shares based on the conversion coefficient
established in the convertible obligations issuance contract.

Cash and cash equivalents-

The Company considers short-term investments with original maturities not
greater than three months to be cash equivalents. Cash equivalents include
temporary investments and Mexican Government Treasury Bonds and are stated at
market value, which approximates cost plus earned interest. Any increase in
market value is credited to operations for the period.

As of December 31, 2000 and 1999, the Company holds restricted cash in the
amount of US$1,066,637 and US$1,334,500, which will be used to purchase raw
materials and machinery, respectively, on or before September 25, 2001, and
March 13, 2000, respectively.

Inventories and direct cost of sales-

Inventories are originally stated at average direct cost and subsequently
adjusted to replacement value at the balance sheet date. The replacement values
do not exceed market value and are determined as follows:

Billet, finished goods and          At the latest direct production cost of the
  work-in-process-                    month.

Raw materials-                      According to purchase prices prevailing in
                                      the market at the balance sheet date.

Materials, supplies and rollers-    At historical cost, restated by applying the
                                      steel industry inflation index.

The Company presents rollers and spare parts as noncurrent inventories, which
according to historical data and production trends will not be used within a
one-year period.

Direct cost of sales related to the sales of inventory items is recorded at
standard cost, which approximates the replacement cost at the date of sale.

Property, plant and equipment-

Property, plant and equipment of domestic origin are restated by using factors
derived from the NCPI from the date of their acquisition and imported machinery
and equipment are restated by applying devaluation and inflation factors of the
country of origin. Depreciation is computed based upon the estimated useful life
and the restated cost of each asset. In addition, financial expense incurred
during the construction period is capitalized as construction in progress. The
capitalized amounts are restated using a factor derived from the NCPI cumulative
from the date of capitalization through year-end and are amortized over the
average depreciation period of the corresponding assets. During 2000, 1999 and
1998 no financial expense was capitalized.


                                      F-12
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Had imported machinery and equipment been restated by using factors derived from
the NCPI from the date of their acquisition rather than by applying devaluation
and inflation factors of the country of origin, the values determined for
machinery and equipment would have increased by $993,578 and $822,758 as of
December 31, 2000 and 1999, respectively, and depreciation expense would have
increased by $54,371 and $39,396 during 2000 and 1999, respectively.

Other assets-

Organization and preoperating expenses are capitalized and restated using a
factor derived from the NCPI cumulative from the date of generation through
year-end, and amortization is calculated using the straight-line method over a
period of 20 years. During 2000 and 1999, no preoperating expenses were
capitalized.

At December 31, 2000 and 1999, capitalized preoperating expenses, net of
accumulated amortization, amount to $270,310 and $291,224, respectively, and
correspond basically to the start-up of the steel mini-mill in Mexicali, Baja
California during 1994.

Seniority premiums and severance payments-

According to Federal Labor Law, employees are entitled to seniority premiums
after 15 or more years of service. These premiums are recognized as expenses in
the year in which the services are rendered, using actuarial calculations based
on the projected unit credit method.

Any other payments to which employees may be entitled to in case of separation,
disability or death are charged to operations of the period in which they become
payable.

Pension plan-

Until 1995, the Company provided pension benefits for all personnel with a
minimum of 10 years of service and 35 years of age. The Company had established
an irrevocable trust for its contributions that were based on actuarial
calculations. In December 1995, the Board of Directors of the Company, in
agreement with the trade union, discontinued these benefits and related
contributions to the trust fund. This decision was made because of the new
Mexican pension fund system, Administradoras de Fondos para el Retiro, which
establishes similar benefits for the employees. The balance of the trust fund as
of December 31, 2000 and 1999 amounted to $2,082 and $2,371, respectively, and
will be applied to the retirement benefits of qualifying employees until the
fund is exhausted due to the irrevocable status of the fund.

The Company does not have any contractual obligation regarding the payment of
pensions or retirements.

Income taxes and employee profit sharing-

As above mentioned, the Company adopted the new Bulletin D-4, "Accounting for
Income and Asset Taxes and Employee Profit Sharing", which was effective
beginning on January 1, 2000. Until December 31, 1999, the Company recorded
deferred income taxes and employee profit sharing only for significant
differences between tax and book income, for which there was a reasonable
expectation that a tax liability or benefit may arise within a defined period
and that were not of a recurring nature.


                                      F-13
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Foreign currency transactions and exchange differences-

All transactions in foreign currency are recorded at the exchange rates
prevailing on the date of their execution or liquidation. Foreign currency
denominated assets and liabilities are translated at the exchange rates
prevailing at the most recent balance sheet date. Any exchange differences
incurred with regard to assets or liabilities denominated in foreign currency
are charged to operations of the period and are included in financial income
(expense) in the accompanying consolidated statements of income (loss).

The financial statements of foreign subsidiaries are translated into Mexican
pesos in conformity with Bulletin B-15, "Transactions in Foreign Currency and
Translation of Financial Statements of Foreign Operations". All foreign
subsidiaries are considered to be "integrated foreign operations", as defined in
Bulletin B-15, and accordingly such financial statements were translated as
follows:

-     Monetary items at the exchange rate at the most recent balance sheet date.

-     Nonmonetary items and stockholders' equity at the exchange rate prevailing
      at the date the transactions occurred.

-     Income and expense items at an appropriate weighted average exchange rate,
      except those derived from nonmonetary items, for which exchange rate of
      the corresponding items is used.

-     The resulting foreign currency translation differences are included in
      financial income (expense) in the consolidated statements of income
      (loss).

-     All resulting Mexican peso amounts are restated for the effects of
      inflation in accordance with the dispositions of Bulletin B-10 and its
      amendments using the NCPI, where such effects are considered significant.

Gain on monetary position-

The gain on monetary position in the consolidated statements of income (loss) is
determined by applying to net monetary assets or liabilities at the beginning of
each month the factor of inflation derived from the NCPI and is restated at
year-end with the corresponding factor.

Statements of income (loss)-

Revenues and expenses which are associated with monetary items (trade
receivables, cash, liabilities, etc.) are restated from the month in which they
arise through year-end, based on factors derived from the NCPI.

Expenses that are associated with nonmonetary items are restated through
year-end by applying factors derived from the NCPI to the restated expense at
the time incurred, as a function of the use or consumption of the nonmonetary
item.

Restatement of capital stock and retained earnings-

This is determined by multiplying capital stock contributions and retained
earnings (losses) by factors derived from the NCPI, which measure the cumulative
inflation from the date when the capital stock contributions were made and
earnings (losses) were generated (incurred) through the latest year-end.


                                      F-14
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Effect of restatement of stockholders' equity-

The effect resulting from restating stockholders' equity includes the
accumulated effect from holding nonmonetary assets, which represents the change
in the specific price level of those assets compared to the change in the NCPI.

Revenue recognition-

Revenues are recognized when the products are shipped or delivered to the
customer and the customer assumes responsibility for the products.

Comprehensive loss-

Comprehensive loss is comprised of the net income (loss) for the period plus any
gains or losses that according to specific accounting regulations are presented
directly in shareholders' equity, such as the gain or loss from holding
nonmonetary assets.

3     Foreign currency exposure:

At December 31, 2000 and 1999, the Company's foreign currency denominated assets
and liabilities are as follows:

                                                          Foreign Currency
                                                             (Thousands)
                                                       -----------------------
                                                          2000         1999
                                                       ----------   ----------
        Current assets:
             US dollars                                     3,501       21,762
                                                       ==========   ==========
        Current liabilities
             US dollars                                    88,049       46,954
                                                       ==========   ==========

             German marks                                     610           58
                                                       ==========   ==========

             Spanish pesetas                                3,009        3,009
                                                       ==========   ==========

        Noncurrent liabilities
             US dollars                                   106,971      267,117
                                                       ==========   ==========

        Convertible debt                                   95,584           --
                                                       ==========   ==========

        Net liability position in foreign currency,
          expressed in thousands of Mexican pesos      $2,751,214   $2,781,597
                                                       ==========   ==========

The exchange rate of the Mexican peso to the US dollar at December 31, 2000,
1999 and 1998 was $9.5722, $9.5143 and $9.8650, respectively. At March 2, 2001,
the unaudited net liability position in foreign currency was similar to that at
year-end and the exchange rate was $9.6688.


                                      F-15
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

In addition, at December 31, 2000 and 1999, the Company had no foreign currency
exchange risk coverage instruments.

As of December 31, 2000 and 1999, the Company had inventories and machinery and
equipment of foreign origin or whose replacement cost may only be denominated in
US dollars as follows:

                                               Thousands of US Dollars
                                              -------------------------
                                               2000              1999
                                              -------           -------
     Inventories                                8,871             9,148
     Machinery and equipment                  183,004           185,996
                                              =======           =======

Foreign currency transactions, excluding imported machinery and equipment, for
the years ended December 31, 2000, 1999 and 1998 are summarized as follows:

                                                    Thousands of US Dollars
                                           -----------------------------------
                                             2000           1999         1998
                                           -------       -------       -------
     Sales                                  22,930        29,010        35,114
     Purchases                             (25,867)      (26,868)      (33,350)
     Interest expense, net                  33,822)      (30,888)      (34,083)
     Other expenses                         (8,849)       (6,294)       (6,463)
                                           -------       -------       -------
     Net                                   (45,608)      (35,040)      (38,782)
                                           =======       =======       =======

The accompanying consolidated financial statements include the following assets
and liabilities of subsidiaries that operate in the United States of America and
in the Republic of Panama as follows:

                                                Thousands of US Dollars
                                                -----------------------
                                                  2000           1999
                                                -------        --------
     Current assets, excluding inventories          240          1,921
     Inventories                                     12             48
     Current liabilities                         (2,673)        (2,552)
                                                -------        -------
     Working capital deficit                    $(2,421)       $  (583)
                                                =======        =======
     Property, plan and equipment               $ 2,228        $ 2,318
                                                =======        =======
     Long-term liabilities                      $     4        $    21
                                                =======        =======


                                      F-16
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

4     Affiliated companies and related-party balances and transactions:

Accounts receivable from affiliated companies and related parties result from
the sale of finished goods, land, shares of a subsidiary and unsecured loans.
Accounts payable to affiliated companies and related parties result from loans,
inventory purchases and service expenses. Accounts receivable from and payable
to affiliated companies and related parties resulting from loans generate
interest computed based on the Mexican Government Treasury Bond rate, plus 0.5%.

Accounts receivable due from and payable to affiliated companies and related
parties are summarized as follows:

                                                             2000          1999
                                                             ----          ----
  Accounts receivable-
     Industria Naval de Mazatlan, S. A. de C. V.           $ 2,920       $ 3,170
     Industria Naval de Pacifico, S. A. de C. V.             6,660         6,840
     Grupo Mak, S. A. de C. V.                              13,960        15,211
     Club de Precios, S.A. de C. V.                          7,881         8,587
     Industria Constructora del Noroeste, S. A. de C. V.     1,308         1,085
     Sergio Luis Gonzalez Melo                              10,057        10,958
     Other                                                     881         1,325
                                                           -------       -------
                                                           $43,667       $47,176
                                                           =======       =======

  Accounts payable
     Grupo Sidek, S. A. de C. V.                            38,011        14,329
     Promotora Mexicali, S. A. de C. V.                        133           144
     Sidek International, Inc.                                  96           104
     Other                                                     641         4,243
                                                           -------       -------
                                                           $38,881       $18,820
                                                           =======       =======

The account receivable from Grupo Mak, S. A. de C. V. is denominated in US
dollars, bearing interest at an annual rate of 15%. The account receivable from
Club de Precios, S. A. de C. V. is denominated in Mexican pesos, bearing
interest at a variable interest rate. Due to the difficult financial situation
of Grupo Mak, S. A. de C. V. and Club de Precios, S. A. de C. V., the Company
has recorded an allowance of 100% of the accounts receivable. As a result of the
above, beginning on January 1, 1999, the Company discontinued accruing the
related interest income.

The account receivable from Sergio Luis Gonzalez Melo is denominated in Mexican
pesos, does not bear interest, and due to the difficult financial situation of
this related party, in 1998 the Company recorded an allowance of 100% of the
account receivable, which is included in other expenses as indicated in Note 13.

Due to the difficult financial situation experienced by Industria Naval de
Mazatlan, S. A. de C. V. and Industria Naval del Pacifico, S. A. de C. V., in
2000 the Company recorded an allowance of 100% of the accounts receivable, which
is included in other expenses as indicated in Note 13.


                                      F-17
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

At December 31, 2000 and 1999, allowance for doubtful accounts includes $41,893
and $35,636 of accounts receivable from affiliated companies and related
parties, respectively.

The following is a summary of the significant transactions carried out by the
Company with affiliated companies and related parties for each period presented
in the accompanying consolidated financial statements:

                                                   Year Ended December 31,
                                             ----------------------------------
                                                2000        1999         1998
                                             --------     --------     --------
Services produced and goods sold             $ 49,089     $    149     $ 38,920
                                             ========     ========     ========
Interest income, net                         $    367     $  1,432     $  1,843
                                             ========     ========     ========
Purchases of raw materials and services
  related to production                      $  3,055        4,389        6,173
                                             ========     ========     ========
Administrative service expense               $     --     $ 43,299     $ 45,384
                                             ========     ========     ========

5     Allowance for doubtful accounts:

                                                2000        1999         1998
                                             --------     --------     --------
Beginning balance                            $ 41,765     $ 49,287     $ 65,134
     Provisions                                15,080       (2,115)      14,881
     Write-offs and effect of inflation        (3,434)      (5,407)      (7,998)
     Disposal of aluminum segment            $     --           --      (22,730)
                                             --------     --------     --------
Ending balance                               $ 53,411     $ 41,765     $ 49,287
                                             ========     ========     ========

6     Inventories:

Inventories are comprised of the following:

                                                            2000         1999
                                                         ---------     --------

Billets                                                  $  18,069     $ 29,624
Raw materials                                               56,721       86,496
Work-in-process                                              8,174       12,550
Finished goods                                              62,357       58,383
Materials, supplies and rollers                             93,487      107,922
Goods in transit                                            18,861       15,534
Advances to suppliers and other                              8,576       18,209
                                                         ---------     --------
                                                         $ 266,245     $328,718
                                                         =========     ========


                                      F-18
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

As mentioned in Note 2, noncurrent inventories correspond to the rollers and
spare parts that according to technical studies, historical data and production
trends will not be consumed in the operating cycle of the Company (one-year).

Inventories secure the loans as discussed in Note 8.

7     Property, plant and equipment:

Property, plant and equipment are summarized as follows:

                                                       2000             1999
                                                    -----------     -----------
Buildings                                           $ 1,335,051     $ 1,365,638
Machinery and equipment                               2,879,639       3,263,875
Transportation equipment                                 40,651          41,363
Furniture and fixtures                                   28,366          44,354
                                                    -----------     -----------

              Total                                   4,283,707       4,715,230
Less-Accumulated depreciation                         1,160,767       1,281,868
                                                    -----------     -----------
Land                                                    341,957         351,221
Construction in progress                                 99,278         130,750
Idle machinery and equipment                             86,140          93,858
                                                    -----------     -----------
Less-Provision for loss on
  discontinued operations                                    --         (10,896)
                                                    -----------     -----------
                                                    $ 3,650,315     $ 3,998,925
                                                    ===========     ===========

The specific price level adjustment of a significant portion of certain imported
machinery and equipment was lower than the NCPI since the inflation and
devaluation factors of the country of origin were lower than Mexican inflation.

At December 31, 2000 and 1999, the useful lives of buildings and machinery and
equipment are as follows:

                                                                    Years
                                                                   --------

                Buildings                                          15 to 50
                Machinery and equipment                            10 to 40


The industrial plant secures the loans as discussed in Note 8.


                                      F-19
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

8     Financial debt:

As of December 31, 2000 and 1999, the financial debt is comprised as follows:

                                                         2000            1999
                                                      ----------      ----------

Industrial mortgage debt                              $2,025,258      $2,256,436
New Notes                                                539,586         667,859
Medium-term notes                                          5,954          37,082
Long-term loans payable to banks                         106,578         193,152
                                                      ----------      ----------
                                                       2,677,376       3,154,529
Less-

     Current portion                                     738,531         389,636
     Convertible debt                                    914,949              --
                                                      ----------      ----------
                  Total                               $1,023,896      $2,764,893
                                                      ==========      ==========

Industrial mortgage debt-

On October 24, 1997, Simec and their creditors signed a financial debt
restructuring agreement, under which CSG assumed virtually all of the
outstanding debt of the Company. The renegotiated debt amounted to
US$220,736,023, is divided in two classes, Class A and Class B, and bears
interest at a floating rate equal to Libor plus a margin. Principal will be
payable in sixteen semiannual installments beginning in May 2000, except for the
Class B-2 debt, which is due in a single payment in 2009. During 2000 and 1998
the Company paid US$18,932,973 and US$17,952,537, respectively. Furthermore, in
accordance with the financial debt restructuring agreement, amounts of
US$7,422,760, US$7,391,545 and US$7,485,186, corresponding to the installments
due during 2000, 1999 and 1998, respectively, under the Linea del Rey, which is
described below, were refinanced.

As mentioned in Note 2(g), on August 25, 2000, the Company and its bank
creditors formalized the restructuring of its debt. The restructuring includes,
among other things, a two-year extension with respect to the maturity of
US$119,725,099 of Class A debt, and a 0.75% increase in the interest rate
applicable to such debt. In addition, Simec assumed US$93,046,681 (US$90,156,963
and US$2,889,718 of principal and interest accrued at the date of the
restructuring, respectively) of the Class B debt. At the election of the
Company, the capitalization at repayment of this debt, with a maturity date of
either May 15, 2001, or the date on which Sidek sells the shares of the Company.
The new interest rate for this debt is 11.3125%. As of December 31, 2000,
additional accrued interest of US$2,537,346 is subject to capitalization,
consequently, the total balance of the convertible debt amounts to
US$95,584,027. As mentioned in Note 18, on March 29, 2001 Sidek consummated the
sale of its entire controlling interest in the Company and in conjunction
therewith, certain bank creditors converted approximately US$95 million into
common shares of the Company. Due to the above the balance of the convertible
debt was not classified as a liability in the accompanying balance sheet as of
December 31, 2000.

As of December 31, 2000 and 1999, the industrial mortgage debt amounted to
US$211,577,068 and US$217,660,217, respectively.


                                      F-20
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

The terms and interest rate margin over Libor of each class of debt are as
follows:

                                                               Thousands
                                               Margin            of US
    Class                  Tranche           over Libor         Dollars
    -----                  -------           ----------         -------

       A                      A                5.625%          $  47,100
       A                     A'                5.125%             67,018
       B                     B-1               4.375%                414
       B                     B-2               4.375%              1,461
Convertible debt                                                  95,584
                                                               ---------
                                                               $ 211,577
                                                               =========

In order to secure this debt, the Company and its subsidiaries granted a
mortgage on all of their property, plant and equipment.

In the event of any prepayments, the priority ranking is as follows:

         Portion                                        Priority Ranking
         -------                                        ----------------
            A                                                Second
           A'                                                Second
            B                                                Third

The bank loan agreement establishes certain limitations and obligations for the
Company, the most significant of which provide that the Company may not sell or
lease its fixed assets, may not pay dividends or reduce its capital, may not
sell consolidated subsidiary companies and must maintain certain financial
ratios. The Company has complied with these restrictions or has obtained the
corresponding waivers.

New Notes and medium-term notes-

As mentioned in Note 2(f), on October 22, 1997 and August 17, 1998, CSG
commenced offerings to the noteholders to exchange at par their MTN's of Simec,
which amounted to US$68 million, for new CSG notes (New Notes) denominated as
third priority notes (pari-passu in right of payment to the Class B bank debt
described above). The New Notes bear interest semiannually at an annual rate of
10.5%. Principal is payable semiannually, from May 15, 2000 through November 15,
2007. Noteholders may accelerate the maturity of the New Notes if some of the
following events occur, (i) the sale of the shares of the Company owned by
Sidek, (ii) the sale of the shares of CSG owned by Simec, (iii) the sale of all
or virtually all of the CSG's assets. As mentioned in Note 18, on March 29, 2001
Sidek consummated the sale of its entire controlling interest in the Company, as
a result the Company commenced an offer to purchase all outstanding notes.
Consequently, the long-term portion of the New Notes was classified as a current
liability in the accompanying balance sheet as of December 31, 2000.


                                      F-21
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

US$64,423,000 of the MTN's was exchanged and during 2000 US$8,052,875 was
amortized, consequently, as of December 31, 2000, the New Notes balance amounts
to US$56,370,125. The remaining balance of the MTN's not exchanged amounted to
US$3,577,000, with an annual interest rate on this obligation of 8.875%, for
which the principal matured on December 31, 1998. As mentioned in Note 2, due to
the fact that Simec had not paid the scheduled principal and interest to the
holders of these MTN's, a lawsuit was filed against Simec by holders of
US$2,995,000, and as a result of the judgement, on December 2000 Simec paid this
amount plus interest and related costs. As of December 31, 2000, the remaining
balance of the MTN's not exchanged amounts to US$622,000 and the accrued
interest amounts to approximately US$287,000. The MTN's are guaranteed by Sidek.

Long-term loans payable to banks-

In 1991 CSC signed a secured line of credit with Banco Nacional de Comercio
Exterior, S. N. C. and Banco Nacional de Mexico, S. A. in the principal amount
of US$54.5 million to finance the purchase of equipment. CSG received funding
from the Government of Spain under this line of credit at favorable interest
rates; this line of credit is known as the "Linea del Rey". The past-due
principal was included as a part of the new Class A' debt described above, and
the remaining outstanding amount under the Linea del Rey will be refinanced as
such amounts become due under the new debt agreements. At December 31, 2000 and
1999, the balance outstanding under the Linea del Rey amounts to US$11,134,139
and US$18,556,899, respectively, with the final installment due in 2002.

Maturities-

Maturities of financial debt after the restructuring and considering the effect
of the capitalization of the convertible debt and the sale of the Company's
shares owned by Sidek are as follows:

Year ending December 31,                                                Amount
------------------------                                                ------
2001 (current portion)                                               $   738,531
                                                                     ===========

2002                                                                     157,466
2003                                                                     121,939
2004                                                                     121,939
2005 and thereafter                                                      622,552
                                                                     -----------
                                                                     $ 1,023,896
                                                                     ===========


                                      F-22
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

9     Seniority premiums and severance payments:

The liability of seniority premiums and severance payments is being accrued,
which at present value will cover the obligation from benefits projected to the
estimated retirement date of the Company's employees, and is included in other
long-term accounts payable in the accompanying balance sheets, as follows:

                                                         2000            1999
                                                         ----            ----
Projected benefit obligation (PBO)                     $ 4,908          $ 5,367

Add (deduct)-
  Unamortized past service costs                        (2,961)          (3,318)
  Unamortized actuarial (gain) loss                        134             (127)
                                                         -----            -----
PBO, net                                                 2,081            1,922
Additional liability recorded (ABO)                      2,537            2,821
                                                         -----            -----
Accumulate benefit obligation (ABO)                      4,618            4,743
                                                         =====            =====

The cost of employee benefits is as follows:

                                                 2000        1999        1998
                                                ------      ------      ------
Service costs                                    $384        $286        $306
Amortization of past service costs                253         411         258
Financial cost                                    207         204         211
                                                 ----        ----        ----
                                                 $844        $901        $775
                                                 ====        ====        ====

The changes in the net projected liability were as follows:

                                               2000         1999         1998
                                              -------      -------      -------
Beginning balance                             $ 1,922      $ 1,906      $ 2,772
     Provision for the year                       844          901          775
     Payments                                    (540)        (699)        (515)
     Disposition of subsidiary companies         (172)          --         (815)
     Actuarial gain (loss(                         27         (186)        (311)
                                              -------      -------      -------
Ending balance                                $ 2,081      $ 1,922      $ 1,906
                                              =======      =======      =======

The real discount rate used in determining the actuarial present value of
accumulated plan benefits for the Company's seniority premiums in 2000 and 1999
was 4.5%, and no real increase in salaries was assumed.


                                      F-23
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

The amortization period for unamortized items is as follows:

                                                           Remaining Years
                                                         --------------------
                                                           2000       1999
                                                         ---------  ---------
Past service cost                                         4 to 16    5 to 16
Actuarial gain (loss)                                     4 to 18    5 to 18

10    Stockholders' equity:

Capital stock-

During a General Ordinary and Extraordinary Stockholders' Meeting held on April
27, 2000 the stockholders approved, among other things, the following:

-     To convert 5,667,000 Series "B" shares to the Series "A" shares.

-     To increase the fixed capital stock to $222,962 (at nominal value).

-     An increase in the variable portion of the capital stock of $1,458,859 (at
      nominal value), through the issuance of 2,000,000,000 Series "B" shares,
      which would be subscribed and paid for by the Company's bank creditors, in
      the case that the Company elects this option at the maturity date of its
      debt, as explained in Note 2(g).

Capital stock is represented by 414,300,890 issued and outstanding shares,
without par value, of which 200,995,159 (49%) correspond to Series "A" shares
and 213,305,731 (51%) correspond to Series "B" shares. Series "A" and "B" shares
may be subscribed by Mexican or foreign individuals or corporations; however,
proper approval is required for foreign investors to have an equity of more than
49% in the combined capital stock represented by Series "A" and "B" shares.

Each share has the right to one vote at stockholder meetings. The minimum fixed
capital stock is $222,962.

Effects of inflation-

The effects of inflation on stockholders' equity at December 31, 2000 and 1999
are as follows:

                                                  Capital               Retained
December 31, 2000                                  Stock                Earnings
                                                 ----------             --------
Historical cost                                  $  302,203             $511,324
Restated amount                                     845,859              322,640
                                                 ----------             --------
                                                 $1,148,062             $833,964
                                                 ==========             ========


                                      F-24
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

                                                  Capital               Retained
December 31, 1999                                  Stock                Earnings
                                                 ----------             --------
Historical cost                                  $  302,203             $547,261
Restated amount                                     845,859              322,640
                                                 ----------             --------
                                                 $1,148,062             $869,901
                                                 ==========             ========
Retained earnings-

Retained earnings are subject to the following restrictions:

-     Annual net income is subject to the legal requirement that 5% thereof be
      transferred to a legal reserve each year until the reserve equals
      one-fifth of capital stock. Such reserve may only be distributed to
      stockholders in the form of stock dividends.

-     As of 1999, dividends paid to individuals or foreign residents will be
      subject to income tax withholdings at an effective rate between 7.5% and
      7.7%, depending on the year in which earnings were generated. In addition,
      if earnings for which no corporate tax has been paid are distributed, the
      tax must be paid upon distribution of the dividends. Consequently, the
      Company will have to keep a record of earnings subject to each tax rate.
      As of December 31, 2000, the Company does not have earnings for which
      corporate taxes have been paid.

-     Capital reductions will be subject to taxes on the reduction over the
      price-level adjusted paid-in capital, in accordance with the formula
      prescribed by the Income Tax Law.

11    Income and asset taxes and employee profit sharing:

Sidek has authorization from the Ministry of Finance and Public Credit to
consolidate its subsidiaries for tax purposes, including the Company and its
subsidiaries; therefore, the Company and each of its subsidiaries file
individual tax returns for the portion corresponding to their respective
minority interests. Beginning in 1999, the consolidation for tax purposes may
only consider up to 60% of the majority interest.

Under current Mexican tax regulations, corporations must pay an amount equal to
the greater of income or asset tax. For determining income and asset tax there
are specific rules for the deductibility of expenses and the recognition of the
effects of inflation, which differ from Mexican GAAP. Beginning in 1999, the
income tax rate increased from 34% to 35%, with the obligation to pay this tax
each year at a rate of 30% (transitorily 32% in 1999) and the remainder upon
distribution of earnings.

Any asset tax payable in excess of the income tax for the period may be
recovered in the following ten periods, indexed for inflation, to the extent
that income tax exceeds the asset tax in any of those periods. Additionally, any
asset tax payments may be carried back against the excess of income tax over
asset tax in the preceding three years. Since the asset tax exceeded income tax
in certain subsidiaries in 2000, 1999 and 1998 and in view of the uncertainty of
its recovery, the asset tax was charged to the results of operations for those
periods. At December 31, 2000, recoverable asset tax corresponding to the
minority interest is as follows:


                                      F-25
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

                                             Amount
                                    --------------------------
                                                  Restated to
                                                  December 31,
Originated in                       Historical       2000       Expires in
-------------                       ----------    ------------  ----------
     1991                            $      4      $     20        2001
     1993                                  73           264        2003
     1994                                 158           534        2004
     1995                                 256           628        2005
     1996                                 973         1,811        2006
     1997                               6,588        10,183        2007
     1998                              11,389        15,268        2008
     1999                               7,125         8,135        2009
     2000                              23,902        24,947        2010
                                     --------      --------
                                     $ 50,468      $ 61,790
                                     ========      ========

For the computation of employee profit sharing, the effects of inflation are not
recognized, and purchases and cost of sales are treated in the same manner as
for income tax.

The following is a reconciliation of the statutory income tax rate to the
recorded provisions for income taxes:

                                                                 %
                                                   -----------------------------
                                                    2000        1999      1998
                                                   ------      ------    ------

Corporate statutory income tax rate                 35.00      35.00      34.00
Inflation adjustments, net                          (3.61)      0.01      (3.78)
Depreciation and amortization                       (3.23)      1.79      (5.49)
Net change in inventories                            5.89       4.41      (4.34)
Accrued liabilities                                  4.12      (2.95)     15.01
Tax effect on sale of shares                        10.61       0.25      (4.91)
Amortization of tax loss carryforwards              24.29     (30.28)     20.12
Tax loss carryforwards of subsidiaries, to
   be amortized in future years                        --       0.53     (53.03)
Recoverable asset tax benefit                        1.94      (2.31)        --
Other, net                                           4.74      (1.08)     (4.57)
                                                    -----     ------      -----
     Provision for income taxes                     79.75       5.37      (6.99)
                                                    =====     ======      =====


                                      F-26
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Under the terms of the current income tax law, the tax loss of a period, updated
by  inflation,  may be carried  forward  against  the  taxable  income of the 10
succeeding  periods.  Tax losses have no effect on employee profit sharing.  Tax
benefits were obtained from the carryforward of tax losses sustained in previous
periods, which are shown in the consolidated statements of income (loss).

At December 31, 2000, the tax loss carryforwards and the year in which they
expire are as follows:

                                              Amount
                                     --------------------------
                                                   Restated to
                                                   December 31,
Originated in                        Historical       2000            Expires in
-------------                        ----------    ------------       ----------
    1992                             $   5,008     $    19,721           2002
    1993                                20,367          73,120           2003
    1994                               249,647         839,096           2004
    1995                               129,491         311,100           2005
    1996                                 1,626           2,982           2006
    1997                                 5,876           9,002           2007
    1998                                16,373          21,734           2008
    1999                                 8,392           9,519           2009
    2000                                 2,311           2,402           2010
                                     ---------     -----------
                                     $ 439,091     $ 1,288,676
                                     =========     ===========

Also, there are US$416,124 of tax loss carryforwards generated by the Company's
U.S. subsidiary, which may only be utilized in the United States and expire
between 2001 and 2008.

Deferred income taxes and employee profit sharing-

The effect of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities at December 31, 2000 and 1999, are
presented below:

                                                      Deferred Income Taxes
                                                  -----------------------------
                                                    2000                1999
                                                  ---------         -----------
Deferred tax asset:
  Allowance for doubtful accounts                  $ 18,694            $ 14,617
  Tax loss carryforwards                            451,037             468,333
  Recoverable asset tax                              61,790              38,578
                                                   --------            --------
Total deferred tax asset                            531,521             521,528
  Less-Valuation allowance                          203,099             163,520
                                                   --------            --------
Net deferred tax asset                              328,422             358,008
                                                   ========            ========


                                      F-27
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

                                                      Deferred Income Taxes
                                                  -----------------------------
                                                    2000                1999
                                                  ---------         -----------
Deferred tax liability:
  Property, plant and equipment                    (778,483)           (818,885)
  Pre-operating expenses                            (99,986)           (109,596)
  Inventories                                      (114,816)           (141,690)
  Other                                              (3,633)            (12,447)
                                                  ---------         -----------
Total deferred tax liability                       (996,828)         (1,082,618)
                                                  ---------         -----------
Net deferred tax liability                        $ 668,406         $   724,610
                                                  =========         ===========

12    Commitments and contingent liabilities:

Contingent liabilities-

-     Pacific Steel Inc. (a wholly-owned subsidiary located in the United
      States) has been named in various claims and lawsuits relating to the
      generation, storage, transport, disposal and cleanup of materials
      classified as hazardous waste. As of December 31, 2000, the Company has
      included approximately US$1,092,740 ($10,460) in accrued liabilities
      relating to these actions. Management believes the ultimate liability with
      respect to these matters will not exceed the amounts that have been
      accrued.

-     As mentioned in Note 8, the Company has not paid the interest that has
      accrued since December 15, 1996 with respect to the MTN's not exchanged
      for the New Notes. On August 14, 1998, the noteholders of US$2,955,000
      principal amount of the MTN's filed a lawsuit against the Company and
      Sidek, the guarantor of the payment of principal and interest on the
      MTN's, demanding payment of all principal, interest and related costs. As
      a result of the lawsuit, on December 27, 2000, the Company paid to the
      noteholders who filed the lawsuit, US$4 million of principal and interest,
      and therefore the Company was relieved of this contingency.

-     The Federal Bureau of Environmental Protection (PROFEPA) required CSC to
      dispose of excess dust at the Mexicali mini-mill resulting from the scrap
      melting process. PROFEPA has accepted a proposal from CSC to dispose of
      the dust pursuant to which the excess dust would be removed by September
      2000. At December 31, 2000, CSC has incurred costs of $30,528 related to
      the disposal of dust accumulated in prior years, which are included in
      other expenses as indicated in Note 13. At the date of the issuance of
      these consolidated financial statements, the authority has not issued the
      final resolution regarding the corrective actions of CSC.

      In addition, PROFEPA performed a review on the CSG's facilities and
      instructed CSG to comply with several corrective measures.

      It is the opinion of management that the final resolution on these review
      processes will not have a material adverse effect on the Company's
      consolidated financial position or consolidated results of operations.


                                      F-28
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

-     On March 14, 2000, CSG filed a request with the Local Collection
      Administration of Major Taxpayers to decrease estimated income taxes. This
      request has not been answered by the tax authorities, even though more
      than 3 months have elapsed since the corresponding procedures initiated.
      Therefore, on September 20, 2000, CSG filed a proceeding with the Regional
      Occidental Court of the Federal Tax and Administrative Court to nullify
      the tax authorities' artificial negative answer, which is still under
      process. Accordingly, CSG decreased its estimated income taxes, for which
      reason there is a $10,100 contingency. In the opinion of the Company's
      management and its legal advisors, a favorable ruling will be given.

-     On October 12, 2000, the Local Southern Guadalajara Collection
      Administration notified CSG of its rejection of the offsetting of asset
      taxes paid in the prior 10 years against income taxes corresponding to
      fiscal 1999 and determined a $25,806 tax assessment. On January 24, 2001,
      CSG filed a nullity proceeding with the Regional Occidental Court of the
      Federal Tax and Administrative Court. In the opinion of the Company's
      management and its legal advisors, the final ruling will not have a
      significant effect on the Company's consolidated financial position or its
      consolidated results of operations.

-     The Company is subject to various other legal proceeding and claims that
      have arisen in the normal course of its business. It is the opinion of
      management that their ultimate resolution will not have a material adverse
      effect on the Company's consolidated financial position or consolidated
      results of operations.

-     There is a contingent liability derived from the labor obligations
      mentioned in Note 2.

Commitments-

-     During 1999, CSG acquired equipment from IBM de Mexico, S. A. de C. V.,
      through a financing agreement in the amount of US$883,839. Principal will
      be paid in 25 monthly installments and bears interest at a floating rate
      equal to LIBOR plus 4.81%.

-     During 2000, CSG signed a contract with Sir Farmer Norton Ltd., for the
      manufacture of equipment and the reconstruction of a piece of machinery,
      which belongs to CSG. The total amount of the contract was in the amount
      of 1,326,257 pounds sterling, of which in 2000 a payment in advance of
      872,123 pounds sterling was made. Therefore, the balance at December 31,
      2000, amounts to 454,134 pounds sterling, which will be payable on the
      date on which the equipment is delivered to the Company by the supplier.

-     On September 26, 2000, CGS entered into a contract with Praxair de Mexico,
      S. A. de C. V. for the manufacture and installation of combustion units.
      The total amount of the contract was in the amount of US$936,000, which
      will be paid in 24 equal monthly payments of US$39,000, commencing on the
      date on which the Company begins to use the units. As of December 31,
      2000, the supplier still had not installed the units.


                                      F-29
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

13    Other expenses:

      Other expenses shown in the consolidated statements of income (loss) are
      comprised as follows:

                                              2000         1999          1998
                                           --------      --------      --------
Cancellation of goodwill                   $ (1,870)     $ (7,371)     $ (1,179)
Dust disposal expense                       (30,528)           --            --
Insurance recovery                               --        11,159            --
Financial debt restructuring fees           (11,186)           --        (3,337)
Provision for doubtful accounts of
  accounts receivable from affiliated
  companies and related parties              (9,488)       (1,605)       (9,292)
Other, net                                   (4,946)      (19,337)      (11,108)
                                           --------      --------      --------
                                           $(58,018)     $(17,154)     $(24,916)
                                           ========      ========      ========

14    Business segment data:

The Company's sales are made primarily within Mexico and United States and
directed basically to the construction industry. The Company had net sales to
customers from the following destination countries or regions:

                                     2000              1999              1998
                                  ----------        ----------        ----------
Mexico                            $1,976,615        $2,062,760        $2,313,429
United States                        213,649           248,429           340,228
Latin America                          3,995            20,702            57,520
Canada                                 1,045             5,448            14,686
Other                                  7,651             2,179            14,784
                                  ----------        ----------        ----------
                                  $2,202,955        $2,339,518        $2,740,647
                                  ==========        ==========        ==========

15    Fair value of financial instruments:

The following methods and assumptions were used to estimate the fair value of
the Company's financial instruments:

Cash and cash equivalents-

The carrying amount approximates fair value because of the short maturity of
these instruments.

Trade receivables and payables-

The carrying amount approximates fair value.


                                      F-30
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Medium-Term Notes and New Notes-

Disclosure of the fair value of these instruments has been omitted because it is
not practicable to determine fair value with sufficient reliability. The main
characteristics of MTN's and New Notes are described in Note 8, and they are not
traded in any public market.

16    Reclassification of prior year financial statements:

Certain amounts in the financial statements at December 31, 1999 and 1998 have
been reclassified in order to conform with the presentation of the financial
statements at December 31, 2000.

17    New accounting principles:

Bulletin C-2, "Financial Instruments", was issued in December 1999 and will be
effective for periods beginning on or after January 1, 2001. This bulletin will
require recognition of all derivative financial instruments on the balance sheet
as either assets or liabilities and measurement of such instruments at fair
value.

18    Subsequent events:

-     On February 8, 2001, the Company entered into a gas purchase-sale
      agreement for a 3 year period with Petroleos Mexicanos, which establishes
      a fixed reference price of US$4 by mmBtu.

-     On March 29, 2001 Sidek consummated the sale of its entire controlling
      interest in the Company to ICH and, in conjunction therewith, ICH acquired
      additional common shares of the Company held by certain bank creditors
      that converted approximately US$95 million into common shares of the
      Company. As a result, ICH holds an approximate 82.5% interest in the
      Company. As a result of the acquisition by ICH of the controlling interest
      in the Company, on April 9, 2001 the Company commenced an offer to
      purchase all outstanding New Notes at a price of 100% of their principal
      amount plus accrued interest through the date of redemption.

19    Differences between Mexican and United States accounting principles:

The Company's consolidated financial statements are prepared in accordance with
Mexican GAAP, which differs in certain significant respects from US GAAP.

The Mexican GAAP consolidated financial statements include the effects of
inflation as provided for under Bulletin B-10, as amended. The following
reconciliation to US GAAP does not include the reversal of the adjustments for
the effects of inflation, since the application of Bulletin B-10 represents a
comprehensive measure of the effects of price level changes in the inflationary
Mexican economy and, as such, is considered a more meaningful presentation than
historical cost-based financial reporting for both Mexican and US accounting
purposes.

The other principal differences between Mexican GAAP and US GAAP and the effects
on consolidated net income (loss) and consolidated stockholders' equity are
presented below, in thousands of constant Mexican pesos as of December 31, 2000,
with an explanation of the adjustments.


                                      F-31
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Reconciliation of net income (loss):

<TABLE>
<CAPTION>
                                                                                  2000               1999                1998
                                                                              -------------      -------------      --------------
<S>                                                                           <C>                <C>                <C>
Net income (loss) as reported under Mexican GAAP-                             $     (35,944)     $     485,523      $    (133,341)

     Minority interest included in net income (loss) under
         Mexican GAAP                                                                     7             (1,044)            (1,459)
     Inventory indirect costs                                                           722               (496)             1,336
     Depreciation on restatement of machinery and  equipment                        (54,371)           (39,396)           (15,708)
     Accrued vacation costs                                                          (2,614)              (928)               538
     Deferred income taxes                                                           68,377           (118,911)           (53,328)
     Deferred employee profit sharing                                                 6,417            205,117             76,324
     Loss on monetary position of deferred asset effect under
         Mexican GAAP                                                                 1,264                 --                 --
     Pre-operating expenses                                                          20,914             20,918             21,663
     Credit for loss on disposal of aluminum segment                                     --                 --             28,232

     Amortization of gain on monetary position and exchange
         loss capitalized under Mexican GAAP                                          5,767              3,826              5,622
     Minority interest applicable to the above adjustments                               --             (1,642)             1,933
                                                                              -------------      -------------      --------------
         Total approximate US GAAP adjustments                                       46,483             67,444             65,153
                                                                              -------------      -------------      --------------
Approximate net income (loss) under US GAAP                                   $      10,539      $     552,967      $     (68,188)
                                                                              =============      =============      ==============

Approximate net income (loss) per share under US GAAP:

     Weighted average shares outstanding basic                                  414,300,890        414,300,890        414,300,890
     Potential shares from convertible debt                                     492,852,025        492,852,025        492,852,025
                                                                              -------------      -------------      --------------
     Weighted average share outstanding diluted                                 907,152,915        907,152,915        907,152,915
                                                                              =============      =============      ==============

         Net income (loss) per share                                          $        0.02      $        1.33      $        (0.16)
                                                                              =============      =============      ==============

         Diluted income per share                                             $        0.03      $        0.57      $          N/A
                                                                              =============      =============      ==============
</TABLE>


                                      F-32
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Reconciliation of stockholders' equity:

<TABLE>
<CAPTION>
                                                                                   2000                1999                1998
                                                                                -----------         -----------         -----------
<S>                                                                             <C>                 <C>                 <C>
Total stockholders' equity reported under Mexican GAAP:                         $ 1,078,315         $ 1,998,573         $ 2,123,613

    Minority interest included in stockholders' equity under                           (199)            (28,990)            (30,284)
      Mexican GAAP

    Inventory indirect costs                                                         10,320               9,598              10,094
    Restatement of machinery and equipment                                          993,578             822,758             255,170
    Accrued vacation costs                                                           (6,145)             (3,531)             (2,603)
    Deferred income taxes                                                          (193,602)           (877,936)           (759,025)
    Deferred employee profit sharing                                                     --              (6,417)           (211,533)
    Pre-operating expenses                                                         (270,310)           (291,224)           (312,142)
    Amortization of gain on monetary position and exchange loss
      capitalized under Mexican GAAP                                                 28,832              23,065              19,239
    Gain on monetary position and exchange loss capitalized                        (203,125)           (203,125)           (203,125)
    Minority interest applicable to above adjustments                                    --               2,926               4,568
                                                                                -----------         -----------         -----------
         Total approximate US GAAP adjustments                                      359,349            (522,876)         (1,229,641)
                                                                                -----------         -----------         -----------
Total approximate stockholders' equity under US GAAP                            $ 1,437,664         $ 1,445,697         $   893,972
                                                                                ===========         ===========         ===========
</TABLE>

A summary of changes in stockholders' equity, after the approximate US GAAP
adjustments described above, is as follows:

<TABLE>
<CAPTION>
                                                              Capital            Retained           Effect of
                                                             Stock and           Earnings         Restatement of          Total
                                                              Paid-in          (Accumulated        Stockholders'       Stockholders'
                                                              Capital             Losses)             Equity              Equity
                                                             ----------         -----------       --------------       -------------
<S>                                                          <C>                <C>                  <C>                <C>
Balance as of December 31, 1998                              $1,182,979         $(1,191,803)         $ 902,796          $   893,972

  Recognition of the effects of inflation                            --                  --             (1,242)              (1,242)
  Net income for the period                                          --             552,967                 --              552,967
                                                             ----------         -----------          ---------          -----------
    Comprehensive income                                             --             552,967             (1,242)             551,725
                                                             ----------         -----------          ---------          -----------
Balance as of December 31, 1999                               1,182,979            (638,836)           901,554            1,445,697

  Recognition of the effects of inflation                            --                  --            (18,572)             (18,572)
  Net income for the period                                          --              10,539                 --               10,539
                                                             ----------         -----------          ---------          -----------
    Comprehensive loss                                               --              10,539            (18,572)              (8,033)
                                                             ----------         -----------          ---------          -----------
Balance as of December 31, 2000                              $1,182,979         $  (628,297)         $ 882,982          $ 1,437,664
                                                             ==========         ===========          =========          ===========
</TABLE>


                                      F-33
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Minority interest-

Under Mexican GAAP the minority interest in consolidated subsidiaries is
presented as a separate component within stockholders' equity in the
consolidated balance sheet. For US GAAP purposes, minority interest is not
included in stockholders' equity. Additionally, while the minority interest in
consolidated earnings is included in consolidated net income (loss) under
Mexican GAAP, it is excluded under US GAAP.

Restatement of prior years' financial statements-

In accordance with Mexican GAAP, prior year financial information of foreign
subsidiaries must be restated using the inflation rate of the country in which
the foreign subsidiary is located, then translated at the year-end exchange rate
of the Mexican peso. This procedure results in the presentation of prior year
amounts representing the purchasing power of the respective currencies as of the
end of the latest year presented.

Under US GAAP, the financial information for foreign subsidiaries and affiliated
companies of prior years must be restated in constant units of the reporting
currency, the Mexican peso, which requires the restatement of such prior year
amounts using the inflation rate of Mexico.

This difference is not included in the GAAP reconciliation of net income (loss)
and stockholders' equity, since its effect is not significant.

Inventory costs-

As permitted by Mexican GAAP, some inventories are valued under the direct cost
system, which includes material, direct labor and other direct costs. For
purposes of complying with US GAAP, inventories have been valued under the full
absorption cost method.

Restatement of machinery and equipment-

As explained in Note 2, in accordance with Mexican GAAP, imported machinery and
equipment has been restated during 2000 and 1999 by applying devaluation and
inflation factors of the country of origin.

Under US GAAP, during 2000 and 1999 the restatement of all machinery and
equipment, both domestic and imported, has been done in constant units of the
reporting currency, the Mexican peso, using the inflation rate of Mexico.

Accordingly, a reconciling item for the difference in methodologies of restating
imported machinery and equipment is included in the reconciliation of net income
(loss) and stockholders' equity.

Deferred income taxes and employee profit sharing-

Beginning January 1, 2000, Bulletin D-4, "Accounting for Income and Asset Taxes
and Employee Profit Sharing", went into effect, eliminating most of the
differences with respect to US GAAP. Until 1999, under Mexican GAAP, deferred
income taxes and employee profit sharing were determined by a partial liability
method of accounting, wherein deferred effects were provided at the tax rate
expected to be in effect upon reversal only for identifiable, non-recurring
temporary differences that were expected to reverse within a defined period of
time.


                                      F-34
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

The amount of deferred income taxes and employee profit sharing charged or
credited to operations in each period for US GAAP was determined under Statement
of Financial Accounting Standards (SFAS) No. 109 based upon the difference
between the beginning and ending balances of the deferred assets or liabilities
for each period, expressed in constant Mexican pesos.

Additionally, for US GAAP purposes, employee profit sharing must be classified
as an operating expense.

The effect of temporary differences that give rise to significant portions of
the deferred assets and deferred liability effects at December 31, 2000 and 1999
are presented below.

<TABLE>
<CAPTION>
                                                                                                                  Deferred
                                                                     Deferred Income Taxes                 Employee Profit Sharing
                                                                --------------------------------          -------------------------
                                                                   2000                 1999                2000             1999
                                                                -----------          -----------          ---------         -------
<S>                                                             <C>                  <C>                  <C>               <C>
Deferred asset effect:
    Allowance for doubtful accounts                             $    18,694          $    14,618          $      --         $   218
    Tax loss carryforwards                                          451,037              475,350                 --              --
    Asset tax carryforwards                                          61,790               44,055                 --              --
                                                                -----------          -----------          ---------         -------

       Total gross deferred asset effect                            531,521              534,023                 --             218

Less-Valuation allowance                                           (203,099)            (176,478)                --              --
                                                                -----------          -----------          ---------         -------
       Net deferred asset effect                                    328,422              357,545                 --             218
                                                                -----------          -----------          ---------         -------

Deferred liability effect:
    Property, plant and equipment                                (1,065,233)          (1,044,159)                --          (5,192)
    Inventories                                                    (118,428)            (188,368)                --          (1,629)
    Other                                                            (6,769)              (2,954)                --             186
                                                                -----------          -----------          ---------         -------
       Total gross deferred liability effect                     (1,190,430)          (1,235,481)                --          (6,635)
                                                                -----------          -----------          ---------         -------
       Net deferred liability                                   $  (862,008)         $  (877,936)         $      --         $(6,417)
                                                                ===========          ===========          =========         =======
</TABLE>

As of December 31, 2000 there are no material differences between tax and book
balance of the assets and liabilities of the subsidiary companies which have
employees, as a result no deferred employee profit sharing was determined for US
GAAP purposes. As of December 31, 1999, CSG became exempt from employee profit
sharing. The effect of eliminating the related deferred employee profit sharing
of this company was credited to income of the year, and amounts to approximately
$223,368.


                                      F-35
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

The deferred income taxes of $1,065,233 and $1,044,159 result from differences
between the financial reporting and tax bases of property, plant and equipment
at December 31, 2000 and 1999, respectively. Beginning in 1997 the restatement
of property, plant and equipment and the effects thereof in the statement of
income (loss) are determined by using factors derived from the NCPI or, in the
case of imported machinery and equipment, by applying devaluation and inflation
factors of the country of origin. Until 1996, for financial reporting purposes,
property, plant and equipment were stated at net replacement cost based upon
annual independent appraisals and depreciation was provided by using the
straight-line method over the estimated remaining useful lives of the assets.
For income tax reporting purposes, property, plant, equipment and depreciation
are computed by a method which considers the NCPI, and for employee profit
sharing reporting purposes, property, plant, equipment and depreciation are
computed on historical costs.

Pre-operating expenses-

For Mexican GAAP purposes, the Company capitalized pre-operating expenses
related to the new production facilities at Mexicali, as well as costs and
expenses incurred in the manufacture and design of new products. For US GAAP
purposes, these items are expensed when incurred. As a result of the disposition
of the aluminum segment during 1998, $28,232 of pre-operating expenses are
included in the determination of the credit for loss on disposal of aluminum
segment under Mexican GAAP, therefore it is included in the determination of net
income (loss) for US GAAP as a reconciling item.

Financial expense capitalized-

Under Mexican GAAP, financial expense capitalized during the period required to
bring property, plant and equipment into the condition required for their
intended use includes interest, exchange losses and gains from monetary
position. Under US GAAP only interest expense is capitalized as part of the cost
of such assets acquired with borrowings in foreign currencies, and interest, net
of the related gain from monetary position, is capitalized as part of the cost
of assets acquired with borrowings in Mexican pesos.

Pension and other retirement benefits-

The Company records seniority premiums based on actuarial computations as
described in Note 2.

For purposes of determining seniority premium cost under US GAAP, the Company
utilized SFAS No. 87. Adjustments to US GAAP for seniority premiums were not
individually or in the aggregate significant for any period.

SFAS No. 106, "Employers' Accounting for Postretirement Benefit Other than
Pensions", requires accrual of postretirement benefit other than pensions during
the employment period. The Company does not provide its employees any
postretirement benefit subject to the provisions of SFAS No. 106.

SFAS No. 112, "Employers' Accounting for Postemployment Benefits", requires
employers to accrue for post employment benefits that are provided to former or
inactive employees after employment during the employment period. The Company
does not provide these kinds of benefits.

For the year ended December 31, 1998, the Company adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits", which
requires certain additional disclosures, without any changes in the measurement
or recognition of pensions and other postretirement benefit obligations. The
additional disclosures are as follows:


                                      F-36
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

                                                             2000         1999
                                                           -------      -------
Change in projected benefit obligation-
     Projected benefit obligation at beginning of year     $ 5,367      $ 5,093
        Service cost                                           384          286
        Financial cost                                         207          204
        Actuarial (gain) loss, net                            (510)         483
        Benefits paid                                         (540)        (699)
                                                           -------      -------
     Projected benefit obligation at end of year           $ 4,908      $ 5,367
                                                           =======      =======

Variable capital common stock-

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 each year, to redeem those shares at a price equal to the lesser of either
(i) 95% of the market price, based on an average of trading prices during the 30
trading days preceding the end of the fiscal year in which the redemption is to
become effective or (ii) the book value of the Company's shares approved at the
meeting of shareholders for the latest fiscal year prior to the redemption date.
Although the variable capital common stock is redeemable by the terms described
above, such shares have been classified as a component of stockholders' equity
in the consolidated balance sheet under both Mexican and US GAAP.

Company's management believes the variable capital common stock represents
permanent capital because the timing and pricing mechanism through which a
shareholder would exercise the option to redeem are such that a shareholder,
from an economic standpoint, would not exercise this option. At the time a
shareholder is required to give notice of redemption, the shareholders 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 shareholder in a public sale.

Statements of cash flows-

Under Mexican GAAP, the Company presents a consolidated statement of changes in
financial position in accordance with Bulletin B-12, which identifies the
generation and application of resources as representing differences between
beginning and ending financial statement balances in constant Mexican pesos. It
also requires that monetary and unrealized exchange gains and losses be treated
as cash items in the determination of resources generated by operations.

SFAS No. 95, "Statement of Cash Flows", requires presentation of a statement of
cash flows.

The following presents a reconciliation of the resources generated by (used in)
operating, investing and financing activities under Mexican GAAP to the
resources generated by (used in) such activities under US GAAP:


                                      F-37
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

<TABLE>
<CAPTION>
                                                                                      2000               1999               1998
                                                                                    ---------          ---------          ---------
<S>                                                                                 <C>                <C>                <C>
Net income (loss) as reported under US GAAP-                                        $  10,539          $ 552,967          $ (68,188)
     Add (deduct)-items that do not require (provide) the
       use of funds:
         Amortization of goodwill                                                       1,870              7,371              1,179
         Depreciation and amortization                                                166,301            172,939            168,063
         Unrealized exchange (income) loss                                             15,882           (116,263)           682,155
         Deferred income taxes                                                        (15,928)           118,453             53,843
         Deferred employee profit sharing                                              (6,417)          (205,117)           (76,324)
         Gain from monetary position                                                 (216,450)          (347,881)          (594,801)
         Minority interest                                                                 --              1,642             (1,933)
         Gain (loss) on disposal of segments                                           20,300             10,896            (65,281)
                                                                                    ---------          ---------          ---------
               Net resources generated by (used in) income                            (23,903)           195,007             98,713
                                                                                    ---------          ---------          ---------
Changes in current assets and liabilities:
     Trade accounts receivable, net                                                    12,262             (3,430)           (12,864)
     Inventories                                                                        1,177             32,324            (23,957)
     Affiliated companies                                                               7,196              8,662             40,851
     Other accounts receivable and prepaid expenses                                   (27,572)               671            (13,423)
     Accounts payable and accrued liabilities                                          37,868             45,039              5,993
                                                                                    ---------          ---------          ---------
                                                                                       30,931             83,266             (3,400)
                                                                                    ---------          ---------          ---------
Approximate net resources generated by operations under US GAAP                     $   7,028          $ 278,273          $  95,313
                                                                                    =========          =========          =========

Net resources used in financing activities under Mexican GAAP                       $(486,027)         $(530,523)         $(139,455)

     Decrease in debt due to restatement in constant
         Mexican pesos                                                                259,403            407,071            585,515
     Exchange gain (loss)                                                             (15,882)           116,263           (682,155)
                                                                                    ---------          ---------          ---------
Approximate net resources used in financing activities
     under US GAAP                                                                  $(242,506)         $  (7,189)         $(236,095)
                                                                                    =========          =========          =========
</TABLE>


                                      F-38
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

<TABLE>
<CAPTION>
                                                                                     2000               1999                1998
                                                                                   --------           ---------           ---------
<S>                                                                                <C>                <C>                 <C>
Net resources generated by (used in) investing activities
    under Mexican GAAP                                                             $  8,944           $(123,412)          $  71,685
       Restatement of noncurrent inventories                                         (7,339)              5,301             (14,041)
       Restatement of sale of the shares of the aluminum
           segment                                                                       --                  --             (18,040)
       Other non-cash investing activity                                             14,887              52,053              66,804
                                                                                   --------           ---------           ---------
Approximate net resources generated by (used in) investing
    activities under US GAAP                                                       $ 16,492           $ (66,058)          $ 106,408
                                                                                   ========           =========           =========
</TABLE>

Net resources used in operating activities include cash payments for interest
and income taxes as follows:

                                          2000            1999            1998
                                        --------        --------        --------
Total interest paid                     $288,062        $339,131        $427,421
                                        ========        ========        ========
Income taxes paid                       $ 86,462        $ 32,019        $ 34,949
                                        ========        ========        ========

Accounting for the impairment of long-lived assets and for long lived assets to
be disposed of-

In 1996 the Company adopted SFAS No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived assets to be Disposed of". This statement
provides guidance for the recognition and measurement of the impairment of the
long-lived assets, certain identifiable intangibles and goodwill related to both
assets to be held and used and assets to be disposed of. The effect of this
accounting policy was included in the credit (provision) for loss on disposal of
segments.

Earnings per share-

Under the guidelines of SFAS No. 128, "Earnings per Share", the Company is
required to calculate basic earnings per share, which is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding during the period. The Company is also required to compute
diluted earnings per share, which is similar to basic earnings per share, except
that the number of shares is increased to include the number of additional
shares that would have been outstanding if dilutive potential common shares had
been issued.


                                      F-39
<PAGE>

Translation of financial statements originally issued in Spanish
Grupo Simec, S. A. De C. V. And subsidiaries

Notes to consolidated financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)


Accounting for derivative instruments and hedging activities-

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", SFAS No.
133 went into effect on January 1, 2001. This new standard requires recognition
of all derivative instruments on the balance sheet as either assets or
liabilities and the measurement of such instruments and the hedged items at
their fair value. Changes in the fair value of the derivatives will be
recognized currently in earnings, unless specific hedge accounting criteria are
met. Gains and losses on derivative hedging instruments must be recorded in
either other comprehensive income or current earnings, depending on the nature
of the instruments. Mexican Bulletin C-2, "Financial Instruments", was issued in
December 1999 by the Mexican Accounting Principles Commission and also went into
effect in 2001. Bulletin C-2 also requires recognition of all derivatives on the
balance sheet as either assets or liabilities and the measurement of such
instruments at their fair value. However, the Mexican standard requires that all
gains and losses on derivative hedging instruments be recorded in current
earnings, regardless of the nature of the instrument. The Company does not
presently have any derivative financial instruments, however, there can be no
assurance that the Company will not invest in derivative instruments in the
future. As a result, the impact that the adoption of SFAS No. 133 and Bulletin
C-2 may have on the Company's financial position or results of operations is not
known at this time.


                                      F-40
<PAGE>

                                                                      SCHEDULE I

Grupo Simec, S. A. de C. V.

Condensed  balance  sheets as of December 31, 2000 and 1999
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

Assets:

                                                          2000          1999
                                                       ----------    ----------

Current assets:
      Cash and cash equivalents                        $      179    $    1,084
      Accounts receivable from affiliated companies        16,591        65,278
      Other accounts receivable                               307           965
                                                       ----------    ----------
                 Total current assets                      17,077        67,327

Compania Siderugica de Guadalajara, S.A. de C.V.
  subsidiary company                                      914,949            --

Investment in subsidiary companies                      1,087,706     1,961,365

Other assets                                                6,967            64
                                                       ----------    ----------
                                                       $2,026,699     2,028,756
                                                       ==========     =========

Liabilities and stockholders' equity:

Liabilities:
     Financial debt                                    $    5,954    $   37,082
     Other accounts payable and accrued liabilities        16,612        10,473
     Accounts payable to affiliated companies              11,068         1,600
     Asset tax                                                 --        10,018
                                                       ----------    ----------
                 Total current liabilities                 33,634        59,173

Convertible debt                                          914,949            --

Stockholders' equity:

      Capital stock                                     1,148,062     1,148,062
      Retained earnings                                   833,964       869,901
      Effect of restatement of stockholders' equity      (182,224)      (48,380)
      Accumulated effect of deferred income taxes        (721,686)           --
                                                       ----------    ----------
                 Total stockholders' equity             1,078,116     1,969,583
                                                       ----------    ----------
                                                       $2,026,699    $2,028,756
                                                       ==========    ==========

      See accompanying note and notes to consolidated financial statements.


                                       S1
<PAGE>

Grupo Simec, S. A. De C. V.

Condensed statement of income (loss)
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

<TABLE>
<CAPTION>

                                                         2000         1999        1998
                                                       --------     --------    ---------

<S>                                                    <C>          <C>         <C>
Participation in the results of subsidiary companies   $ (1,221)    $503,032    $(155,017)
Financial expense                                           497         (100)      (6,194)
Other income (expense), net                             (10,392)       1,948         (362)
                                                       --------     --------    ---------
             Income (loss) before taxes                 (11,116)     504,880     (161,573)

Provision for asset tax and deferred income taxes        11,432      (16,810)     (15,570)
                                                       --------     --------    ---------
             Income (loss) from continuing operations   (22,548)     488,070     (177,143)

Discontinued operations:

Participation in the results of subsidiary companies
of

discontinued segments                                     6,911       (3,591)       8,855
Credit (provision) for loss on disposal of segments,
net

of fees                                                 (20,300)          --       33,488
                                                       --------     --------    ---------
                                                        (13,389)      (3,591)      42,343
                                                       --------     --------    ---------
Net income (loss) for the year                         $(35,937)    $484,479    $(134,800)
                                                       ========     ========    =========
</TABLE>

      See accompanying note and notes to consolidated financial statements.


                                       S2
<PAGE>

<TABLE>
<CAPTION>

                                                         2000         1999        1998
                                                       --------     --------    ---------
 Operations:

<S>                                                    <C>          <C>         <C>
 Net income (loss) for the year                        $(35,937)    $484,479    $(134,800)
 Add (deduct)-items that do not require (provide)
    the use of funds
      Depreciation and amortization                          37           33           69
      Participation in the results of subsidiary
        companies                                        (5,690)    (499,442)     146,162
      Credit (provision) for loss on disposal of
        segments                                         20,300           --      (33,488)
      Deferred income taxes                              (3,425)          --           --
                                                       --------     --------    ---------
         Net resources applied to income (loss)         (24,715)     (14,930)     (22,057)

    Changes in current assets and liabilities            54,934       20,344       25,510
                                                       --------     --------    ---------
         Net resources generated by operations           30,219        5,414        3,453

 Financing:
    Convertible debt                                    909,826           --           --
    Exchange gain (loss)                                  5,256       (1,366)          --
    Payment of financial debt                           (28,212)          --     (115,434)
    Increase in financial debt                               --           --        7,799
    Decrease in debt due to restatement in
      constant Mexican peso                              (3,049)      (4,737)     (16,725)
 Long-term accounts receivable from affiliated
   companies                                           (914,949)          --      115,434
                                                       --------     --------    ---------
         Net resources applied to financing
           activities                                   (31,128)      (6,103)      (8,926)
                                                       --------     --------    ---------
 Investing:
    Acquisition of property and equipment, less
      of net book                                            --           --          (21)
      value of retirements
    Other noncurrent assets                                   4        1,585          838
                                                       --------     --------    ---------
             Net resources generated by investing
               activities                                     4        1,585          817
                                                       --------     --------    ---------
             Increase (decrease) in cash and cash
               equivalents                                 (905)         897       (4,656)

 Cash and cash equivalents at the beginning
   of the year                                            1,084          187        4,843
                                                       --------     --------    ---------
 Cash and cash equivalents at the end of the year      $    179     $  1,084    $     187
                                                       ========     ========    =========
</TABLE>

      See accompanying note and notes to consolidated financial statements.


                                       S3
<PAGE>

Grupo Simec, S. A. De C. V.

Note to individual financial statements
For the years ended December 31, 2000, 1999 and 1998
(Stated in thousands of constant Mexican pesos as of December 31, 2000)

1        Organization of the Company and certain other information:

The accompanying condensed financial statements reflect the results of
operations of the Company since its incorporation in August 1990.

Information with respect to the Company's material contingencies and guarantees
is presented in Note 12 of the consolidated financial statements of Company.

                                       S4

</TEXT>
</DOCUMENT>
