<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>e18330-20f.txt
<DESCRIPTION>FORM 20-F
<TEXT>
================================================================================

                       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, 2003

                         Commission File Number 1-11176

                            GRUPO SIMEC, S.A. de C.V.
             (Exact name of Registrant as specified in its charter)

                                   GROUP SIMEC
                 (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 --131,973,022 shares
                            (As of December 31, 2003)

      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.



<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 ....................................................  2

Item 4.  Information on the Company .........................................  8

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

Item 6.  Directors, Senior Management and Employees ......................... 26

Item 7.  Major Shareholders and Related Party Transactions .................. 30

Item 8.  Financial Information .............................................. 32

Item 9.  Offer and Listing Details .......................................... 33

Item 10. Additional Information ............................................. 34

Item 11. Quantitative and Qualitative Disclosures About Market Risk ......... 42

Item 12. Description of Securities Other than Equity Securities ............. 43

                                    PART II

Item 13. Defaults, Dividends Arrearages and Delinquencies ................... 50

Item 14. Material Modifications to the Rights of
         Security Holders and Use of Proceeds ............................... 50

Item 15. Controls and Procedures ............................................ 50

Item 16. Reserved ........................................................... 50

Item 16A. Audit Committee Financial Expert .................................. 50

Item 16B. Code of Ethics .................................................... 51

Item 16C. Principal Accountant Fees and Services ............................ 51

Item 16D. Exemptions from the Listing Standards for Audit Committees ........ 51

Item 16E. Purchases of Equity Securities by the Issuer
          and Affiliated Purchasers.......................................... 51

                                    PART III

Item 17. Financial Statements ............................................... 51

Item 18. Financial Statements ............................................... 51

Item 19. Exhibits ........................................................... 51


                                      -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, 2003 (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.  11.2360 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, 2003 as  determined  by Banco de Mexico.  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 on June 30, 2004 was Ps.
11.5380 to $1.00.

      All  references  to tons in this  Annual  Report are to metric  tons.  One
metric ton is equal to 1.102 short tons.

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 prove to be accurate. Factors that might cause actual results to
differ from forward-looking  statements include, but are not limited to, factors
relating to the steel  industry  (including  the  cyclicality  of the  industry,
finished  product  prices,  worldwide  production  capacity,  the high degree of
competition  from Mexican and foreign  producers  and the price of ferrous scrap
and other raw  materials),  the  ability of Simec of  operate  at high  capacity
levels, the costs of compliance with U.S. and Mexican environmental laws, future
capital expenditures and acquisitions (including the proposed acquisition of the
steel  manufacturing  facilities of Industrias Ferricas del Norte, S.A.), future
devaluations of the peso, the imposition by Mexico of foreign exchange  controls
and price  controls,  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.

                                    PART I.

Item 1. Identity of Directors, Senior Management and Advisers

      Not applicable.

Item 2. Offer Statistics and Expected Timetable

      Not applicable.

<PAGE>

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, 2003 included elsewhere in this Annual Report and
which are  referred  to in this  Annual  Report as the  "Consolidated  Financial
Statements."  This  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,  1999 and 2000 are
extracted from the Company's  audited  consolidated  financial  statements which
were 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,  2002 and 2003 are  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").
Certain of the financial  information set forth below is presented in accordance
with U.S. GAAP. In accordance  with Mexican GAAP rules on inflation  accounting,
the  Company's  consolidated  financial  statements  recognize  the  effects  of
inflation  and restate data for prior  periods in constant  pesos as of December
31,  2003.  The effect of these  inflation  accounting  principles  has not been
reversed  in the  reconciliation  to  U.S.  GAAP.  Note  17 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.


                                       -2-
<PAGE>

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                                  -----------------------
                                               1999      2000      2001       2002        2003        2003(1)
                                               ----      ----      ----       ----        ----        -------
                                             (Millions of constant December 31, 2003 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............................       2,684     2,528    2,091       2,196      2,786          247.95
   Direct cost of sales.................       1,682     1,670    1,404       1,470      1,830          162.87
   Marginal profit......................       1,002       858      687         726        956           85.08
   Indirect manufacturing, selling,
     general............................         386       401      344         299        282           25.09
     and administrative expenses........
   Depreciation and amortization........         174       159      146         162        182           16.20
   Operating income(2)..................         442       298      197         265        492           43.79
   Financial income (expense)(3)........         192     (119)        5       (128)       (24)          (2.14)
   Other income (expense), net(4) ......        (20)      (67)       67        (37)       (30)          (2.67)
   Income from continuing operations
     before   taxes,    employee   profit
     sharing and minority interest......         614       112      269         100        438           38.98
   Income tax expense and employee profit
     sharing(5).........................          54       138       17        (23)        145           12.90
   Income (loss) from continuing
     operations.........................         560      (26)      252         123        293           26.08
   Income from discontinued
     operations.........................           8         8        0           0          0               0
   Credit (provision) for  loss on
     disposal of segments...............        (13)      (23)        0           0          0               0
   Net income (loss)....................         555      (41)      252         123        293           26.08
   Minority interest....................           1         0        0           0          0               0
   Majority interest....................         554      (41)      252         123        293           26.08
   Net income (loss) per ADS(6).........          27       (2)        5           1          2           0.22
   Diluted net income (loss) per ADS(6).          12       (1)        5           1          2           0.22
   Weighted average shares outstanding
   (000's)(6)...........................      20,715    20,715   54,816      99,967    119,053            --
   Weighted average shares outstanding,
     plus potential shares from
     convertible debt (000's)(6)........      45,358    45,358   54,816      99,967    119,053            --
U.S. GAAP including effects of inflation:
   Net sales............................       2,684     2,528    2,091       2,197      2,786          247.95
   Cost of sales........................       1,682     1,669    1,398       1,474      1,834          163.22
   Marginal profit......................       1,002       859      693         723        952           84.73
   Operating income(2)..................         661       268      183         233        498           44.32
   Financial income (expense)(3)........         192     (117)        6       (129)       (24)          (2.14)
   Other income (expense), net(4).......        (20)      (64)      601        (68)       (30)          (2.67)
   Income from continuing operations
     before taxes and minority interest.         833        87      790          36        444           39.51
   Income tax expense (income)(5).......         190        58       63       (167)        190           16.91
   Income from continuing operations
     before minority interest...........         643        29      727         203        254           22.60
   Minority interest....................           3         0        0           0          0            0.00
   Income from continuing operations....         640        29      727         203        254           22.60
   Income from continuing operations
     per share(6).......................          31         1       13           2          2           0.19
   Diluted net income per share(6)......          14         1       13           2          2           0.19
</TABLE>


                                       -3-
<PAGE>

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                                  -----------------------
                                               1999      2000      2001       2002        2003        2003(1)
                                               ----      ----      ----       ----        ----        -------
                                             (Millions of constant December 31, 2003 pesos,      (Millions of dollars,
                                                     except share and per ADS data)            except share and per ADS
                                                                                                         data)
<S>                                                <C>       <C>      <C>         <C>        <C>           <C>
   Income from discontinued
     operations.........................           7         8        0           0          0             0
     Credit   (provision)   for  loss  on
     disposal of  segments..............        (13)      (23)        0           0          0             0
   Net income ..........................         634        14      727         203        254           22.60
Balance Sheet Data:
Mexican GAAP:
   Total assets.........................       6,353     5,496    5,079       5,429      6,005          534.44
   Long-term debt(7)....................       3,216     1,633      734         805      1,054           93.81
   Total stockholders' equity...........       2,293     1,237    3,051       3,737      4,626          411.71
U.S. GAAP including effects of inflation:
   Total assets.........................       6,768     6,138    5,947       5,692      5,938          528.48
   Long-term debt(7)....................       3,216     2,174      734         835      1,003           89.27
   Total stockholders' equity...........       1,659     1,650    3,609       3,965      4,611          410.38
Other Data:
Mexican GAAP:
   Capital expenditures.................         101        40       42           9         59           5.25
   Depreciation and amortization from
     continuing operations..............         167       155      160         169        182           16.20
   Depreciation and amortization from
     discontinued operations............           7         4        0           0          0             0
   Total depreciation and amortization..         174       159      160         169        182           16.20
</TABLE>

----------------------
(1)   Peso  amounts  have been  translated  into  U.S.  dollars  solely  for the
      convenience  of the  reader,  at the rate of Ps.  11.2360  per $1.00,  the
      interbank transactions rate in effect on December 31, 2003.

(2)   Reflects  different  treatment  of direct cost of sales,  start-up  costs,
      employee  profit  sharing and accrued  vacation  costs  (until 2002) under
      Mexican  GAAP and U.S.  GAAP.  See Note 17 to the  Consolidated  Financial
      Statements.

(3)   Reflects  different  treatment of gain from monetary position and exchange
      loss  capitalized  under  Mexican GAAP and U.S.  GAAP.  See Note 17 to the
      Consolidated Financial Statements.

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

(5)   Reflects different  treatment of deferred income taxes and employee profit
      sharing under Mexican GAAP and U.S. GAAP. See Note 17 to the  Consolidated
      Financial Statements.

(6)   For U.S.  GAAP and Mexican  GAAP  purposes,  the weighted  average  shares
      outstanding  were  calculated  to give effect to the  reverse  stock split
      described in Note 12(a) to the Consolidated Financial Statements.

(7)   Long-term debt includes amounts relating to deferred taxes.


                                      -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
-------              ----           ---             -------          ----------
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
2003                11.41          10.11             10.79             11.24

Periods              High           Low
-------              ----           ---
2003
  December          11.41          11.17

2004
  January           11.10          10.81
  February          11.25          10.91
  March             11.23          10.95
  April             11.43          11.16
  May               11.64          11.38
  June              11.54          11.30

      On June 30, 2004, the noon buying rate was Ps. 11.5380 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 American  Depositary Shares
on the American  Stock  Exchange.  Cash  dividends,  if any, 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 ADSs. 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  ADSs
representing  its series B common stock 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.

      The Company's  results of operations are  significantly  influenced by the
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  2003 and the first  quarter of 2004,  decreases
during 2002 and over the  preceding  several years have led to a decrease in the
prices of Simec's products and adversely affected its profits over those 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 during 2003 and
the first quarter of 2004,  and there can be no assurance that scrap prices will
not increase  further  and, if so, there can be no assurance  that Simec will be
able to pass all or a portion  of these  increases  on through  higher  finished
product prices.

      Significant  increases  in  energy  costs  may  adversely  impact  Simec's
profitability.

      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.  There can be no assurance  these  special  rates will  continue to be
available  to Simec or that these rates may not  increase  significantly  in the
future.  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.

      Mexican governmental,  political and economic factors may adversely impact
Simec's business.

      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.


                                      -6-
<PAGE>

      Increases in interest rates,  high levels of inflation,  peso  devaluation
and other  economic  factors may  adversely  impact the Mexican  economy.  These
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. The effect of any exchange control measures adopted by the
Mexican government on the Mexican economy cannot be predicted.

      Simec's controlling shareholder Industrias CH is able to exert significant
influence on the business  and  policies of Simec and its  interests  may differ
from those of other shareholders.

      In 2001  Industrias  CH  acquired a 62%  interest  in Simec  from  Simec's
predecessor  parent,  Group Sidek,  and  Industrias  CH has since  increased its
ownership  interest in Simec to approximately  84.8% at May 31, 2004. All of the
current members of the board of directors of Simec were nominated and elected by
Industrias  CH, and  Industrias  CH  continues  to be in the  position  to elect
directors in the future and to exercise  substantial  influence and control over
the business and policies of the Company.  It is possible  that the interests of
Industrias CH could differ from those of other shareholders.  Furthermore,  as a
result of the  significant  equity  position of Industrias  CH, there is limited
liquidity in Simec's series B common stock and its ADSs.

      Simec's financial statements are prepared in accordance with Mexican GAAP,
and  therefore may not be directly  comparable to financial  statements of other
companies prepared under US GAAP or other accounting principles.

      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 17 to the Consolidated  Financial  Statements
for a description  of the principal  differences  between  Mexican GAAP and U.S.
GAAP.

      Tariffs, anti-dumping and countervailing duty claims imposed in the future
could harm Simec's ability to export its products.

      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 and these tariffs were  eliminated
in late 2003, prior to their originally scheduled termination date. There can be
no  assurance  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, 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 April 2002,  the Mexican  government  increased
these  tariffs to 35%.  In the third  quarter of 2002 the imposed  tariffs  were
reduced to 25%. In the third  quarter of 2003,  the tariffs were reduced to 18%.
There can be no  assurances  that these  tariffs will not be further  reduced or
that  countries  seeking  to export  steel  products  to Mexico  will not impose
similar tariffs on Mexican exports to their countries.


                                      -7-
<PAGE>

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 is domiciled in the city
of Guadalajara,  Jalisco and its principal  administrative  office is located at
Calzada Lazaro Cardenas 601, Guadalajara,  Jalisco,  Mexico 44440. Its telephone
number is 52-33-1057-5757.

      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 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., a
Mexican corporation with limited liability.

      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. 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. In June 2001,  Industrias  CH
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 ADS
increasing its interest in Simec to approximately 82.5%.

      In May 2004,  Simec  announced  that,  subject to  approval of the Mexican
Federal  Commission  of  Competition,  that it (rather than  Industrias CH or an
affiliated entity) intends to acquire the Mexican steel manufacturing facilities
of Industrias  Ferricas del Norte,  S.A. If  consummated,  this  transaction  is
expected to significantly increase Simec's installed capacity, its net sales and
the number of its employees.

      Principal Capital Expenditures and Divestitures

      Simec seeks to improve its operating  efficiency and increase sales of its
products  through  capital   investments  in  new  equipment  and  technological
improvements. In 2003, Simec spent $5.4 million in capital investments. Projects
at the Guadalajara  facility included the addition of a slitting system in order
to increase production at the rolling mill. Projects at the Mexicali facility in
2003  included the addition of a digital  regulation  system to the electric arc
furnace in order to reduce energy consumption at the melt shop.

      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


                                      -8-
<PAGE>

shop.  Projects at the Mexicali facility include  improvements to the warehouse.
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
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
increasing the strengthening  capacity at the rolling mill and conversion of the
rolling mill's heating furnace in order to enable it to operate on either gas or
heavy oil.

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 its indirect wholly owned
subsidiary,  CSC.  At  December  31,  2003  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 96.2%  capacity  for  billet  production  and 84.1%  capacity  for
finished product production in 2003.

      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, 2003 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 85.9%
capacity  for  billet   production  and  77.8%  capacity  for  finished  product
production  in 2003.  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,  $0.1
million  and $4.9  million  in  capital  improvements  in 2001,  2002 and  2003,
respectively.

      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 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


                                      -9-
<PAGE>

2002 the Company  began  production  at the  Guadalajara  facility of additional
widths of spring flat bars and round bars-special bar quality (SBQ).


                                      -10-
<PAGE>

      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)
                                                   2001       2002      2003
                                                   ----       ----      ----
Basic Steel Products
I-Beams                                            88.0       85.1       83.8
Channels                                           48.3       57.5       50.7
Angles(2)                                         102.0      123.8      108.5
Steel Bars (round, square and hex rods)           138.7      149.4      174.6
Cold Drawn                                         17.0       17.6       17.1
Rebar                                             110.0      116.5      139.0
Flat Bar                                           54.8       53.9       45.7
Other                                               1.9        5.6        8.8
                                                  -----      -----      -----
Total Steel Sales                                 560.7      609.4      628.2
                                                  =====      =====      =====

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

(2)   Angles include structural angles and commercial angles.

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

                    Domestic and Export Steel Sales By Region

<TABLE>
<CAPTION>
                                                       Domestic Sales                 Exports
                                                       --------------                 -------
                                                        Years ended                 Years ended
                                                        December 31,                December 31,
                                                        ------------                ------------
                                                 2001      2002     2003      2001     2002     2003
                                                 ----      ----     ----      ----     ----     ----
<S>                                               <C>       <C>      <C>        <C>      <C>       <C>
I-Beams                                           98%       98%      99%        2%       2%        1%
Channels                                          85%       81%      81%       15%      19%       19%
Angles(1)                                         91%       87%      89%        9%      13%       11%
Steel Bars (round, square and hex rods)           94%       94%      96%        6%       6%        4%
Cold Drawn                                        97%       95%      96%        3%       5%        4%
Rebar                                             85%       70%      67%       15%      30%       33%
Flat Bar                                          92%       86%      89%        8%      14%       11%
Other                                            100%      100%     100%        0%       0%        0%
                                                 ---       ---      ---        --       --        --
Total (weighted average)                          91%       87%      87%        9%      13%       13%
                                                 ===       ===      ===        ==       ==        ==
</TABLE>

----------
(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).


                                      -11-
<PAGE>

                              Guadalajara Mini-Mill

<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                               ------------------------
                                                                           2001          2002          2003
                                                                           ----          ----          ----
<S>                                                                         <C>          <C>            <C>
Steel Sales (000's tons)                                                    384.4        410.0          430.3
Average finished product price per ton                                  Ps. 3,398    Ps. 3,440      Ps. 4,172
Average scrap cost per ton                                                1,124.5      1,187.8        1,537.2
Average manufacturing conversion cost per ton of finished product(1)      1,345.1      1,184.2        1,225.8
Average manufacturing conversion cost per ton of billet(1)                  693.3        666.5          760.8
</TABLE>


                               Mexicali Mini-Mill

<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                               ------------------------
                                                                           2001          2002          2003
                                                                           ----          ----          ----
<S>                                                                         <C>          <C>            <C>
Steel Sales (000's tons)                                                    176.3        199.4          197.9
Average finished product price per ton                                  Ps. 2,884    Ps. 2,885      Ps. 3,867
Average scrap cost per ton                                                  897.7        919.3        1,232.3
Average manufacturing conversion cost per ton of finished product(1)      1,161.0      1,084.1        1,161.2
Average manufacturing conversion cost per ton of billet(1)                  746.7        683.4          732.7
</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 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
2003,  the  Guadalajara  mini-mill  produced  336,529  tons of steel  billet and
403,584 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


                                      -12-
<PAGE>

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 2003 the Mexicali mini-mill  produced  approximately
369,347  tons of  billet,  of which  99,507  tons were  used by the  Guadalajara
mini-mill  and 63,616 tons were sold to third  parties.  In 2003,  the  Mexicali
mini-mill produced 194,540 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, is limited to
30 tons.

      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. In 2003, 63% of
the products produced at the Mexicali mini-mill were rebar, 15% were angles, 14%
were steel bars  (round,  square and hex rods) and the  remaining  8% were other
products, principally merchant bar and channels.

      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)
                                                   2001        2002       2003
                                                   ----        ----       ----
Melt shops
      Steel billet production                     625.8       667.4      705.9
      Annual installed capacity(1)                780.0       780.0      780.0
      Effective capacity utilization              80.2%       85.6%      90.5%
Rolling mills
      Total production                            573.0       586.6      598.1
      Annual installed capacity(1)                730.0       730.0      730.0
      Effective capacity utilization              78.5%       80.4%      81.9%

----------
(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 2003, 2002 and 2001 represented an
estimated 10%, 11% and 10%, respectively,  of Mexican non-flat steel production,
based upon production figures compiled by Canacero.  The production and capacity
utilization  levels  in  2001,  2002 and  2003  were  lower  than  recent  prior
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 basic commodity products.


                                      -13-
<PAGE>

      Simec is seeking 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. Simec had previously
received  ISO  9002  certification  but  was  not  recertified  in  2003  due to
noncompliance with certain operating procedures and is pursuing recertification.

      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  100  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 2002 and 2003,  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.

      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 2002 and 2003, 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 recent
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  and to respond more rapidly to  strengthening
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  84,843 tons, or 14%, and  approximately  82,812 tons, or 13%%, of
Simec's total finished product sales in 2002 and 2003, respectively.


                                      -14-
<PAGE>

      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. In 2003, Simec sold 184,239 tons of I-beams,  channels and angles at least
3 inches in width  (including the 82,812 tons of I-beams  described above) which
represented  approximately  29% 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.,  Aceros Corsa,  S.A. de C.V.  ("Corsa") and
Gerdao, S.A. Based on information compiled by Canacero, Simec estimates that its
share of domestic  production of structural  profiles was 67% in 2002 and 62% in
2003.

      In 2002,  Simec sold 164,047 tons of steel bar (including  specialty steel
bars),  compared  to 188,840  tons in 2003.  Based on  information  compiled  by
Canacero,  Simec believes that its share of domestic production of steel bar was
46% in 2002 and 37% in 2003.  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 2002  was 4% and 24%,  respectively,
compared to 5% and 19%, respectively,  in 2003. Rebar and merchant bars together
accounted for approximately 245,371 tons, or 40%, of Simec's total production of
finished steel products in 2002, compared to approximately 255,164 tons, or 41%,
in 2003.  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 and
Bayou Steel Corporation.

      Simec has been able to maintain its domestic  market share and  profitable
pricing  levels in Mexico in part  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.

      Exports

      Simec  believes  that  NAFTA has  increased  competition  from U.S.  steel
producers by  eliminating  tariffs on steel  products  imported  from the United
States.  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 was  reduced by 1% per year over 10 years  commencing  in 1994 and, as of
December 31, 2003, the tariff has been completely  eliminated.  Conversely,  the
tariffs  imposed by the United  States on imports of steel bar (round and square
rods),  structural profiles,  flat bar and rebar applicable to Mexican producers
of steel  products were phased out over a similar period and, as of December 31,
2003, these tariffs were completely eliminated.

      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  increased  in Mexico and the  relative
difference (in peso terms) in steel prices between the U.S. and Mexican  markets
decreased,  and  Simec's  relative  margins on  exports  versus  domestic  sales
consequently  decreased,  Simec  refocused  its efforts on the domestic  market.
Exports declined  significantly  in years subsequent to 1995,  although in 2003,
exports were 80,744 tons,  or 13% of total basic steel sales in tons sold versus
80,182  tons,  or 13% of total basic  steel sales in tons sold in 2002,  in each
case higher than in the immediately preceding years.


                                      -15-
<PAGE>

      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 48% and 52% of Simec's direct cost of sales in 2002
and 2003,  respectively.  In 2003 and 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  11% and 7% of its refined  scrap tonnage in
2002  and  2003,  respectively,  and  (ii)  purchases  from  third  party  scrap
processors in Mexico and the  southwestern  United States which in the aggregate
provided  Simec  with  approximately  61% and  28% in  2002,  respectively,  and
approximately  63% and 30% in 2003,  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  14% of  Simec's  direct  cost of  sales  in 2002 and 12% in 2003.
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.
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  12% of Simec's  direct cost of
sales in 2002 and 13% of  direct  cost of sales in 2003 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 have  historically  been very  volatile and subject to dramatic  price
increases in short periods of time.  In the late 1990s,  the CFE began to charge
for  electricity  usage  based on the time of use  during the day and the season
(summer or winter).  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.  There can be no  assurance  that any  future  cost
increases will not have a material adverse effect on the business of Simec.

      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 were phased in over a number of years. 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 or elminated.

      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


                                      -16-
<PAGE>

States have been 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"). 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  84.8%
controlling  interest in Simec.  The  following  table shows  Simec's  corporate
structure  as of May 31,  2004.  The table also  shows,  for each  company,  its
country  of  incorporation,  and the  approximate  percentage  equity  ownership
interest of its direct parent company shown on the table.

<TABLE>
<CAPTION>
                                                                          Percentage of      Jurisdiction of
Name of Company                                                            Equity 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
        Administradora de Cartera de Occidente, S.A. de C.V.                  99.99%             Mexico
        Compania Siderurgica del Pacifico, S.A. de C.V.                       99.99%             Mexico
       Administradora de Servicios de la Industria Siderurgica ICH, S.A.      99.99%             Mexico
        de C.V.
        Procesadora Mexicali, S.A. de C.V.                                     100%              Mexico
</TABLE>


                                      -17-
<PAGE>

<TABLE>
<CAPTION>
                                                                          Percentage of      Jurisdiction of
Name of Company                                                            Equity Owned       Incorporation
---------------                                                            ------------       -------------
<S>                                                                           <C>                <C>
        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
        Coordinadora de Servicios Siderurgicos de Calidad, S.A. de C.V.        100%              Mexico
</TABLE>

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.

      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 17 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, 2003.  For the years ended  December 31, 2001,  2002 and 2003,  the
National   Consumer  Price  Index  increased   approximately   4%,  6%  and  4%,
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
most  significant  judgments  and  estimates  used  in  the  preparation  of the
financial statements relates to the impairment of property,  plant and equipment
and valuation reserve on accounts receivable. The Company evaluates periodically
the adjusted values of its property,  plant and equipment,  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


                                      -18-
<PAGE>

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
property,  plant and equipment due to the  characteristics  of those assets. The
class of the Company's  assets which must require complex  determinations  based
upon assumptions and estimates relates to idle machinery.

      With respect to valuation  reserve on accounts  receivable,  on a periodic
basis management  analyzes the recoverability of accounts receivable in order to
determine if, due to credit risk or other factors,  some  receivables may not be
collected.  If management  determines such a situation exists, the book value of
the  non-recoverable  assets is  adjusted  and  charged to the income  statement
through  an  increase  in the  doubtful  accounts  reserve.  This  determination
requires  substantial  judgment by  management.  As a result,  final losses from
doubtful accounts could differ significantly from estimated reserves.

      General Overview

      Simec's steel products are generally commodities and, accordingly, its net
sales and  profitability  are highly dependent on market conditions in the steel
industry which is greatly  influenced by general  economic  conditions in Mexico
and elsewhere.  As a result of the significant competition in the steel industry
and the commodity-like nature of Simec's products,  Simec has limited ability to
effect its finished  product  prices as prices for the Company's  steel products
are generally determined by Mexican and global steel markets, although a portion
of Simec's products are specialty  products for which  competition is limited as
compared with Simec's more basic products, and these specialty products generate
somewhat  higher  margins.  Simec  adjusts the mix of its product  output toward
higher  margin  products to the extent it is able to do so and also  adjusts its
overall product levels based on the marginal profitability of doing so.

      As margins in commodity  businesses  are generally low, Simec focuses very
closely  on  controlling  its  direct  cost of  sales  as  well as its  indirect
manufacturing,  selling, general administrative expenses. Simec's direct cost of
sales largely  consist of the costs of acquiring the raw materials  necessary to
manufacture  steel,  primarily scrap.  Scrap prices are generally  determined by
market supply and demand and as a result, Simec has limited ability to influence
its scrap costs, as well as the costs of other raw materials,  including  energy
costs.  There is a correlation  between the prices of scrap and finished product
prices,  although the degree and timing of this correlation  varies from time to
time and Simec may not always be able to fully  pass  along  scrap and other raw
material  price  increases  to its  customers.  Simec's  ability to decrease its
direct cost of sales as a  percentage  of net sales is largely  dependent on its
increasing  productivity.  Simec's  ability to control  indirect  manufacturing,
selling,  general and  administrative  expenses,  which do not  correlate to net
sales as  closely  as  direct  costs of sales do, is a key  element  of  Simec's
profitability.

      Simec exports a portion of its products,  primarily to the United  States.
As a result of higher costs associated with exports, Simec adjusts export levels
based on the relative  profitability  of doing so versus selling its products in
the domestic market.  During periods of relative weakness of the peso versus the
dollar,  exports  generate  higher  margins as revenues are generated in dollars
which  translate into higher peso amounts,  while a portion of Simec's costs are
peso-denominated.

      Comparison of Years Ended December 31, 2003, 2002 and 2001

      Net Sales

      Simec's net sales were Ps. 2,786  million in 2003,  Ps.  2,196  million in
2002 and Ps. 2,091 million in 2001.  This  represented  increases of 27% in 2003
compared to 2002 and of 5% in 2002  compared to 2001.  The  increase in 2003 net
sales  primarily  resulted  from  significantly  higher prices for Simec's basic
steel products, reflecting global steel price increases, primarily in the second
half of the year, as well as moderately higher production  levels.  Increases in
net sales in 2002 were  attributable  in part to Simec's  focus on higher margin
products  as well as  higher  production  levels  than in 2001,  which  offset a
decrease in finished product prices during 2002.


                                      -19-
<PAGE>

      Sales in tons of basic steel products increased 3% in 2003 to 628,243 tons
from 609,408 tons in 2002,  which in turn had  increased 9% in 2002 from 560,726
tons in 2001.  These year to year increases  reflect  Simec's  determination  to
produce at higher levels given existing demand and pricing for its products.

      Exports of basic steel products  remained  substantially  the same in 2003
compared to 2002, at 80,744 tons and 80,182 tons, respectively. Exports of basic
steel products reflected a substantial portion of the increase in terms of steel
sold in 2002  compared to 2001,  increasing  to 80,182  tons from  48,385  tons,
respectively, due to higher margins for export sales in 2002 than in 2001.

      Simec sold  63,616  tons of billet in 2003,  23,137 tons of billet in 2002
and 1,248 tons of billet in 2001.  The  increases in tons of billet sold in each
year were  attributable  primarily  to an increase in demand for billet by third
parties.  Billet  sales do not  contribute  materially  to Simec's  net sales or
otherwise to its operating results.

      The average price of steel  products  increased 18% in real terms in 2003,
reflecting  the global  strengthening  of finished  product  prices in 2003. The
average  price of steel  products  decreased 5% in real terms in 2002 from 2001,
reflecting continued weak global market conditions.

      Direct Cost of Sales

      Simec's  direct cost of sales was Ps.  1,830  million in 2003,  Ps.  1,470
million in 2002 and Ps. 1,404 million in 2001. This represented increases of 24%
in 2003  compared  to 2002 and of 5% in 2002  compared  to 2001.  Direct cost of
sales as a percentage of net sales  decreased to 66% in 2003 from 67% in each of
2002 and 2001.  Simec's higher direct cost of sales in 2003 compared to 2002 was
primarily  attributable  to the  increased  cost of raw  materials  and somewhat
higher production levels. The relative stability of direct cost of sales in 2002
compared to 2001 reflects higher production levels partially offset by lower raw
material costs.

      The average cost of raw materials used to produce steel products increased
14%  primarily as a result of increases in the price of scrap,  electricity  and
gas. The average cost of raw materials used to produce steel products  decreased
7% in real terms in 2002 from 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 was Ps. 956 million in 2003,  Ps. 726 million in
2002 and Ps. 687  million in 2001.  This  represented  increases  of 32% in 2003
compared to 2002 and 6% in 2002  compared to 2001. As a percentage of net sales,
marginal profit was 34% in 2003 compared to 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,  was Ps. 464 million in 2003, Ps.
461 million in 2002 and Ps. 490 in 2001,  reflecting an increase of 0.6% in 2003
compared to 2002 and a decrease of 6% in 2002  compared  to 2001.  The  relative
stability  of such  expenses  in 2003  compared  to 2002  was due  primarily  to
decreasing maintenance expenses for machinery during 2003. This decrease in 2002
compared to 2001 was due to the  reduction  of Simec's  labor force and to lower
expenses for the maintenance of machinery.

      Depreciation and amortization was Ps. 182 million in 2003, Ps. 162 million
in 2002 and Ps. 146 million in 2001.  This  reflected an increase of 12% in 2003
compared to 2002 and an increase of 11% in 2002  compared to 2001.  The increase
in 2003 compared to 2002 and in 2002 compared to 2001 was due to the revaluation
of machinery and  equipment to reflect  changes in the exchange rate of the peso
relative to the U.S. dollar and other currencies such as the Euro.

      Operating Income

      Simec's operating income increased 86% to Ps. 492 million in 2003 from Ps.
265 million in 2002. Simec's operating income in 2002 represented an increase of
34% from Ps. 197 million in 2001.  Operating income  represented 18%, 12% and 9%
of net sales in 2003, 2002 and 2001, respectively.


                                      -20-
<PAGE>

      Financial Income (Expense)

      Simec  recorded  financial  expense in 2003 of Ps. 24 million  compared to
financial  expense of Ps.  128  million  in 2002 and  financial  income of Ps. 5
million  in  2001.  Financial  income  or  expense  reflects  the  sum of  three
components:  exchange gain or loss,  net interest  income or expense and gain or
loss from monetary position. Simec recorded exchange loss of approximately Ps. 2
million in 2003  compared  to an  exchange  loss of Ps. 104  million in 2002 and
exchange income of Ps. 103 million in 2001. These exchange losses reflect the 9%
decrease  in the  value of the peso  versus  the  dollar in 2003  compared  to a
decrease  of 12.8% in the  value of the peso  versus  the  dollar in 2002 and an
increase  of 4.5% in the  value of the  peso  versus  the  dollar  in 2001.  The
exchange  loss in 2003 also  reflected  lower debt levels than in the prior year
and the 2002 financial  expense also reflected lower debt levels than in 2001 as
Simec made various  prepayments  on its bank debt and  converted  loans from its
parent company to equity during 2002 and 2003.

      Net interest expense was Ps. 13 million in 2003 compared to Ps. 55 million
in 2002 and Ps. 172 million  during 2001.  This reflected a lower amount of debt
outstanding during 2003 compared to 2002 and in 2002 compared to 2001.

      Simec  recorded  a loss from  monetary  position  of Ps. 9 million in 2003
compared to gains from monetary position of Ps. 31 million in 2002 and of Ps. 74
million in 2001.  This  reflected the domestic  inflation  rate of 4% in 2003 as
compared  to 5.7% in 2002 and 4.4% in 2001 as well as lower debt  levels  during
2003 compared to 2002 and in 2002 as compared to 2001.

      Other Income (Expense), Net

      Simec recorded other expense,  net, of Ps. 30 million in 2003. This amount
reflected:

            o     a reserve  of Ps.  11  million  relating  to the  clean-up  of
                  contaminated land at the Pacific Steel facilities,

            o     a reserve of Ps. 18 million  relating to the realizable  value
                  of idle machinery and equipment and

            o     other expense,  net, related to other financial  operations of
                  Ps. 1 million.

      In 2002 Simec recorded other expense,  net, of Ps. 37 million. This amount
reflected:

            o     other  income  relating to tax  benefits  associated  with the
                  acquisition  of machinery and equipment  made in 2001 of Ps. 6
                  million,

            o     a gain of Ps. 2  million  in  respect  of  $200,000  principal
                  amount of  Simec's  MTNs  which  were  acquired  at 50% of the
                  principal  amount  thereof,   without  provision  for  accrued
                  interest, and were subsequently cancelled,

            o     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,

            o     expenses relating to an adjustment in the value of the land of
                  its subsidiary Pacific Steel of Ps. 21 million,

            o     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,

            o     a reserve of Ps. 10 million  relating to the realizable  value
                  of idle machinery and equipment,


                                      -21-
<PAGE>

            o     a  reserve  of Ps.  8  million  relating  to the  clean-up  of
                  contaminated land at the Pacific Steel facilities and

            o     expenses  related  to  other  financial  operations  of Ps.  7
                  million.

      Simec recorded other income,  net, of Ps. 67 million in 2001.  This amount
reflected:

            o     income  resulting from the  cancellation  of Ps. 16 million of
                  interest on bank debt recorded as accrued interest in 2000,

            o     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,

            o     income  from a  decrease  of Ps.  10  million  in the  current
                  liability to Simec's former parent company, Grupo Sidek,

            o     expenses  relating to a provision for doubtful accounts of Ps.
                  6 million,

            o     expenses  of Ps. 3 million  relating  to the  cancellation  of
                  goodwill,

            o     income  relating  to asset  taxes  for  prior  years of Ps. 26
                  million and

            o     income  related  to  other  financial  operations  of  Ps.  15
                  million.

      Income Tax and Employee Profit Sharing

      Simec recorded a provision of Ps. 145 million, a positive provision of Ps.
23 million and a provision of Ps. 17 million for income tax and employee  profit
sharing in 2003, 2002 and 2001, respectively. These amounts included an increase
of Ps. 113 million in 2003 and  decreases of Ps. 59 million and of Ps. 5 in 2002
and 2001,  respectively,  in such  provisions as a result of the  application of
Bulletin D-4 with respect to deferred income tax, as described below.

      Net Income

      As a result  of the  foregoing,  Simec  recorded  net  income  of Ps.  293
million,  Ps.  123  million  and  Ps.  252  million  in  2003,  2002  and  2001,
respectively.

      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. 1,045,  Ps. 797 and Ps. 725
million at December 31, 2003, 2002 and 2001, respectively. The effect on Simec's
consolidated  statement  of income in 2003 was an increase of Ps. 113 million in
the provision for income tax and employee  profit sharing  compared to decreases
of Ps. 59  million  and Ps. 5  million  in 2002 and  2001,  respectively.  These
provisions do not affect the cash flow of Simec.

      In May 2003, the Mexican Institute of Public  Accountants  issued Bulletin
C-12,  "Financial  Instruments with  Characteristics of Liabilities,  Equity, or
Both."  Bulletin C-12 is effective for fiscal years beginning after December 31,
2003,  although  Simec  voluntarily  elected  to apply this  bulletin  for 2003.
Bulletin C-12 reflects numerous regulations contained in other bulletins related
to the issuance of complex financial  instruments,  and also includes additional
new regulations  necessary to provide for a comprehensive  resolution of general
issues  arising with respect to complex  financial  instruments.  Bulletin  C-12
defines the basic differences between liabilities and


                                      -22-
<PAGE>

equity,  establishes rules for the classification and valuation of the liability
and equity components of combined financial instruments upon initial recognition
and establishes rules for disclosure of combined  financial  instruments.  Under
Bulletin  C-12,  financial  instruments  should be classified as  liabilities or
equity at the  beginning  of the year of  adoption,  and  comparative  financial
information   for  prior   years   should   not  be   restated,   nor  should  a
cumulative-effect-type  adjustment be  recognized  in the year of adoption.  The
Company  believes  that the  adoption of Bulletin  C-12 will not have a material
effect on its financial position or results of operations.

Liquidity and Capital Resources

      General

      As a result of the economic  crisis in Mexico arising from the devaluation
of the peso versus the U.S. dollar in 1994, 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 became 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"). As part of
the Restructuring,  Simec's wholly-owned subsidiary, CSG, incurred new bank debt
and 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  aggregate  outstanding  consolidated  debt  of the
Company at the date of  consummation  of the  Restructuring.  In  exchange,  CSG
received  equity  in  all  of  Simec's   subsidiaries  and  the  elimination  of
intercompany debt owed by CSG to Simec.

      However,  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 and provided
for principal amortizing in equal semi-annual installments.

      In 2000, Simec and its bank creditors  restructured  substantially  all of
the then outstanding bank debt to provide for, among other things

            o     an  extension  of the  amortization  period  of a  substantial
                  portion  of bank debt and an  increase  in the  interest  rate
                  applicable to that bank debt, and

            o     the  conversion,  at Simec's  election (which was exercised in
                  connection   with  the  acquisition  by  Industrias  CH  of  a
                  controlling interest in Simec), of $90.2 million of bank debt,
                  plus $5.2  million of accrued  interest  thereon,  into common
                  shares of Simec at a price of approximately  $0.1935 per share
                  (approximately $3.87 per ADS).

      In 2001,  subsequent to the  acquisition by Industrias CH of a controlling
interest in the Company, CSG redeemed or repurchased all of the outstanding debt
securities  it had  issued  in  connection  with the  Restructuring  (which  was
financed principally with borrowings from Industrias CH). In 2001, 2002 and 2003
CSG  continued  to  pay  down  its  outstanding  bank  debt,   making  scheduled
amortization  payments  as well as  additional  principal  payments  which  were
financed  primarily by capital  contributions  from  Industrias CH or borrowings
from  Industrias  CH which  were later  converted  to  equity.  As a result,  at
December 31, 2003, Simec had only $2.0 million of total debt outstanding.

      Liquidity; Capital Resources

      The Company is heavily  dependent on cash generated from operations as its
principal source of liquidity. Other sources of liquidity include financing made
available  to Simec by its parent  Industrias  CH,  most  significantly  for the
purpose of repaying  third  party  indebtedness,  and limited  amounts of vendor
financing.  The Company has had very limited  access to and has not borrowed any
material  amounts from  unaffiliated  third  parties since


                                      -23-
<PAGE>

consummation  of the  Restructuring.  We believe  that our existing  cash,  cash
equivalents and cash generated from operations will be sufficient to satisfy our
currently  anticipated cash requirements  through the next 12 months, other than
as set forth in the immediately following paragraph.

      In the event Simec  consummates the transaction  with Industrias  Ferricas
del Norte,  S.A. to acquire its Mexican steel  manufacturing  facilities,  Simec
expects  to  finance  the  acquisition  primarily  with  cash  on  hand  and any
additional  funds are  expected to be provided  by  borrowings  from its parent,
Industrias CH.

      The Company's principal use of cash has generally been for debt repayments
and,  to a  significantly  lesser  degree,  capital  expenditure  programs.  The
following  is a summary of cash flows for the three  years  ended  December  31,
2003:

                              Principal Cash Flows

                                              Years ended December 31,
                                        ---------------------------------------
                                            (Millions of Constant Pesos)
                                        2001             2002             2003
                                        ----             ----             ----
Cash flow generated by (used in)
   operating activities                  430              329              384
Cash flow generated by (used in)
   financing                            (436)            (239)              29
Cash flow generated by (used) in
   investment activities                 (59)             (45)             (10)

      Net resources provided by operating activities was Ps. 384 million in 2003
and  reflected  the  conversion  of loans of Industrias CH into common shares of
Simec for Ps. 184 million.  Net  resources  provided by  operations  was Ps. 329
million in 2002.

      Net resources provided by financing activities was Ps. 29 million in 2003.
This amount reflects the semi-annual amortization  installments on the Company's
bank debt of Ps. 15 million ($1.4  million),  the  prepayment of Ps. 322 million
($30 million) of bank debt, the  conversion  into shares by Industrias CH of Ps.
184 million of loans plus accrued interest thereon,  the increase of the capital
stock by the minority  shareholders  for Ps. 19 million and the conversion  into
common  shares of the capital  contribution  from  Industrias CH to Simec in the
amount of Ps. 151  million  ($14.5  million)  in November  2003.  Net  resources
provided  by  financing  activities  was Ps. 239  million in 2002.  This  amount
reflects the semi-annual amortization installments on the Company's bank debt of
Ps. 69 million ($6.7  million),  the prepayment of Ps. 500 million ($48 million)
of bank debt, the conversion by Industrias CH of Ps. 263 million ($25.5 million)
of loans into common shares and the exercise by certain minority shareholders of
their pre-emptive  rights arising as a result of the conversion of Industrias CH
debt to purchase capital stock for Ps. 28 million.

      Net resources used in investing  activities is  attributable  primarily to
the acquisition of property,  plant and equipment and other  non-current  assets
and reflects changes in long-term  inventories.  Net resources used in investing
activities was Ps. 10 million in 2003 and Ps. 45 million in 2002.

      At December  31,  2003,  Simec's  total  consolidated  debt  consisted  of
approximately  $2.0  million  of  U.S.   dollar-denominated   debt  compared  to
approximately  $47.8 million of U.S.  dollar-denominated  debt,  including $14.4
million of debt owed to Industrias CH, at December 31, 2002.  Simec's lower debt
level at December 31, 2003 reflected

            o     the  prepayment  of $30  million  of bank debt in 2003,  $16.2
                  million  of which  was  financed  by  Simec  with  loans  from
                  Industrias CH,

            o     the semi-annual amortization  installments on its bank debt of
                  $1.4 million in 2003,

            o     the  conversion to common stock in March 2003 of $16.1 million
                  of loans, plus accrued interest thereon, from Industrias CH at
                  a conversion  price  equivalent to U.S. $1.35 (Ps. 14.588) per
                  ADS and


                                      -24-
<PAGE>

            o     the  conversion  to common  stock in November  2003 of a $14.5
                  million capital  contribution from Industrias CH made to Simec
                  in May 2003 at a conversion  price  equivalent  to U.S.  $1.41
                  (Ps.  14.588)  per ADS,  the  proceeds  of which  were used to
                  retire debt owed to Industrias CH.

      Simec's  outstanding  $1.7  million  of bank  debt at  December  31,  2003
consisted of

            o     $0.2  million  which  matures in 2007 and  amortizes  in equal
                  semi-annual installments and

            o     $1.5  million  which  matures in 2009 and has no  amortization
                  payments.

In the first quarter of 2004, Simec retired all of its $1.7 million in bank debt
and, as a result, the mortgage on its properties granted to its bank lenders and
CSG's  obligations  to comply with various debt covenants  were  eliminated.  In
addition  Simec had  outstanding  $302,000  of 8 7/8% MTNs due 1998  which  were
issued in 1993 as part of a $68 million  issuance.  Accrued interest on the MTNs
at December  31, 2003 was  $254,860.  At December 31, 2003 Simec owed no debt to
Industrias CH.

      In December 2003 Simec  acquired  Administradora  de Cartera de Occidente,
S.A. de C.V.  ("Acosa") from  Industrias CH for nominal  consideration.  Acosa's
sole asset is a portfolio of defaulted receivables it acquired in June 2003 from
various  Mexican  banks which are in the process of  liquidation.  The  purchase
price of the portfolio is payable by Acosa solely from  recoveries,  if any, net
of expenses of  collection,  with  respect to the  defaulted  receivables.  Upon
payment of the purchase price from  recoveries on the  portfolio,  Acosa and the
Mexican  banks will  share in any  additional  recoveries,  net of  expenses  of
collection, on a 50% / 50% basis.

      On October 2, 2003, certain minority shareholders of Simec exercised their
pre-emptive  rights  arising as a result of the conversion of Industrias CH debt
to purchase  capital  stock for Ps.  19.4  million at the price per share of Ps.
14.588 (the equivalent of U.S. $1.35 per ADS).

      In November 2003,  Industrias CH converted into common shares of Simec the
$14.5  million  capital  contribution  to Simec made in May 2003 at a conversion
price equivalent to U.S. $1.41 (Ps. 14.588) per ADS. The proceeds of the capital
contribution  were used to retire debt owed to Industrias CH. As a result of the
conversion  by  Industrias CH of the capital  contribution  into common  shares,
Simec's  minority  shareholders  could  exercise  their  pre-emptive  rights  to
purchase series B common stock at the price share of Ps. 14.588 in May 2004.

      The Company does not have in place any interest  rate or currency  hedging
instruments.  The Company is not a party to any  non-exchange  traded  contracts
accounted  for  at  fair  value  other  than,  as  described  in  Note  6 to the
Consolidated Financial Statements,  certain futures contracts it entered into in
late 2003 to fix the price of its natural gas purchases from 2004 to 2006.

Off-Balance Sheet Arrangements

      The Company does not have any off-balance sheet arrangements.


                                      -25-
<PAGE>

Contractual Obligations

      The  table  below  sets  forth  our  significant   long-term   contractual
obligations as of December 31, 2003:

                                        (Millions of Constant Pesos)
                                                  Maturity
                                ------------------------------------------------
                                Less
                                than 1    1 - 3     4 - 5      In excess
                                year      years     years    of 5 years    Total
                                ----      -----     -----    ----------    -----
Long-term debt obligations      3         2         1          16            22

      As of December  31, 2003,  the Company had no material  capital or finance
lease obligations,  operating lease obligations,  purchase  obligations or other
contractual obligations reflected as long-term liabilities on its balance sheet.

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

                                                                      Director
Name                                   Other Position With Simec       Since
----                                   -------------------------       -----
Statutory Examiners:
Humberto Valdes Mier                       Statutory Examiner           2001
Jose Luis Valencia Font               Alternate Statutory Examiner      2003


                                      -26-
<PAGE>

      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
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.

      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.

      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


                                      -27-
<PAGE>

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.

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

      Raul Vigil  Gonzalez.  Mr. Vigil 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. Vigil is a brother of Rufino Vigil
Gonzalez and Eduardo Vigil Gonzalez.

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

      Alejandro  Villa  Flores.  Mr.  Villa  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.
Villa 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  2003  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  Ps. 15.2 million.  In 2003, 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, 2004 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.


                                      -28-
<PAGE>

      Simec's Directors are classified as:

      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 adopted a code of ethics in December 2002. For more
information regarding our code of ethics, see Item 16B of this Annual Report.

      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.

      For more information about our Audit Committee  members,  see Items 16A in
this Annual Report.

      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:


                                      -29-
<PAGE>

      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,  2003,  Simec had  1,288  employees,  compared  to 1,333
employees  at  December  31, 2002 and 1,386  employees  at  December  31,  2001.
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, 2004, based on information available to Simec, it believes
the  officers and  directors  of Simec as a group own 57,038  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, 2003,  Simec had 131,973,022  shares of series B common
stock outstanding.

      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 ADS. 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 ADS. 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 ADS. In November  2003,  Industrias CH converted into common shares of
Simec the $14.5  million  capital  contribution  to Simec  made in May 2003 at a
conversion  price  equivalent to U.S.  $1.41 (Ps.  14.588) per ADS. As a result,
Industrias CH currently holds an approximate 84.8% interest in Grupo Simec.

      The  current  members  of the  Board  of  Directors  of the  Company  were
nominated   and  elected  to  such   position  at  the  2004  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


                                      -30-
<PAGE>

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  January  2004  Simec and Mr.
Gonzalez'  successors entered into an agreement to pay $1.3 million to Simec. In
early 2004 the  successors  of Mr.  Gonzalez paid to Simec a total of $1 million
and the balance of $0.3 million is to be paid in July 2004.

      Simec has  borrowed  various  amounts  from  Industrias  CH,  primarily to
finance debt redemptions and bank loan amortization and interest  payments.  See
Item 5. Simec from time to time  sells  steel  products,  primarily  billet,  to
Industrias CH and its affiliates.  In 2003,  these sales totaled Ps. 173 million
and in 2002 these  sales  totaled  Ps. 34 million.  In  addition,  in 2003 Simec
purchased  Ps.  13  million  of  steel  products  from  Industrias  CH  and  its
affiliates. Prices were negotiated on an arms-length basis.

      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 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.


                                      -31-
<PAGE>

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.

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 and $1.7
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  $1.7 million (Ps. 18.7
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(d),  14(c) and 14(d) 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  $235,000  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.  20.6  million
decrease in the value of the land and a charge to income in the same amount.

      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


                                      -32-
<PAGE>

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 14(e), 14(f) and 14(g) 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
                                ----          ---         ----          ---

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
2003                            37.50         10.20         5.34         0.85

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           12.50         12.40         1.40         1.25
       Third Quarter            15.39         10.30         1.60         1.01
       Fourth Quarter           37.50         14.00         5.34         1.10

2004
       First Quarter            39.99         22.40         4.60         2.10
       Second Quarter           40.00         28.50         3.94         2.20

2003
       December                 37.50         14.05         5.34         1.17

  2004
       January                  29.80         22.40         3.30         2.10
       February                 28.00         25.00         2.60         2.15
       March                    39.99         28.00         4.60         2.31
       April                    40.00         33.50         3.94         2.40
       May                      34.50         28.50         3.30         2.20
       June                     36.00         29.00         3.23         2.41

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

                                      -33-
<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, as amended, 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,  2003,  series  B  common  stock
represented 100% of Simec's capital stock, and no series L common stock has been
issued.  At  December  31,  2003,  the  Company's  total  share  capital was Ps.
3,093,067 thousand,  represented by a fixed portion of Ps. 987,854 thousand, and
a variable portion of Ps. 2,105,213 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.

      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


                                      -34-
<PAGE>

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
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:


                                      -35-
<PAGE>

      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:

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;

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

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;

      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.


                                      -36-
<PAGE>

      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  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.


                                      -37-
<PAGE>

      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 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


                                      -38-
<PAGE>

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,
2003,  was  approximately  Ps.  3,093  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  ADSs--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.

      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


                                      -39-
<PAGE>

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.

      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


                                      -40-
<PAGE>

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, 2003, 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 34%
tax on 1.5152  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  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


                                      -41-
<PAGE>

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.

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  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 with respect to its financial
instruments.  Historically,  based on the last ten years of data,  inflation  in
Mexico has been 16% higher than the Mexican peso's  devaluation  relative to the
dollar.

      In late 2003,  the Company  entered  into  futures  contracts to limit its
exposure  to  commodity  price  risk by  fixing  the  price of its  natural  gas
consumption from 2004 through 2006. These futures contracts are not entered into
for trading  purposes but, subject to market prices of natural gas, are expected
to be settled by delivery of natural gas


                                      -42-
<PAGE>

at the contract  price.  As described  in Note 6 to the  Consolidated  Financial
Statements,  at December  31,  2003,  the Company  recorded an asset of Ps. 14.3
million with respect to these contracts. The Company does not believe its market
risk with respect to these natural gas futures contracts is material.

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, 2003 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. 228 thousand ($20 thousand).

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. 2 million ($0.2 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,  2003 and  assuming  that the  hypothetical  market  rate  changes
selected by the Company in its market  risk  analysis  occur  during  2004.  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 ADSs representing  Simec's series B common stock is provided
below.

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


                                      -43-
<PAGE>

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 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.


                                      -44-
<PAGE>

      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
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


                                      -45-
<PAGE>

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."

      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.


                                      -46-
<PAGE>

      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 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."


                                      -47-
<PAGE>

      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,  (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.


                                      -48-
<PAGE>

      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 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


                                      -49-
<PAGE>

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.

                                    PART II.

Item 13. Defaults, Dividends Arrearages and Delinquencies

      Simec is in default on the payment of $302,000  principal amount of 8 7/8%
MTNs due 1998  which  were  issued  in 1993 as part of a $68  million  issuance.
Accrued interest on the MTNs at December 31, 2003 was $254,860.

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

      None.

Item 15. Controls and Procedures

      The Company maintains a set of disclosure controls and procedures designed
to ensure that  information  required to be  disclosed by the Company in reports
that it files or submits under the Securities  Exchange Act of 1934 is recorded,
processed,  summarized  and  reported  within  the  time  periods  specified  in
Securities and Exchange  Commission rules and forms. As of the end of the period
covered  by this  Annual  Report,  an  evaluation  of the  effectiveness  of the
Company's   disclosure  controls  and  procedures  was  carried  out  under  the
supervision and with the  participation of the Company's  management,  including
the Chief  Executive  Officer  and the Chief  Financial  Officer.  Based on that
evaluation,  the Chief Executive  Officer and the Chief  Financial  Officer have
concluded that the Company's disclosure controls and procedures are effective as
of the end of the period covered by this Annual Report.

      Subsequent to the date of their evaluation,  there have been no changes in
the Company's  internal  control over financial  reporting that have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

Item 16. Reserved

Item 16A. Audit Committee Financial Expert

      The Board of Directors of the Company has determined  that it has at least
one "audit  committee  financial  expert,"  as defined in Item 16A of Form 20-F,
serving on the Audit  Committee.  Arturo  Perez Trejo is the  director  whom the
Board of Directors has  determined to be an audit  committee  financial  expert.
Holders  of  ADSs  should  understand  that  this  designation  is a  disclosure
requirement of the SEC related to Mr. Perez's  experience and understanding with
respect to certain  accounting and auditing  matters.  The designation  does not
impose on Mr. Perez any duties,  obligations  or liability that are greater than
those which are generally  imposed on him as a member of the Audit Committee and
Board of Directors,  and his designation as an audit committee  financial expert
pursuant  to this SEC  requirement  does not affect the duties,  obligations  or
liability of any other member of the Audit Committee or Board of Directors.  Mr.
Perez is "independent"  as such term is defined by the listing  standards of the
American Stock Exchange.


                                      -50-
<PAGE>

Item 16B. Code of Ethics

      In 2002,  the Company  adopted a code of ethics that applies to all of its
employees and directors,  including its principal  executive officer,  principal
financial officer and principal accounting officer. In 2003, the Company did not
amend its code of ethics in any  manner,  nor did it grant any  waiver  from any
provision  of the code of ethics to any person.  The Company will provide to any
person  without  charge,  upon written or oral  request,  a copy of such code of
ethics.  Requests should be directed to: Grupo Simec,  S.A. de C.V.,  Attention:
Jose Flores Flores, telephone number: 52-33-1057-5734.

Item 16C. Principal Accountant Fees and Services

      Audit Fees.  Fees paid to KPMG Cardenas  Dosal,  S.C. for the audit of the
annual consolidated financial statements included in the Company's Annual Report
on Form 20-F were Ps. 1.6 million and Ps. 1.9  million,  respectively,  for 2003
and 2002.

      Tax Fees.  Fees paid to KPMG  Cardenas  Dosal,  S.C.  associated  with tax
compliance  and tax  consultation  were Ps. 0.2  million  and Ps.  0.4  million,
respectively, in 2003 and 2002.

      No fees in addition  to those set forth  above were paid to KPMG  Cardenas
Dosal,  S.C. in 2003 or 2002.  All of the  services  described  as "Audit  Fees"
incurred in 2003 and "Tax Fees"  incurred  since April 2003 were approved by the
Audit  Committee  in  accordance  with the  Company's  formal  policy on auditor
independence.

      The Audit  Committee has adopted a formal  policy on auditor  independence
requiring  the  approval by the Audit  Committee  of all  professional  services
rendered by the Company's  independent  auditor prior to the commencement of the
specified  services.   The  Audit  Committee  will  consider  annually  and,  if
appropriate,  approve the provision of audit  services by Company's  independent
auditor and consider and, if  appropriate,  pre-approve the provision of certain
defined audit and non-audit services.  The Audit Committee will also consider on
a case-by-case basis and, if appropriate,  approve specific engagements that are
not otherwise pre-approved. Any proposed engagement that does not fit within the
definition of a pre-approved service may be presented to the Audit Committee for
consideration  at its next  regular  meeting  or, if  earlier  consideration  is
required, to the Audit Committee for action by written consent.

Item 16D. Exemptions from the Listing Standards for Audit Committees

      Not applicable.

Item 16E. Purchases   of   Equity   Securities  by  the  Issuer  and  Affiliated
          Purchasers.

      Not applicable.

                                   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 report of the
Company's  independent  registered  public accounting firm, are filed as part of
this Annual Report.


                                      -51-
<PAGE>

List of Exhibits:

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

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

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

12(a) and 12(b)         Certifications   pursuant   to   Section   302   of  the
                        Sarbanes-Oxley Act of 2002.

13                      Certification pursuant to Section 906 of the  Sarbanes-
                        Oxley Act of 2002.

----------
* 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.


                                      -52-
<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:   July 6, 2004

<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                (Constant Mexican Pesos as of December 31, 2003)

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

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

Consolidated Balance Sheets as of December 31, 2003 and 2002............  F-3

Consolidated Statements of Income for the years ended
  December 31, 2003, 2002 and 2001......................................  F-4

Consolidated Statements of Stockholders' Equity
  for the years ended December 31, 2003, 2002 and 2001..................  F-5

Consolidated Statements of Changes in Financial Position for
  the years ended December 31, 2003, 2002 and 2001......................  F-6

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

Schedules to Financial Statements

Schedule I-  Condensed Parent Company Balance Sheets as of
               December 31, 2003 and 2002................................ S-1

Schedule I-  Condensed Parent Company Statements of Income
               for the years ended December 31, 2003, 2002 and 2001...... S-2

Schedule I-  Condensed Parent Company Statements of Changes in
               Financial Position for the years ended
               December 31, 2003, 2002 and 2001.......................... S-3

Schedule I-  Note to Parent Company Financial Statements for the
               years ended December 31, 2003, 2002 and 2001.............. S-4


                                      F-1
<PAGE>

             Report of Independent Registered Public Accounting Firm

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, 2003 and 2002,
and the related  consolidated  statements  of income,  stockholders'  equity and
changes in  financial  position for each of the years in the  three-year  period
ended  December  31,  2003.  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 the Standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Grupo Simec, S. A.
de C. V. and  subsidiaries  as of December 31, 2003 and 2002, and the results of
their  operations  and the changes in their  financial  position for each of the
years in the  three-year  period ended  December 31, 2003,  in  conformity  with
accounting principles generally accepted in Mexico.

Accounting  principles  generally accepted in Mexico vary in certain significant
respects from accounting  principles  generally accepted in the United States of
America.  Information  relating to the nature and effect of such differences (as
restated) is presented in note 17 to the consolidated financial statements.

                                                     KPMG CARDENAS DOSAL, S. C.

                                                     /s/ David Barragan Arteaga

Guadalajara, Mexico
April 15, 2004

                                       F-2

<PAGE>

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

                           Consolidated Balance Sheets

                           December 31, 2003 and 2002

          (Thousands of constant Mexican pesos as of December 31, 2003)

<TABLE>
<CAPTION>

            Assets                                          2003           2002
                                                        -----------    -----------
<S>                                                     <C>                <C>
Current assets:
     Cash and cash equivalents                          $   516,152        113,388
                                                        -----------    -----------
     Accounts receivable:
         Trade                                              454,710        448,187
         Related parties (note 4)                             3,450           --
         Other receivables                                    1,314         55,812
                                                        -----------    -----------
                                                            459,474        503,999
     Less allowance for doubtful accounts                    23,396         26,665
                                                        -----------    -----------
            Total accounts receivable, net                  436,078        477,334
     Inventories, net (note 5)                              288,892        279,833
     Prepaid expenses                                         4,529          6,215
     Derivative financial instruments (note 6)               14,302           --

                                                        -----------    -----------
            Total current assets                          1,259,953        876,770
Trade (note 1e)
                                                             10,300           --
Non-current inventories (note 2e)                            62,314        120,772
Property, plant and equipment, net (note 7)               4,414,978      4,151,720
Other assets, net                                           257,681        280,067
                                                        -----------    -----------
                                                        $ 6,005,226      5,429,329
                                                        ===========    ===========
                 Liabilities and Stockholders' Equity          2003           2002
                                                        -----------    -----------
Current liabilities:
  Current installments of long-term
       debt (note 9)                                    $     4,057         51,850
  Long-term debt, classified as
       current (note 9)                                      18,414        306,082
  Accounts payable                                          206,955        216,619
  Accruals (note 8)                                           8,850          7,377
  Other accounts payable and accrued expenses
                                                             85,455        131,842
  Related parties (note 4)                                      778        172,826
                                                        -----------    -----------
            Total current liabilities                       324,509        886,596
                                                        -----------    -----------
  Seniority premiums (note 10)                                5,178          4,931
  Other long-term liabilities                                 3,810          3,735
  Deferred income taxes (note 11)                         1,045,289        796,682
                                                        -----------    -----------
             Total long-term liabilities                  1,054,277        805,348
                                                        -----------    -----------
              Total liabilities                           1,378,786      1,691,944
                                                        -----------    -----------
Stockholders' equity (note 12):
  Capital stock                                           3,093,067      2,734,425
  Additional paid-in capital                                623,464        623,464
  Retained earnings                                       1,624,422      1,331,439
  Cumulative deferred income taxes                         (828,002)      (828,002)
  Equity adjustment for non-monetary assets                 103,656       (124,192)
  Fair value of derivative financial instruments              9,582           --
                                                        -----------    -----------
      Majority stockholders' equity                       4,626,189      3,737,134
      Minority interest                                         251            251
                                                        -----------    -----------
              Total stockholders' equity                  4,626,440      3,737,385
                                                        -----------    -----------
  Commitments and contingent liabilities (note 14)
  Subsequent event (note 15)
  New accounting pronouncement (note 16)
                                                        -----------    -----------
                                                        $ 6,005,226      5,429,329
                                                        ===========    ===========

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

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

                        Consolidated Statements of Income

                  Years ended December 31, 2003, 2002 and 2001

          (Thousands of constant Mexican pesos as of December 31, 2003,
                       except earnings per share figures)

<TABLE>
<CAPTION>

                                                                      2003             2002             2001
                                                                 -------------    -------------    -------------
<S>                                                              <C>                  <C>              <C>
Net sales (note 13)                                              $   2,785,567        2,196,321        2,091,153
Direct cost of sales                                                 1,829,981        1,469,625        1,403,970
                                                                 -------------    -------------    -------------
              Marginal profit                                          955,586          726,696          687,183
Indirect overhead, selling, general and administrative
        expenses (note 4)                                              463,689          461,392          489,745
                                                                 -------------    -------------    -------------
              Operating income                                         491,897          265,304          197,438
                                                                 -------------    -------------    -------------
Comprehensive financial result:
     Interest expense, net (note 4)                                    (12,340)         (55,478)        (172,327)
     Foreign exchange (loss) gain, net                                  (2,544)        (103,693)         102,911
     Monetary position (loss) gain                                      (9,528)          30,543           74,637
                                                                 -------------    -------------    -------------
              Comprehensive financial result, net                      (24,412)        (128,628)           5,221
Other (expenses) income, net                                           (29,621)         (37,148)          66,820
                                                                 -------------    -------------    -------------
              Income before taxes, employee statutory profit
                 sharing and minority interest                         437,864           99,528          269,479
                                                                 -------------    -------------    -------------
Income taxes (note 11):
   Current                                                              12,265           35,411           21,543
   Deferred                                                            127,769          (58,962)          (5,408)
                                                                 -------------    -------------    -------------
              Total income taxes                                       140,034          (23,551)          16,135
                                                                 -------------    -------------    -------------
   Employee statutory profit sharing (note 11)                           4,846              320            1,458
                                                                 -------------    -------------    -------------
              Income before minority interest                          292,984          122,759          251,886
   Minority interest                                                         1                9               18
                                                                 -------------    -------------    -------------
              Majority interest net income                       $     292,983          122,750          251,868
                                                                 =============    =============    =============
Earnings per share:
   Weighted average shares outstanding                             119,052,681       99,967,222       54,816,134
                                                                 -------------    -------------    -------------
              Earnings per share (pesos)                         $        2.46             1.23             4.59
                                                                 =============    =============    =============

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

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

                 Consolidated Statements of Stockholders' Equity

                  Years ended December 31, 2003, 2002 and 2001

          (Thousands of constant Mexican pesos as of December 31, 2003)

<TABLE>
<CAPTION>

                                                     Additional
                                          Capital      paid-in       Retained
                                           stock       capital       earnings
                                        ----------   ----------   --------------

<S>                                     <C>          <C>          <C>
Balances at December 31, 2000           $1,317,192         --        956,821

Increases in capital stock (note 12a)    1,126,637      623,464         --

Net comprehensive income (note 12b)           --           --        251,868
                                        ----------   ----------   ----------
Balances at December 31, 2001            2,443,829      623,464    1,208,689

Increase in capital stock (note 12a)       290,596         --           --

Net comprehensive income (note 12b)           --           --        122,750
                                        ----------   ----------   ----------
Balances at December 31, 2002            2,734,425      623,464    1,331,439

Increases in capital stock (note 12a)      358,642         --           --

Net comprehensive income (note 12b)           --           --        292,983
                                        ----------   ----------   ----------
Balances at December 31, 2003           $3,093,067      623,464    1,624,422
                                        ==========   ==========   ==========

<CAPTION>
                                                               Equity         Fair value
                                            Cumulative     adjustment for   of derivative
                                             deferred       non-monetary      financial
                                           income taxes        assets        instruments
                                           ------------    --------------   -------------

<S>                                          <C>              <C>              <C>
Balances at December 31, 2000                (828,002)        (209,069)         --

Increases in capital stock (note 12a)            --               --            --

Net comprehensive income (note 12b)              --           (188,531)         --
                                             --------         --------         -----
Balances at December 31, 2001                (828,002)        (397,600)         --

Increase in capital stock (note 12a)             --               --            --

Net comprehensive income (note 12b)              --            273,408          --
                                             --------         --------         -----
Balances at December 31, 2002                (828,002)        (124,192)         --

Increases in capital stock (note 12a)            --               --            --

Net comprehensive income (note 12b)              --            227,848         9,582
                                             --------         --------         -----
Balances at December 31, 2003                (828,002)         103,656         9,582
                                             ========         ========         =====

<CAPTION>

                                              Total                      Total
                                             majority      Minority   stockholders'
                                             interest      interest      equity
                                            ---------     ---------   -------------

<S>                                        <C>                <C>       <C>
Balances at December 31, 2000               1,236,942         228       1,237,170

Increases in capital stock (note 12a)       1,750,101         --        1,750,101

Net comprehensive income (note 12b)            63,337          10          63,347
                                            ---------         ---       ---------
Balances at December 31, 2001               3,050,380         238       3,050,618

Increase in capital stock (note 12a)          290,596         --          290,596

Net comprehensive income (note 12b)           396,158          13         396,171
                                            ---------         ---       ---------
Balances at December 31, 2002               3,737,134         251       3,737,385

Increases in capital stock (note 12a)         358,642         --          358,642

Net comprehensive income (note 12b)           530,413         --          530,413
                                            ---------         ---       ---------
Balances at December 31, 2003               4,626,189         251       4,626,440
                                            =========         ===       =========

</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, 2003, 2002 and 2001

          (Thousands of constant Mexican pesos as of December 31, 2003)

<TABLE>
<CAPTION>

                                                                           2003        2002         2001
                                                                        ---------    --------    ----------
<S>                                                                     <C>           <C>           <C>
Operating activities:
   Net income before minority interest                                  $ 292,984     122,759       251,886
    Add charges (deduct credits) to operations not requiring
       (providing) funds:
        Depreciation and amortization                                     182,180     162,107       145,781
        Deferred income taxes                                             127,769     (58,962)       (5,408)
        Gain on sale of property and transportation equipment                --          --            (269)
        Write-down of idle machinery                                       17,824      10,455          --
        Adjustment of land to net realizable value                           --        20,624          --
        Accrual for seniority premiums                                        247         139          --
                                                                        ---------    --------    ----------
                        Funds provided by operations                      621,004     257,122       391,990
    Net financing from (investing in) operating accounts:
        Trade receivables, net                                            (20,092)    (77,511)       18,350
        Other accounts receivable and prepaid expenses                     56,184      10,768        13,676
        Inventories, net                                                   (9,059)     18,531         7,102
        Derivative financial instruments                                  (14,302)       --            --
        Intercompany receivables                                           (3,450)       --            --
        Accounts payable, other accounts payable and accrued expenses     (60,105)     96,614      (149,628)
        Intercompany payables                                            (172,048)     23,862       148,076
                                                                        ---------    --------    ----------
                      Funds provided by operating activities              398,132     329,386       429,566
                                                                        ---------    --------    ----------
Financing activities:
    Increases in capital stock                                            358,642     290,596     1,126,637
    Additional paid-in capital                                               --          --         623,464
    (Decrease) increase in convertible debt                                  --          --      (1,049,737)
    Unpaid foreign exchange gain (loss)                                     5,527      73,245       (78,896)
    Financial debt repayment                                             (331,513)   (569,148)     (988,966)
    Decrease in debt due to restatement to constant Mexican pesos
              as of year end                                               (3,948)    (32,323)      (68,042)
    Seniority premium payments                                               --          --            (506)
    Other long-term liabilities                                                75        (892)         (300)
                                                                        ---------    --------    ----------
                    Funds provided by (used in)
                           financing activities                            28,783    (238,522)     (436,346)
                                                                        ---------    --------    ----------
Investing activities:
    Decrease in long-term inventories                                      58,458     (15,432)       (4,383)
    Acquisition of plant and equipment                                    (58,841)     (9,271)      (41,775)
    Proceeds from sale of property and transportation equipment              --          --             899
    Decrease (increase) in other noncurrent assets                        (23,768)    (20,108)      (13,769)
                                                                        ---------    --------    ----------
                    Funds used in investing activities                    (24,151)    (44,811)      (59,028)
                                                                        ---------    --------    ----------
                   Increase (decrease) in cash and cash equivalents       402,764      46,053       (65,808)
Cash and cash equivalents:
    At beginning of year                                                  113,388      67,335       133,143
                                                                        ---------    --------    ----------

    At end of year                                                      $ 516,152     113,388        67,335
                                                                        =========    ========    ==========

</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

          (Thousands of constant Mexican pesos as of December 31, 2003)

(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)  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)   During the years 2003, 2002 and 2001 there were increases in capital
            stock as well as changes in ownership interests, which are described
            in note 12.

      (b)   During   2003  and   2002  the   Company   undertook   a   corporate
            reorganization  in  order to  optimize  operations.  Certain  of the
            transactions performed were as follows:

            -     To spin-off Compania Siderurgica de Guadalajara,  S.A. de C.V.
                  (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
                  Extraordinary  Stockholders'  Meeting  held on August 7, 2002,
                  the stockholders agreed to merge both entities. 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,  from  that  date,  CSC  took  on  the  rights  and
                  obligations of CSO.

                                                                     (Continued)

                                      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, 2003)

            -     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,  at the  General  Extraordinary
                  Stockholders'  Meeting of DICOISA  held on April 9, 2002,  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.

                  On September 30, 2002, the  stockholders  agreed to merge ASIS
                  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 expand 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. 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.

            -     To merge Las Torres  into CSC;  at the  General  Extraordinary
                  Stockholders'  Meeting held on June 30, 2003, the stockholders
                  agreed to the merger of these  entities,  which took effect as
                  of July 1, 2003.

      (c)   During the years ended December 31, 2003 and 2002,  CSG, CSO and CSC
            repaid  1,452,887  and  6,676,247  dollars  in  connection  with the
            industrial  mortgage loan  agreement.  Furthermore,  during 2003 and
            2002 these  companies  prepaid  29,930,517 and  47,941,199  dollars,
            respectively (see notes 9a and 15).

      (d)   Pacific  Steel,  Inc (PS) 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 part
            of its land at net realizable value,  based on the appraisal made by
            independent  appraisers.   This  resulted  in  a  $20,624  ($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, 2003 PS
            recognized  a 1,661,181  dollars  ($18,665)  provision  for clean up
            expenses.

                                                                     (Continued)

                                      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, 2003)

      (e)   Derived  from a public  bidding  process  for  non-performing  loans
            without  recourse,  in 2003  ICH  acquired  through  its  subsidiary
            Administradora de Cartera de Occidente,  S.A. de C.V.  (ACOSA),  the
            assignment of shared recovery loans as well as litigious  rights and
            certain  loan-related  obligations.  Subsequently,  on December  11,
            2003, and with the  authorization of the assignor banks, ICH sold to
            Simec  99.98% of the ACOSA  shares.  At December  31, 2003 the total
            investment  amount  was  $10,300.   When  the  Company  reaches  its
            break-even  point it must pay to the  assignors  50% of the  amounts
            recovered  (after deducting  authorized  amounts spent on recovering
            these  amounts),  within the first five  business  days of the month
            following that which recovery took place.

(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 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
                   -----------     ---------        ---------
                      2003          106.996          3.97%
                      2002          102.904          5.70%
                      2001           97.354          4.40%

            For purposes of these consolidated  financial  statements,  pesos or
            "$" means Thousands of 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.

                                                                     (Continued)

                                      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, 2003)

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

<TABLE>
<CAPTION>
                                                                                                     Equity
                                                                                                 ---------------

<S>                                                                                                  <C>
             - 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. (merged in 2003 into               99.99%
                   CSC)
                 - Compania Siderurgica del Pacifico, S.A. de C.V.                                   99.99%
                 - Consorcio Internacional, S.A. de C.V. (in liquidation)                            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, 99.99% S.A. de C.V.)
                 - Industrias del Acero y del Alambre, S.A. de C.V.                                  99.99%
                 - Metalica las Torres, S.A. de C.V.  (merged in 2003 into CSC)                      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%
             - Administradora de Cartera de Occidente, S.A. de C.V. (from 2003)                      99.99%

</TABLE>

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

                                                                     (Continued)

                                      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, 2003)

      (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 work       At the  most  recent  direct
               in process-                          production cost.

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

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

             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,  expresed  in  constant  pesos as of the most
             recent year-end.

      (f)   Derivative financial instruments-

            During 2003, the Company used derivative  financial  instruments for
            hedging  risks  associated  with  natural  gas prices and  conducted
            studies  on  historical   consumption,   future   requirements   and
            commitments; thus it avoided exposure to risks other than the normal
            operating  risks.  Management of the Company  examines its financial
            risks by continually analyzing price, credit and liquidity risks.

            The  Company  uses  futures   contracts   for  hedging   risks  from
            fluctuations  in natural gas  prices,  which are based on demand and
            supply at the principal international markets.

                                                                     (Continued)


                                      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, 2003)

            As applicable,  the Company recognized the fair value of instruments
            either as liabilities or assets. Such fair value and thus, the value
            of these assets or liabilities were restated at each month's-end. As
            indicated in note 6 to the consolidated  financial  statements,  the
            Company opted for the early  adoption of Bulletin  C-10  "Derivative
            Financial Instruments and Hedging";  therefore, at December 31, 2003
            the fair value of natural gas in force  during  2004,  2005 and 2006
            and which  effective  portions will not be offset  against the asset
            risks  until  consumed,  were  recognized  within the  comprehensive
            income account in stockholders' equity.

      (g)   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 country's particular currency 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 2003 and 2002 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.

      (h)   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.

                                                                     (Continued)


                                      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, 2003)

      (i)   Accruals-

            Based on management  estimates,  the Company recognizes accruals for
            present obligations in which the transfer of assets or the rendering
            of services is virtually  inevitable  and arise as a consequence  of
            past  events,  principally  salaries  and other  amounts  payable to
            employees, and fees.

      (j)   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, 2003 and 2002  amounted to $551
            and  $1,030,  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.

      (k)   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,
            2003, the estimated service lives of eligible employees approximates
            between 8 and 9 years (see note 10).

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

      (l)   Income  (IT) and asset  (AT)  taxes and  employee  statutory  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.

                                                                     (Continued)


                                      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, 2003)

            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.

      (m)   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  generated.  The
            resulting  amounts  represent  the constant  value of  stockholders'
            equity.

      (n)   Cumulative deferred income taxes-

            Represents  the  cumulative  effect of the  adoption of the deferred
            taxes accounting  principles,  expressed in constant pesos as of the
            most recent year-end.

      (o)   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.

      (p)   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 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.

                                                                     (Continued)


                                      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, 2003)

      (q)   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.

      (r)   Business and credit concentrations-

            The  Company's  principal  activity is the  manufacture  and sale of
            steel products primarily for 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.

      (s)   Earnings per share-

            The basic  earnings  per share of each  period has been  computed by
            dividing  the net income by the  weighted  average  number of shares
            outstanding of each period.

      (t)   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 cannot 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.

      (u)   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.

                                                                     (Continued)


                                      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, 2003)

      (v)   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.  Significant  items subject to such estimates
            and assumptions  include the carrying amount of property,  plant and
            equipment;  valuation  allowances for  receivables,  inventories and
            deferred income tax assets; valuation of financial instruments;  and
            assets and obligations related to employee benefits.  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, 2003 and 2002 were as follows:


<TABLE>
<CAPTION>
                                                                      Thousands of      Thousands of
                                  Thousands of           Thousands of          Pounds           Deutsche
                                     Dollars                 Euros            Sterling           Marks
                              --------------------      -------------     --------------      -----------
                                2003         2002       2003      2002    2003      2002      2003    2002
                              -------      -------      ----      ----    ----      ----      ----    ----
      <S>                      <C>         <C>          <C>       <C>      <C>      <C>       <C>      <C>
      Current assets           45,275        9,485      --        --       --       --        --       44

      Current liabilities      (7,159)     (52,641)     (116)     (48)     (87)     (141)     (49)     --
                              -------      -------      ----      ---      ---      ----      ---      --

      Net (liabilities)
          assets               38,116      (43,156)     (116)     (48)     (87)     (141)     (49)     44
                              =======      =======      ====      ===      ===      ====      ===      ==

</TABLE>

      The exchange rate of the peso to these  foreign  currencies as of December
      31, 2003 and 2002 was as follows (amounts in pesos):

                                                     2003                2002
                                                    ------             --------
      Dollar                                        11.236              10.3125
      Euro                                          14.165              10.0260
      Pound Sterling                                20.101              16.9130
      Deutsche Mark                                  7.240               5.6375

                                                                     (Continued)



                                      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, 2003)

      At April 15,  2004,  foreign  exchange  rates were as follows  (amounts in
      pesos):

      Dollar                                                     11.285
      Euro                                                       13.486
      Pound Sterling                                             20.174
      Deutsche Mark                                               6.895

      At December 31, 2003,  the Company did not have foreign  exchange  hedging
      instruments.

      At December 31, 2003 and 2002, the Company had the following  non-monetary
      assets of foreign origin, or which replacement cost may only be determined
      in dollars.

                                                         Thousands of dollars
                                                      --------------------------
                                                        2003              2002
                                                      --------           -------
      Machinery and equipment, net                    $240,775           187,264
      Inventories                                       10,527             7,599
                                                      --------           -------
                                                       251,302           194,863
                                                      ========           =======

      Below is a summary of transactions  carried out with foreign entities for
      the years  ended  December  2003,  2002 and 2001,  excluding  imports  of
      machinery and equipment:

                                                  Thousands of dollars
                                         ---------------------------------------
                                           2003            2002           2001
                                         --------        -------        --------
      Sales                              $ 28,810         25,655         15,513
      Purchases (raw materials)           (24,304)       (22,255)       (20,944)
      Other expenses (spare parts)           (462)        (4,037)        (6,013)
      Interest expense                     (3,312)        (5,190)       (11,997)
                                         ========        =======        =======

      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.

                                                                     (Continued)


                                      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, 2003)

      The  Company  has  foreign   subsidiaries,   which  combined   assets  and
      liabilities are summarized as follows (excluding B-10 restatement):

                                                          Thousands of dollars
                                                       -------------------------
                                                        2003              2002
                                                       -------           -------
      Current monetary assets                              563              379
      Inventories                                      $    37                8
      Current liabilities                               (4,702)          (3,124)
                                                       -------           ------
              Working capital                           (4,102)          (2,737)
      Property, plant and equipment                      1,882            1,963
                                                       =======           ======

(4)   Related-party transactions and balances -

      Transactions  carried  out with  related  parties  during the years  ended
      December 31, 2003, 2002 and 2001 were as follows:

                                              2003           2002         2001
                                            ---------      -------      --------
      Sales                                 $ 173,339       33,553          116
      Purchases                                12,634         --           --
      Interest income (expense), net           (2,517)      (9,372)     (11,579)
      Administrative services received          8,386        8,119        1,459
                                            =========      =======      =======

      Balances receivable from, and payable to, related companies as of December
      31, 2003 are as follows:

      Accounts receivable:                                           2003
      --------------------                                        ----------
      Industrias CH, S.A. de C.V                                    $  741
      Aceros y Laminados Sigosa, S.A. de C.V                         2,709
                                                                    ------
                                                                    $3,450
                                                                    ======

                                                                     (Continued)


                                      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, 2003)

      Accounts payable:                               2003           2002
      -----------------                           ------------   -----------
      Industrias CH, S.A. de C.V. (i)               $   --         172,826
      Others                                             778          --
                                                    --------       -------
                                                    $    778       172,826
                                                    ========       =======

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

            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 12,  at the  General  Ordinary  Stockholders'
            Meeting of Simec held on June 5, 2002,  the  stockholders  agreed to
            increase  the   variable   capital   stock  by  $318,588   ($297,498
            historical)  by issuing  407,867,548  common  Series "B" shares.  As
            mentioned  in the  preceding  paragraphs,  ICH  subscribed  and paid
            336,396,918  of the shares  issued,  through the  capitalization  of
            CSG's debt  (principal  and  interest  thereon)  with ICH as of that
            date.

                                                                     (Continued)


                                      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, 2003)

(5)   Inventories -

      Inventories are comprised as follows:

                                                      2003           2002
                                                  ------------   -----------
      Finished goods                                $ 68,705        67,355
      Work in process                                  3,084        16,232
      Billets                                         38,922        32,657
      Raw materials                                   66,737        50,201
      Materials, spare parts and rollers              67,840        76,214
      Advances to suppliers and others                41,265        36,776
      Goods in transit                                 7,332         4,609
                                                    --------       -------
                                                     293,885       284,044
      Less allowance for obsolescence                  4,993         4,211
                                                    --------       -------
                                                    $288,892       279,833
                                                    ========       =======

      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  creditor  banks,  which was repaid in full in 2004 (see note
      15).

(6)   Derivative instruments -

      The Company uses derivative  financial  instruments  mainly for offsetting
      exposure  to market  risk  derived  from  changed in natural  gas  prices.
      Derivative   instruments   currently  used  by  the  Company   consist  of
      consumption  futures.  The Company executes futures  contracts,  which are
      designated as hedge for specific natural gas volumes,  to be purchased and
      processed  in  future  months.  These  futures  contracts,   ready  to  be
      exchanged,  are recognized in the balance sheet at fair value.  Changes in
      the fair  value of  futures  contracts,  which are  highly  effective  and
      assigned and rated as cash flow hedging are recorded under  "comprehensive
      income"  in  stockholders'   equity,  in  conformity  with  Bulletin  C-10
      "Derivative Financial Instruments and Hedging",  which the Company adopted
      on an early basis.

      In late 2003 the Company contracted  derivative financial  instruments for
      hedging  purposes to cover price  fluctuations of natural gas prices.  The
      hedge will guarantee the Company's  natural gas  consumption  from 2004 to
      2006 at a fixed price of 4.462 dollars per MMBtu (million  British Thermal
      Units). As a result, at December 31, 2003 the Company  recognized an asset
      of $14,302,  a deferred  IT  liability  of $4,720 and a net  comprehensive
      income in stockholders' equity of $9,582.

                                                                     (Continued)


                                      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, 2003)

(7)   Property, plant and equipment-

      Property, plant and equipment comprise the following:

                                                        2003           2002
                                                     ----------     ---------
      Buildings                                      $1,545,610     1,545,562
      Machinery and equipment                         4,473,496     3,743,745
      Transportation equipment                           40,578        40,898
      Furniture, fixtures and computer equipment         32,599        32,893
                                                     ----------     ---------
                                                      6,092,283     5,363,098
      Less accumulated depreciation                   2,092,527     1,668,270
                                                     ----------     ---------
                                                      3,999,756     3,694,828
      Land                                              372,185       364,426
      Construction in progress                              522        29,743
      Idle machinery and equipment                       42,515        62,723
                                                     ----------     ---------
                                                     $4,414,978     4,151,720
                                                     ==========     =========

      Through  December 31, 2003 and 2002,  the Company has  capitalized  CFR of
      $453,685 and $467,938, respectively, supplementary to the acquisition cost
      of property, plant and equipment.

      At December 31, 2003 and 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.

      The industrial  plant secures the debt originally  payable by CSG and then
      transferred to CSC,  related to the industrial  mortgage loan entered into
      with  several  creditor  banks  which was repaid in full in 2004 (see note
      15).

                                                                     (Continued)


                                      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, 2003)

(8)   Accruals -

      Accruals at December 31, 2003 include the following:

                                          Salaries and
                                        other personnel
                                            benefits       Fees         Total
                                        ---------------    -----        -----
      Balances at December 31, 2002          $6,189        1,188        7,377
      Increases charged to operations         8,518        1,314        9,832
      Payments                                7,258        1,101        8,359
                                             ------        -----        -----
      Balances at December 31, 2003          $7,449        1,401        8,850
                                             ======        =====        =====

(9)   Long-term debt-

      At December 31, 2003 and 2002, the Company's long-term debt is as follows:

                                                              2003        2002
                                                            --------     -------
      Industrial mortgage loan (a)                           $19,078     354,694
      Medium-term notes (b)                                    3,393       3,238
                                                             -------     -------
      Total long-term debt                                    22,471     357,932
      Less current installments                                4,057      51,850
                                                             -------     -------
      Long-term debt excluding current
      installments and debt classified as current            $18,414     306,082
                                                             =======     =======

                                                                     (Continued)


                                      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, 2003)

      (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.

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

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

                                                               Six-month
                     Class                  Tranche            Libor plus
                  -----------            --------------     -----------------
                       A                      A'                 4.125%
                       B                      B-1                4.375%
                       B                      B-2                4.375%

            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

                                                                     (Continued)


                                      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, 2003)

            The  debt  restructuring  agreement  provides  for  compliance  with
            certain  requirements  and obligations,  which in certain  instances
            were not met.  Therefore,  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 was
            classified as current in the balance sheets.

            The  amounts  paid by the Company  for the  installments  due in the
            years  2003  and  2002  were   1,452,887  and   6,676,247   dollars,
            respectively.  Also in 2003 and 2002 the Company prepaid  29,930,517
            and  47,941,199  dollars plus interest  thereon,  respectively.  The
            Company repaid this loan in full during 2004 (see note 15).

            At December 31, 2003 and 2002 the balance of the industrial mortgage
            loan amounts to 1,697,952 and 33,081,356 dollars, 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 for
            new notes issued by CSG (New Notes) ranked as third priority  notes.
            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, 2002,  Simec  cancelled  200,000 dollars of its debt with
            medium-term  note holders by paying  100,000  dollars and  obtaining
            forgiveness for another 100,000  dollars plus accrued  interest.  At
            December  31,  2003 the  remaining  medium-term  notes that were not
            exchanged  amount to  approximately  302,000  dollars  plus  accrued
            interest.

                                                                     (Continued)


                                      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, 2003)

(10)  Seniority premiums-

      The cost, obligations and other seniority premium components, mentioned in
      note  2k,  have  been  determined   based  on  computations   prepared  by
      independent actuaries at December 31, 2003, 2002 and 2001.

      The  components of the net periodic cost for the years ended  December 31,
      2003, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                  2003        2002       2001
                                                                  -----       ----       ----
<S>                                                               <C>         <C>        <C>
      Net periodic cost:
         Service cost                                             $282        351        382
         Financial cost                                            198        229        252
         Amortization of transition liability                      237         79         30
         Amortization  of  prior  service  cost  and  plan
            modifications                                           64        302        270
                                                                  ----        ---        ---
            Net periodic cost                                     $781        961        934
                                                                  ====        ===        ===
      </TABLE>

            The actuarial present value of benefit obligations is as follows:

<TABLE>
<CAPTION>
                                                                         2003           2002
                                                                       --------        -------
<S>                                                                    <C>             <C>
      Projected benefit obligation (PBO)                               $ 5,855          5,577

      Unamortized items:
         Transition asset                                               (2,293)        (2,196)
         Variances in assumptions and experience adjustments
                                                                          (315)          (770)
         Additional liability                                            1,931          2,320
                                                                       -------         ------
         Unfunded  accrued  pension  liability  included in the
            consolidated balance sheets                                $ 5,178          4,931
                                                                       =======         ======
      </TABLE>

                                                                     (Continued)


                                      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, 2003)

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

                                                         2003           2002
                                                         -----          -----
      Discount rate                                      4.5%           4.5%
      Rate of compensation increase                        1%           0%
      Expected return on plan assets                     8.6%           6%

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

      ICH,  the  holding  company of Simec 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 this
      regime,   each  entity   included  in  the  Company   calculates   its  IT
      expenses/benefit on a separate basis.

      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.

                                                                     (Continued)


                                      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, 2003)

      At  December  31,  2003  and  2002  and  2001  the  IT  expense  (benefit)
      attributable to income from continuing  operations before IT and ESPS, and
      minority  interest,  differed  from the amount  computed by  applying  the
      Mexican  IT rate of 34% in 2003 and 35% in 2002 and  2001 to  income  from
      continuing operations, before these provisions and minority interest, as a
      result of the following:

<TABLE>
<CAPTION>
                                                                2003              2002           2001
                                                             ---------          -------        --------
<S>                                                          <C>                <C>             <C>
      Computed "expected" tax expense                        $ 148,874          34,835          94,318
      Increase (decrease) resulting from:
         Effects of inflation, net                              39,023           8,434         (15,143)
         Non-deductible expenses                                   387           4,395           4,433
         Adjustments for enacted changes in tax laws
           and rates                                           (31,675)        (23,432)           --
         Change in valuation  reserve of deferred tax
           assets                                              (42,956)        (52,938)         47,698
         Mayority asset tax                                     12,137          14,646         (25,667)
         Other, net                                             14,244          (9,491)        (89,504)
                                                             ---------         -------         -------
           IT expense (benefit)                              $ 140,034         (23,551)         16,135
                                                             =========         =======         =======

</TABLE>

                                                                     (Continued)


                                      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, 2003)

      The tax effects of  temporary  differences  that give rise to  significant
      portions of the deferred tax assets and  liabilities  at December 31, 2003
      and 2002, are presented below:

                                                         2003            2002
                                                      ----------      ----------
      Deferred tax assets:
         Allowance for doubtful receivables           $    7,721          9,066
         Accrued expenses                                  9,529          9,825
         Advances from customers                          43,018         75,694
         Net operating loss carryforwards                202,034        438,706
         Recoverable AT                                  168,496        158,269
         Other                                              --               38
                                                      ----------      ---------
                 Total gross deferred tax assets         430,798        691,598
         Less valuation allowance                        184,820        227,776
                                                      ----------      ---------
                Net deferred tax assets                  245,978        463,822
                                                      ----------      ---------
       Deferred tax liabilities:
          Inventories, net from the balance as
          of December 31, 1986 not yet deducted           93,840        162,632
          Derivative financial instruments                 4,720           --
          Property, plant and equipment                1,109,445        990,184
          Preoperating expenses                           82,708        107,235
          Others                                             554            453
                                                      ----------      ---------
                 Total gross deferred tax
                  liabilities                          1,291,267      1,260,504
                                                      ----------      ---------
                 Net deferred tax liability           $1,045,289        796,682
                                                      ==========      =========

                                                                     (Continued)


                                      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, 2003)

      Based on  calculations  made by the  Company's  management,  the  deferred
      employee  statutory  profit sharing is immaterial at December 31, 2003 and
      2002. The valuation  allowance for deferred tax assets as of December 2003
      and 2002 was $184,820 and  $227,776,  respectively.  The net change in the
      total  valuation  allowance for the years ended December 31, 2003 and 2002
      was a decrease of $42,956 and  $52,938,  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.

      At December  31,  2003,  tax loss  carryforwards  and  recoverable  AT not
      affecting ESPS, expire as follows:

                                         Restated through December 31, 2003
                                         ----------------------------------
                                           Tax loss              Recoverable
         Expiring in                     carryforwards                AT
         -----------                     -------------           -----------
            2004                           $167,838                 2,631
            2005                            338,135                 1,961
            2006                              1,102                 7,138
            2007                              9,257                18,170
            2008                             23,341                30,046
            2009                              9,787                16,057
            2010                                611                45,394
            2011                              3,518                14,900
            2012                             57,675                17,702
            2013                                961                14,497
                                           --------               -------
                                           $612,225               168,496
                                           ========               =======

      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
      years ended December 31, 2003 and 2002 the Company recognized decreases in
      net deferred tax liabilities of $31,675 and $23,432,  respectively,  which
      were credited to the results of operations of such years.

                                                                     (Continued)



                                      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, 2003)

(12)  Stockholders' equity -

      The principal characteristics of stockholders' equity are described below:

      (a)   Structure of capital stock-

            i)    At the Ordinary  General  Stockholders'  Meeting held on March
                  26,  2003,  the  stockholders  agreed to increase the variable
                  capital  stock  by  $222,835  ($214,326   historical)  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. Of the remaining  2,374,331  shares,
                  1,313,541   shares  were   subscribed   by  the  rest  of  the
                  shareholders,   leaving  1,060,790  shares  in  the  Company's
                  treasury,  which as mentioned in paragraph  (iii) below,  were
                  subsequently  subscribed by ICH,  increasing  capital stock by
                  $204,061 ($198,851 historical).

            ii)   At the Board of  Directors'  Meeting  held on May 21, 2003 the
                  directors  resolved  to record  as  contributions  for  future
                  capital  stock  increases   $154,580   ($150,414   historical)
                  corresponding  to various  Company  stockholder  contributions
                  with  the  purpose  of  CSC  for  settling  a  portion  of its
                  industrial mortgage loan at such date.

            iii)  At the Ordinary General Stockholders' Meeting held on November
                  19,  2003,  the  stockholders  agreed to increase the variable
                  capital  stock  by  $162,884  ($162,235   historical)  issuing
                  11,120,951 common Series "B" shares, of which 9,249,836 shares
                  were subscribed and paid through the  contributions for future
                  capital stock  increases  referred to in paragraph (ii) above.
                  The remaining  1,871,115 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.   Also  at  the  Meeting,   the
                  stockholders   agreed  to  the  subscription  by  ICH  of  the
                  1,060,790  shares held in the Company's  treasury  since March
                  26, 2003, equal to $15,537 ($15,475 historical) (see paragraph
                  i) above).  This  accounted  for a capital  stock  increase of
                  $154,581 ($150,414 historical).

            iv)   At the  Extraordinary  General  Stockholders'  Meeting held on
                  April  30,  2002,  the  stockholders'  agreed to  undertake  a
                  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  Series "B"
                  shares.

                                                                     (Continued)


                                      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, 2003)

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

                  -     Increase   the  variable   capital   stock  by  $318,588
                        ($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  debt. 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  $290,596
                        ($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 (iv) 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.

            vi)   At the  Extraordinary  Board  of  Directors'  meeting  held on
                  February  7,  2001,   the  Board   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 $407,878 ($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 $623,464  ($549,516  historical)
                  on March 29, 2001.

            vii)  At  the  Ordinary  and  Extraordinary   General  Stockholders'
                  Meeting held on August 27, 2001,  the  stockholders  agreed to
                  increase  the  Company's  variable  capital  stock by $718,759
                  ($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.

                                                                     (Continued)


                                      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, 2003)

                  After the above activity,  the Company's capital stock amounts
                  to $3,093,067  represented by 131,973,022  common,  Series "B"
                  shares with no par value.  Such shares may be  subscribed  and
                  paid by Mexican or foreign individuals or corporations.

                  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-

            The comprehensive income reported on the statements of 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:

<TABLE>
<CAPTION>
                                                                 2003         2002       2001
                                                              ---------    --------    --------
<S>                                                           <C>           <C>         <C>
            Net income                                        $ 292,983     122,750     251,868
            Result from holding non-monetary assets             358,463     404,311    (225,255)
            Deferred income  taxes  on  the  result  from
             holding non-monetary assets                       (130,615)   (130,903)     36,724
            Fair value of derivative financial instruments       14,302        --          --
            Deferred  income  taxes  on the  fair  value of
             derivative financial instruments                    (4,720)       --          --
                                                              ---------    --------    --------
                    Total                                     $ 530,413     396,158      63,337
                                                              =========    ========    ========
</TABLE>

      (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, 2003 the statutory reserve amounts to $13,122.

            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,  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 33%,  payable  by the
            Company; consequently, the stockholders may only receive 67% of such
            amounts.  It is not the  Company's  intention  to incur  incremental
            income taxes by distributing  earnings before income taxes have been
            paid on such earnings.

                                                                     (Continued)


                                      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, 2003)

            According to the loan restructuring contracts referred to in note 9,
            the Company has restrictions as to the payment of dividends.

(13)  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.

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

                                                 2003         2002       2001
                                              ----------   ---------   ---------
      Mexico                                  $2,466,398   1,929,931   1,930,050
      United States of America                   314,850     257,865     154,683
      Latin America                                2,264       7,225       5,145
      Canada                                        --           456        --
      Other                                        2,055         844       1,275
                                              ----------   ---------   ---------
                                              $2,785,567   2,196,321   2,091,153
                                              ==========   =========   =========

(14)  Commitments and contingent liabilities-

      Commitments -

      (a)   As discussed in note 6 to the financial statements, late in 2003 the
            Company contracted with PEMEX Gas y Petroquimica Basica,  derivative
            financial   instruments   for   hedging   purposes  to  cover  price
            fluctuations  of natural gas prices.  The hedge will  guarantee  the
            Company's natural gas consumption from 2004 to 2006 at a fixed price
            of 4.462 dollars per MMBtu.

      (b)   At December 31, 2003,  the Company has a number of supply  contracts
            whereby  it  undertakes  to  supply  certain  customers  with  steel
            products during 2004.  Noncompliance  by the Company could result in
            the   merchandise   being   rejected   and/or   returned   with   no
            responsibility for the supplier. These commitments include that with
            Aceros y Laminados  Sigosa,  S.A. de CV.  (SIGOSA)  (related  party)
            whereby  CSC  undertakes  to supply to SIGOSA  44,000  tons of steel
            during the period from January 1 to December 31, 2004.

                                                                     (Continued)


                                      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, 2003)

      Contingent liabilities-

      (c)   Pacific  Steel,  Inc (PS) has been sued  regarding  the  generation,
            storage,  transportation  and  disposal of materials  classified  as
            hazardous waste by the California government. The Company has denied
            these claims;  however,  it cannot currently  predict the outcome of
            this matter. 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
            $20,624 ($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,  2003 PS  recognized  a  1,661,181  dollars  ($18,665)
            provision for clean up expenses.

      (d)   In 1989 the  Californa  Regional  Council  for Water  Control at San
            Diego (the  Regional  Council)  required  PS to take a sample of the
            soil at the  automobile  waste  crusher  storage  site  (process not
            currently  performed  by PS) and to submit the results and  cleaning
            alternatives to the Regional  Council,  which it did.  However,  the
            Regional   Council   has  not   responded   to  PS.   Based  on  the
            recommendation    of    environmental    engineering    consultants,
            consultations   with  other   parties  and  the  fact  that  PS  has
            discontinued its waste processing  operations,  the Company believes
            the related  contingency  amount will be covered by the provision of
            paragraph (c) above.

      (e)   On July 13,  2001 CSG filed  nullification  proceedings  against the
            negative response to the request for decreasing its estimated income
            taxes for September to December 2000 which had been filed before the
            "Decimo  Primera Sala  Regional  Metropolitana"  (Eleventh  Regional
            Metropolitan Courtroom) of the Tribunal Federal de Justicia Fiscal y
            Administrativa (Federal Tax and Administrative Court of Justice). On
            September 8, 2003 the tax authorities  replied to the  nullification
            proceedings filed by CSG; therefore,  on November 27, 2003 CSG filed
            the corresponding  brief,  evidencing the erroneous arguments in the
            authority's  reply.  In the Company's  management  and legal counsel
            opinion,  there  are  reasonable  defenses  to  obtain  a  favorable
            resolution for CSG.

                                                                     (Continued)


                                      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, 2003)

      (f)   On February 13, 2003,  Coordinadora  de  Servicios  Siderurgicos  de
            Calidad,  S.A.  de C.V.  (COSESICA)  filed  an  appeal  against  the
            unconstitutionality  of  the  tax  substituting  the  salary  credit
            (provided for by Transitory  Article Three of the IT Law), in effect
            as of January 1, 2003, before the former Juzgado Tercero de Distrito
            en Materia  Administrativa  en el Estado de Jalisco (Third  District
            Court on Administrative Matters for the State of Jalisco);  however,
            the District Judge claiming lack of jurisdiction,  resolved that the
            competent  court  to hear  and  determine  the  case is the  Juzgado
            Segundo de Distrito del Estado de Baja California  (Second  District
            Court for the State of Baja California),  located in Mexicali.  This
            led to a  suit  where  COSESICA  awaits  the  final  ruling.  In the
            Company's  management and legal counsel opinion there are reasonable
            defenses to obtain a favorable resolution for COSESICA.

      (g)   On July 2,  2003,  CSG filed  nullification  proceedings  before the
            Tribunal  Federal de Justicia Fiscal y  Administrativa  (Federal Tax
            and  Administrative  Court of Justice)  against an  official  letter
            issued  by  the   Administracion   Central   de   Auditoria   Fiscal
            Internacional  (Central  International Fiscal Auditing Office) under
            the  Servicio  de   Administracion   Tributaria   (Internal  Revenue
            Service),  whereby CSG is deemed to have unpaid  taxes of $84,979 on
            alleged  omission  (being  jointly  liable) in the payment of income
            taxes it  should  have  withheld  from  third  parties  on  interest
            payments abroad in fiscal 1998,  1999, 2000, and for the period from
            January 1 to June 30, 2001.  CSG presently  awaits the  authorities'
            reply.  In the Company's  management and legal counsel opinion there
            are reasonable defenses to obtain a favorable resolution for CSG.

      (h)   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.

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

      (j)   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 obtained 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 unpaid taxes.

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

                                                                     (Continued)


                                      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, 2003)

(15)  Subsequent event-

      On March 18, 2004,  the Company made a  prepayment  of 1,697,952  dollars,
      plus interest,  to fully repay the  industrial  mortgage loan mentioned in
      note 9a.

(16)  Recently issued accounting pronouncements under Mexican GAAP-

      Financial  Instruments  with  Characteristics  of  Liabilities, Equity, or
      Both-

      In May 2003, the Mexican Institute of Public  Accountants  issued Bulletin
      C-12, "Financial Instruments with Characteristics of Liabilities,  Equity,
      or Both."  Bulletin  C-12, is effective for fiscal years  beginning  after
      December 31, 2003,  although  earlier  application is permitted.  Bulletin
      C-12 puts together  regulations  contained in other  bulletins  related to
      issuance of complex financial instruments,  and adds regulations necessary
      for a comprehensive  resolution of general problems.  Therefore,  Bulletin
      C-12  defines  the  basic  differences  between  liabilities  and  equity;
      establishes  rules for the  classification  and valuation of the liability
      and equity  components  of combined  financial  instruments,  upon initial
      recognition;  and establishes  rules for disclosure of combined  financial
      instruments.   Under  Bulletin  C-12,  financial   instruments  should  be
      classified  as  liabilities  or  equity  at the  beginning  of the year of
      adoption, and comparative financial information for prior years should not
      be restated,  nor a  cumulative-effect-type  adjustment  recognized in the
      year of adoption.

      The Company  believe  that the adoption of this  Bulletin  will not have a
      material effect on its financial position or results of operations.

(17)  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 GAAP and US GAAP and the
      effects on consolidated net income and consolidated  stockholders'  equity
      are presented below, in thousands of constant Mexican pesos as of December
      31, 2003, with an explanation of the adjustments.

                                                                     (Continued)


                                      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, 2003)

      Restatement of the US GAAP reconciliation:

      The  approximate  net  income  under US GAAP for 2002 and the  approximate
      stockholders'  equity under US GAAP at December 31, 2002 presented in this
      note, have been restated from amounts previously reported as a result of a
      misapplication  of US GAAP as  explained  elsewhere  in  this  note.  Such
      misapplication   affected  the  difference  between  accounting  practices
      identified  in the US GAAP  reconciliation  relating  to  deferred  income
      taxes. The aggregate impact of the restatement was a follows:

                                             Consolidated          Consolidated
                                                  Net              Stockholders'
                                                Income                Equity
                                                 under                 under
                                                US GAAP               US GAAP
                                             -------------         -------------
      As previously reported (adjusted
       to constant pesos)                     $  146,094            $3,907,970
      Effect of restatement                       57,448                57,448
                                              ----------            ----------
      As restated                             $  203,542            $3,965,418
                                              ==========            ==========

                                                                     (Continued)


                                      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, 2003)

      Reconciliation of net income:

<TABLE>
<CAPTION>
                                                               2003            2002          2001
                                                          -------------    -----------    -----------
<S>                                                       <C>              <C>            <C>
      Net income as reported under Mexican GAAP-          $     292,983        122,750        251,868
       Inventory indirect costs                                  (4,139)        (3,739)         5,686
       Depreciation on restatement of machinery and
          equipment                                             (23,649)       (44,582)       (53,807)
       Adjustment of land to net realizable value                  --          (31,245)          --
       Accrued vacation costs                                     5,030           (820)
                                                                                                2,831
       Deferred income taxes                                    (49,521)       144,114        (45,811)
       Deferred employee profit sharing                             202             21            403
       Loss from monetary  position of deferred asset
          effect under Mexican GAAP                                --             --              880
       Pre-operating expenses, net                               26,187         10,435         23,995
       Amortization of gain from monetary  position and
          exchange loss capitalized under Mexican GAAP
                                                                  6,617          6,617          6,617
       Gain on extinguishment of debt                              --             --          534,236
       Minority interest applicable to the above
          adjustments                                                (1)            (9)           (18)
                                                          -------------    -----------    -----------
                Total approximate US GAAP adjustments
                                                                (39,274)        80,792        475,012
                                                          -------------    -----------    -----------
      Approximate net income under US GAAP                $     253,709        203,542        726,880
                                                          =============    ===========    ===========
       Weighted average outstanding basic                   119,052,681     99,967,222     54,816,134
                                                          -------------    -----------    -----------
                Net earnings per share (pesos)            $        2.13           2.04          13.26
                                                          =============    ===========    ===========
</TABLE>

                                                                     (Continued)


                                      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, 2003)

       Reconciliation of stockholders' equity:

<TABLE>
<CAPTION>
                                                              2003          2002          2001
                                                          -----------    ----------    ----------
<S>                                                       <C>             <C>           <C>
      Total stockholders' equity reported under
       Mexican GAAP                                       $ 4,626,440     3,737,385     3,050,618

       Minority interest included in stockholders'
          equity under Mexican GAAP                              (251)         (251)         (238)
       Inventory indirect costs                                 9,649        13,788        17,527
       Restatement of machinery and equipment                 353,749       712,380     1,330,453
       Accrued vacation costs                                    --          (5,030)       (4,210)
       Deferred income taxes                                   51,412       (29,684)     (304,699)
       Deferred employee profit sharing                           627           425           404
       Pre-operating expenses                                (250,630)     (276,817)     (287,252)
       Gain from monetary position and exchange loss
          capitalized, net                                   (180,161)     (186,778)     (193,395)
                                                          -----------    ----------    ----------
                Total approximate US GAAP adjustments
                                                              (15,605)      228,033       558,590
                                                          -----------    ----------    ----------
      Total approximate  stockholders'  equity under US
       GAAP                                               $ 4,610,835     3,965,418     3,609,208
                                                          ===========    ==========    ==========
</TABLE>

                                                                 (Continued)


                                      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, 2003)

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

<TABLE>
<CAPTION>
                                        Capital                 Fait Value of
                                       Stock and                  Derivative       Cumulative        Total
                                        Paid-in      Retained      Financial      Restatement    Stockholders'
                                        Capital      Earnings     Instruments        Effect          Equity
                                      ----------     --------   -------------     -----------    -------------
<S>                                   <C>             <C>             <C>            <C>           <C>
      Balances as of December
         31, 2001                     $2,573,134        5,748          --          1,030,326       3,609,208

      Increase in capital stock          290,596         --            --               --           290,596

      Net comprehensive income
                                            --        203,542          --           (137,928)         65,614
                                      ----------      -------      --------       ----------       ---------

      Balances as of December
      31, 2002                         2,863,730      209,290          --            892,398       3,965,418

      Increase in capital stock          358,642         --            --               --           358,642

      Net comprehensive income
                                            --        253,709         9,582           23,484         286,775
                                      ----------      -------      --------       ----------       ---------

      Balances  as  of  December
         31, 2003                     $3,222,372      462,999         9,582          915,882       4,610,835
                                      ==========      =======      ========       ==========       =========

</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.

      Restatement of prior year financial statements-

      In  accordance  with Mexican GAAP,  prior year  financial  information  of
      foreign  subsidiary  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 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.

                                                                     (Continued)


                                      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, 2003)

      This difference is not included in the GAAP  reconciliation  of net income
      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 property, machinery and equipment-

      As  explained  in note 2g,  in  accordance  with  Mexican  GAAP,  imported
      machinery and equipment has been restated during 2003 and 2002 by applying
      devaluation and inflation factors of the country of origin.

      Under US GAAP,  during 2003 and 2002 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 and stockholders' equity.

      Additionally,  and as  mentioned  in note  14c,  during  2002 the  Company
      adjusted  the  value  of PS  land  at  realizable  value  and  due  to the
      difference  in  methodologies  of  restating  mentioned  in  the  previous
      paragraphs,  the  Company  included  a  complement  to  the  corresponding
      adjustment.

      Accrued vacation cost-

      For years  ended  December  31, 2002 and before,  under  Mexican  GAAP the
      vacation  expense was recognized  when taken rather than during the period
      the  employees  earned it. In order to comply  with SFAS 43, for the years
      ended  December  31, 2002 and 2001,  the Company  recorded a decrease  and
      increase  in net income of ($820) and  $2,831,  respectively.  Starting on
      January 2003,  Mexican GAAP requires the  recognition of vacation  expense
      when earned.

      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.

                                                                     (Continued)


                                      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, 2003)

      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.

      On January 1,  2002,  the  Mexican  Congress  signed  into law a change in
      statutory tax rates from 35% to 32%. However,  the Mexican Congress issued
      a transitory  article  whereby the change in tax rates would be recognized
      over a three year period.  The  effective  rate for 2002 was 35%, 2003 was
      34%, 2004 will be 33% and 2005 and  thereafter  will be 32%. Under Mexican
      GAAP, the effect on deferred tax assets and liabilities of a change in tax
      rates on January 1, 2002 was  recognized in the year the tax rate actually
      changed.

      Under U.S.  GAAP,  the effect on deferred tax assets and  liabilities of a
      change in tax rates  should be  recognized  in income in the  period  that
      includes the enactment date. However, in 2002, the Company misapplied U.S.
      GAAP by not recognizing the full benefit associated with the change in tax
      rates.  The  impact  of the  misapplication  of U.S.  GAAP  is  summarized
      elsewhere in this note to the consolidated financial statements.

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

                                                                     (Continued)


                                      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, 2003)

      The effects of temporary  differences giving rise to significant  portions
      of the  deferred  assets and  liabilities  at December  31, 2003 and 2002,
      under US GAAP are present below:

<TABLE>
<CAPTION>
                                                              2003                      2002
                                                     --------------------       -------------------
                                                         IT          ESPS           IT         ESPS
                                                     ----------      ----       ---------      ----
<S>                                                  <C>             <C>        <C>            <C>
      Deferred tax assets:
         Allowance for doubtful receivables          $    7,487      --             8,533      --
         Accrued expenses                                 9,529       627          11,535       425
         Advances from customers                         43,018      --            75,694      --
         Net operating loss carryforwards               195,912      --           424,700      --
         Recoverable AT                                 168,496      --           158,269      --
         Others                                            --        --                38      --
                                                     ----------      ----       ---------      ----

          Total gross deferred tax assets               424,442       627         678,769       425

         Less valuation allowance                       184,325      --           223,687      --
                                                     ----------      ----       ---------      ----

           Net deferred tax assets                      240,117       627         455,082       425
                                                     ----------      ----       ---------      ----

      Deferred tax liabilities:
        Inventories, net from the balance as of
          December 31, 1986 not yet deducted             97,024      --           167,320      --
         Derivative financial instruments                 4,720      --              --        --
         Property, plant and equipment                1,131,696      --         1,100,615      --
         Others                                             554      --            13,511      --
                                                     ----------      ----       ---------      ----

           Total gross deferred tax liabilities       1,233,994      --         1,281,446      --
                                                     ----------      ----       ---------      ----

           Net deferred tax liability                $  993,877      (627)        826,364      (425)
                                                     ==========      ====       =========      ====
</TABLE>

                                                                     (Continued)



                                      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, 2003)

      The  deferred  income  taxes of  $1,131,696  and  $1,100,615  result  from
      differences  between the  financial  reporting  and tax bases of property,
      plant and equipment at December 31, 2003 and 2002, 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.

      Pre-operating expenses-

      For Mexican GAAP purposes, the Company capitalized  pre-operating expenses
      related to the  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.

      Gain on extinguishment of debt-

      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 US 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 US 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.

                                                                     (Continued)


                                      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, 2003)

      Pension and other retirement benefits-

      The Company records seniority premiums based on actuarial  computations as
      described in note 2k.

      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.

      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:

                                                             2003         2002
                                                            -------      -------
      Change in projected benefit obligation-
      Projected benefit obligation at beginning of year     $ 5,578       5,379
         Service cost                                           282         351
         Financial cost                                         198         229
         Actuarial gain, net                                    210         379
         Benefits paid                                         (413)       (760)
                                                            -------      ------
         Projected benefit obligation at end of year        $ 5,855       5,578
                                                            =======      ======

                                                                     (Continued)


                                      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, 2003)

      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 GAAP 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.

      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.

                                                                     (Continued)


                                      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, 2003)

      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>
                                                       2003        2002        2001
                                                    ---------    --------    --------
<S>                                                 <C>           <C>         <C>
      Net income as reported under US GAAP          $ 253,709     203,542     726,880
      Add charges (deduct credits) to operations
       not requiring (providing) funds:
       Depreciation and amortization                  175,564     189,647     174,804
       Unrealized exchange loss (gain)                  5,527      73,245     (78,896)
       Deferred income taxes                          177,290    (203,076)     40,403
       Deferred employee profit sharing                  (202)        (21)       (403)
       Minority interest                                    1           9          18
       Gain (loss) on disposal segments                  --          --          (270)
       Adjustment of land to realizable value            --        51,870        --
       Write-down of idle machinery                    41,473      10,455        --
       Gain on extinguishment                            --          --      (534,235)
       Accrual for seniority premium                      247         139        --
                                                    ---------    --------    --------
       Funds provided by operations                   653,609     325,810     328,301
                                                    ---------    --------    --------
      Net (investing in) financing from operating
          accounts:
        Trade receivables, net                        (36,187)    (96,063)     25,778
        Other accounts receivable and prepaid
         expenses                                      53,816       6,844     (14,616)
        Inventories                                   (19,744)      2,440      (5,769)
        Accounts payable and accrued expenses         (19,767)    110,592    (132,383)
        Accounts payable to related parties          (168,899)     31,895     148,076
                                                    ---------    --------    --------
                                                     (190,781)     55,708      21,086
                                                    ---------    --------    --------
      Approximate net resources generated by
       operations under US GAAP                     $ 462,828     381,518     349,387
                                                    =========    ========    ========

</TABLE>

                                                                     (Continued)


                                      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, 2003)

<TABLE>
<CAPTION>
                                                        2003        2002        2001
                                                      --------    --------    --------

<S>                                                   <C>         <C>         <C>
      Financing activities under Mexican GAAP         $ 28,783    (238,522)   (436,346)
          Decrease in debt due to restatement to
             constant Mexican pesos                      3,948      32,323      68,042
          Exchange (loss) gain                          (5,527)    (73,245)     78,896
                                                      --------    --------    --------
      Approximate net resources generated by
       (used in) financing activities under US GAAP   $ 27,204    (279,444)   (289,408)
                                                      ========    ========    ========
      Net resources used in investing activities
       under Mexican GAAP-                            $ (9,654)    (44,811)    (59,028)
       Restatement of non-current inventories           (4,611)     (5,679)     (4,258)
       Other non-cash investing activities               9,271      20,108      13,769
                                                      --------    --------    --------
      Approximate net resources used in investing
       activities under US GAAP                       $ (4,994)    (30,382)    (49,517)
                                                      ========    ========    ========

</TABLE>

      Net  resources  used in operating  activities  include  cash  payments for
      interest and income taxes as follows:

                                                  2003        2002        2001
                                                -------      ------      -------
      Total interest paid                       $17,073      49,608      330,499
                                                =======      ======      =======
      Income taxes paid                         $35,346      11,952       99,199
                                                =======      ======      =======


                                      F-48
<PAGE>

                                                                      SCHEDULE I

GRUPO SIMEC, S.A. de C.V. (Parent Company Only)
Condensed balance sheets as of December 31, 2003 and 2002
(Stated in thousands of constant Mexican pesos as of December 31, 2003)

Assets:                                                   2003           2002
                                                       -----------    ----------

Current assets:
      Cash and cash equivalents                        $    19,271          142
      Accounts receivable from related parties, net        419,445      481,521
      Other accounts receivable, net                           107          101
                                                       -----------    ---------
            Total current assets                           438,823      481,764

Accounts receivable from related parties long term       2,094,263    1,640,139
Investment in subsidiary companies                       2,115,395    1,637,854
Other assets                                                 3,627        3,858
                                                       -----------    ---------
                                                       $ 4,652,108    3,763,615
                                                       ===========    =========
Liabilities and Stockholders' equity:

Liabilities:
      Financial debt                                   $     3,393        3,238
      Other accrued expenses                                12,870       13,265
      Accounts payable to related parties                    9,656        9,978
                                                       -----------    ---------
            Total current liabilities                       25,919       26,481

Stockholders' equity:
      Capital stock                                      3,093,067    2,734,425
      Additional paid-in capital                           623,464      623,464
      Retained earnings                                  1,624,422    1,331,439
      Cumulative deferred income taxes                    (828,002)    (828,002)
      Equity restatement                                   103,656     (124,192)
      Fair value derivate financial instruments              9,582         --
                                                       -----------    ---------
            Total stockholders' equity                   4,626,189    3,737,134
                                                       -----------    ---------
                                                       $ 4,652,108    3,763,615
                                                       ===========    =========

See accompanying note and notes to consolidated financial statements.

                                       S1
<PAGE>

                                                                      SCHEDULE I

GRUPO SIMEC, S.A. de C.V. (Parent Company Only)
Condensed statements of income
Years ended December 31, 2003, 2002 and 2001
(Stated in thousands of constant Mexican pesos as of December 31, 2003)

                                                   2003        2002      2001
                                                 ---------   -------    -------

Equity in results of subsidiary companies        $ 238,580    92,613    213,629
Adminitrative expenses                              (3,109)   (5,729)    (3,734)
Financial income                                    61,065    37,513     22,552
Other (expenses) income, net                        (1,830)    1,607     37,124
                                                 ---------   -------    -------
                Income before taxes                294,706   126,004    269,571
 Deferred income taxes                               1,723     3,254     17,703
                                                 ---------   -------    -------
                Net income                       $ 292,983   122,750    251,868
                                                 =========   =======    =======

See accompanying note and notes to consolidated financial statements.

                                       S2
<PAGE>

                                                                      SCHEDULE I

GRUPO SIMEC, S.A. de C.V. (Parent Company Only)
Condensed  statements of changes in financial  position Years ended December 31,
2003,  2002 and 2001  (Stated  in  thousands  of  constant  Mexican  pesos as of
December 31, 20023

<TABLE>
<CAPTION>
                                                                      2003        2002         2001
                                                                   ---------    --------    ----------
<S>                                                                <C>           <C>           <C>
      Net income                                                   $ 292,983     122,750       251,868
      Add charges (deduct credits) to operations not requiring
            (providing) funds:
            Equity in results of subsidiary companies               (238,580)    (92,613)     (213,629)
            Deferred income taxes                                      1,723       3,254         3,785
                                                                   ---------    --------    ----------
                Funds provided by operations                          56,126      33,391        42,024

      Changes in current assests and liabilities                      61,353    (331,672)     (148,769)
                                                                   ---------    --------    ----------
                Funds provided by (used in) operating activities     117,479    (298,281)     (106,745)

Financing activities:
      Increase in capital stock                                      358,642     290,596     1,126,638
      Additional paid-in capital                                        --          --         623,464
      Convertible debt                                                  --          --      (1,049,737)
      Exchange gain (loss)                                               279         436          (293)
      Payment of financial debt                                         --        (2,038)       (1,197)
      Decrease in debt due to restatement to constant Mexican
            pesos                                                       (124)       (204)         (297)
      Related parties                                               (454,124)      2,770      (593,172)
                                                                   ---------    --------    ----------
                Funds (used in) provided by financing activities     (95,327)    291,560       105,406
Investing activities- other noncurrent assets                         (3,023)      6,774         1,222
                                                                   ---------    --------    ----------
                Increase (decrease) in cash an cash equivalents       19,129          53          (117)

Cash and cash equivalents at beginning of year                           142          89           206
                                                                   ---------    --------    ----------
Cash and cash equivalents at end of year                           $  19,271         142            89
                                                                   =========    ========    ==========

</TABLE>

See accompanying note and notes to consolidated financial statements.

                                       S3
<PAGE>

                                                                      SCHEDULE I

Grupo Simec, S.A. de C.V. (Parent Company Only)
For the years ended December 31, 2003, 2002 and 2001
(Stated in thousands of constant Mexican pesos as of December 31, 2003)

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 9 and 14 of the  consolidated  financial
      statements.

                                       S4

</TEXT>
</DOCUMENT>
