Mobarakeh Steel Company

Public Joint-Stock

The Report made by an Independent Auditor and Legal Inspector

Attached with

Financial Statements

for the Fiscal Year ending 20 March 2006

Mobarakeh Steel Company of Isfahan (Public Joint-Stock)

Table of Contents

Titles Page # - The Report made by an Independent Auditor and a Legal Inspector 1 to 5

- Financial Statements and Explanatory Notes 1 Appendix

Islamic Republic of Iran (IRI) IRI Emblem Ministry of Finance and Economic Affairs Audit Firm The Report made by an Independent Audit & Legal Inspector Submitted to the Stockholders' Regular General Meeting of Mobarakeh Steel Company - Public Joint Stock

1. The balance-sheet of Mobarakeh Steel Company (Private Joint-Stock) on 20 March, 2006 and the profit and loss accounts statements, and the statement of liquid capital ending on the above date attached with explanatory notes Nos. 1-41 were audited by this organization. The board of directors of the company shall be responsible for the financial statements and this organization shall be responsible for expressing opinions on the said financial statements on the audit made by this organization and for submitting a report on the non- compliance with the legal requirements stipulated in the Commercial Code of Iran, as amended, and in the articles of association of the company.

2. The audit has been made by this firm on the basis of audit standards. The said standards require this organization to make, plan and carry out the auditing services with no important deviation or fault in the financial statements with reasonable reliance and confidence. The audit consists of the typical analysis of the evidences and documents supporting the amounts and information contained in the financial statements. This process of auditing is carried out in such a way that it will provide a reasonable foundation on which the audit opinion is based for the financial statements.

3. In the opinion of this audit firm the above-mentioned financial statements shows a good view of the financial situation of Mobarakeh Steel Company (Public Joint-Stock) and the results of the cash flow and transactions in the fiscal year ending 20 March of 2006 in all aspects according to the Accounting Standards.

4. This is to draw the attention of the shareholders to other matters as described below:

4.1. The executive regulations of the Budget Law of 1384 (21/03/2005-20/03/2006) of the companies, affiliated to the Ministry of Industries and Mine and the subsidiary companies, which have not been observed yet are as follows: 4.1.1. During the fiscal year, reported by the board of directors, the company has taken action to ratify and executive the regulations of the method of audit of the allowance of management and allowance for special skills and expertise. According to article 4 of the above-mentioned implementing regulations, any increase in salary, wage and allowances in the 1384 (21/03/2005-20/03/2006) fiscal year, which is more than that of the law of Payment coordinating system, is forbidden. 4.1.2. Contrary to clause A of article 8 of the implementing regulations the company has taken action to invest the amount of Rls105.3 billion out of the capital of the company in some business including of the amount of Rls100 billion for selling Bagh-Ferdos cultural and sport complex and the amount of Rls5.3 billion for completing phase 2 of villas construction in Chadegan. 4.1.3. According to clause C of article 8 of the implementing regulations, the costs for personnel sport shall be paid according to the Sports Development for Government Personnel. The amount of Rls100 billion has been considered in the budget of the company in the regard. The amount of money considered in the accounts is Rls71.5 billion which clouds the amount of Rls52.6 billion for cultural and sport club of Sepahan Mobarakeh Steel Co. and the amount of Rls18.9 billion for personnel sport. It should be noted that the payment for sport clubs has not been considered in the regulations.

4.2. During the fiscal year, reported by the company, in addition to payment of pension to the pensioner's fund of Mobarakeh Steel Company (20 percentage of the company's share and 10% of personnel's share) the company has taken action to pay the costs of medical treatment

and health for the personnel and their dependents, which was paid by the contractor of the company in the first 9 months of fiscal year, according to the tariffs of Higher Medical Commission of the Organization of Development and Reconstruction of Mines and Mineral Industries of Iran. These tariffs are more than the tariffs of the board of minister plus 22% of overhead; the amount of Rls4,015.5 million for the fix costs for the contractor or directly paid by the company according to the mentioned above tariffs in the final 3 months of the fiscal year, reported according to the contract made between the company and Dana Insurance Company for payment of the amount of Rls120,000.00 for any individual insured. It should be noted that the payment at the complementary insurance services, which are more than that of tariffs of the board of Ministers is forbidden according to the Budget Law of 1384 (21/03/2005- 20/03/2006). 4.3. In reference to the resolution dated 2 Aug., 2006 of Transfer Committee and the next amendment, the subject of clause "T", note # 8 of Budget Law of 1384 (21/03/2005- 20/03/2006), 10 percent of the company's share has been transferred during the fiscal year reported, according to explanation # 24 of financial statements. In spite of the termination of the determined time mentioned in the above resolution, and the share transfer in Share Register Book, the financial statements have not been amended. 4.4. The cases can be mentioned about the transactions of the company are as follows: 4.4.1. No document has been submitted to Planning and Management Organization regarding the observation of article 88 of Development Act (authenticated in article 42 of Development Act) for inviting the Iranian contractors in all transactions in ranking frame work of Planning and Management Organization. 4.4.2. No evidences have been submitted on the observation of note # 2 of article # 2 as well as article # 3 of the regulation of maximum use of domestic technical, engineering, production, industrial and executive power, in execution of the projects and providing facilities for giving services ratified on 3 March, 1997, on sending the list of different types of technologies, equipment and raw matters, to Iranian organization of Scientific and Industrial Researches, 6 month before the bid was held, and on receiving the permit for providing foreign contractors with consultant engineering and contractual services, from Economic Council to the Organization. 4.4.3. Part 2 of clause "B" of article # 4 and article # 26 of the regulation of holding the bids for determining the limitation in holding the public bid by submitting the reasons according to the diagnosis and responsibility of the highest authority of the company and for using the lists of the competent bidders introduced by the competent government authorities and the short list of competent bidders which shall be made, at most 2 years earlier, according to articles # 12, 4 and 13 of the regulations mentioned above, have not been observed. 4.4.4. According to letter # 4047965 dated 18 Feb., 2004 of deputy of production affairs of the ministry of Industries and Mines to the Minister of this Ministry and according to decision made in the meeting dated 27 April, 2004 of the performance of the steel companies in steel stock Exchanges, it has been determined that Isfahan Mobarakeh Steel Company deliver 30% of its products for price decrease through Steel Stock Exchanges and record 70% of its products in chamber of transactions of the main hall after discovering the price and selling. According to the investigation made, the selling amount through Steel Stock Exchange, the selling amount out of Metals Stock Exchange (recorded in the chamber of transaction) and the selling amount, out of the network of Metals Stock Exchange (without being recorded) in the chamber of transactions are 19%, 71% and 10% respectively. It should be noted that the delivery amount of the products in Metals Stock Exchange, approved by the organization of Metals Stock Exchange, has not been submitted to this organization. It should also be noted that the amount of Rls21.3 billion of the charges sells and the amount of Rls1.1 billion of the charges of purchases recorded in the chamber of transactions has been reflected in the accounts. 4.5. The statutory obligations of appropriate deduction and on time payment of tax as well as deducted charges in previous years in the account of competent authorities have not been completely observed. 4.6. Article 87 of government financial regulations ratified on 16 Jan., 2002 for taking a permit from Economic Council for investment, out of domestic financial resources of the company has not been completely observed in the projects of more that the amount of Rls8 billion. 4.7. The actions taken by the board of directors on the duties of ordinary general meeting dated 29 June, 2005 held on transfer the title deeds of lands and building of the office in

Isfahan, title deed of personnel cooperative company in Mobarakeh, dealing with the liabilities with other people (Rls32.2 billion), inventory, stagnant and unobtainable goods (Rls89.7 billion) as well as managing the warehouses for scrap ironware's and ferroalloy (wit an official value of Rls658 billion) have been without result. 4.8. The cash flow statement of the several steps of production has not been submitted to the organization. 5. The report on the comparing of the operations of the fiscal year ending on 20 March, 2005 with the ratified budget, stated in explanatory note 42, having been prepared by Mobarakeh Steel Company (Public Joint-Stock) in execution of article 2 of Government Financial Rules Act, has been reviewed. In this respect, no important case showing discrepancy between information contained in the said report and the books, deeds and evidences presented by the board of directors has attracted the attention of this organization. 6. The transactions stated in part A of explanatory note # 40 have been considered and audited as the transactions subject to article 129 of the Trade Law, as amended, that are made during this fiscal year and have been reported by the board of directors to this audit firm. The above-mentioned article stating that such transactions shall be made with prior approval of the board of directors and that the beneficiary manager will not be allowed to take part in voting has not been observed in carrying out the said transactions. 7. The report made by the board of directors about the activities and general situation of the company to be submitted to the annual general meeting of the stockholders has been reviewed by this organization. In view of the analysis made and with considering the provisions of the above clauses, no important case showing any discrepancy between the information stated in the said report and the documents and evidences presented by the board of directors has been attracted the attention of the this organization.

Date: 17 June, 2006 Audit Firm, Jamshid Danesh, Signed. Sayed Mostafa Jannesari, Signed.

Mobarakeh Steel Co., (Private Joint-Stock) Balance Sheet On 20 March, 2006

Assets Note 20/03/2006 20/03/2005 Current Assets : Rls Rls Cash inventory 4 1,375,070 2,591,635 Receivable trading accounts 5 4,114,669 1,756,712 Iranian Mines & Mining Industries Renovation & 6 61,430 544,164 Development The member and subsidiary companies 7 394,475 968,280 Other receivable accounts 8 173,058 181,789 Materials & goods inventory 9 5,449,158 4,105,229 Materials & goods orders 10 843,485 488,316 Prepayments 11 951,631 159,707 Total current assets 13,362,976 10,795,832 Non-current Assets: Fixed tangible assets 12 15,012,917 14,834,987 Long-term investments 13 71,233 56,118 Other assets 14 870,215 1,133,849 Total of Non-current Assets 15,954,365 16,024,954 Total of Assets 29,317,341 26,820,786

Liabilities & Shareholders' Equity Note 20/03/2006 20/03/2005 Current liabilities: Rls Rls Payable trading accounts 15 415,681 543,519 Iranian Mines & Mining Industries Renovation & 6 1,018,969 222,200 Development Organization The member & subsidiary companies 7 296,319 442,288 Other payable accounts & notes 16 3,674,189 3,102,910 Down payments received 17 416,716 698,474 Tax reserve 18 27,777 725,969 Offered dividend 19 613,371 256,320 Financial facilities 20 364,585 857,335 Total current liabilities 6,827,607 6,849,015 Non-current Liabilities:

Long-term accounts payment 21 249,612 369,243 Long-term share of financial facilities 20 2,191,155 2,622,198 Staffs savings reserve 22 126,622 112,956 Staffs' termination reserve and service redemption 23 443,198 275,030 Total non-current liabilities 3,010,587 3,379,427 Total liabilities 9,838,194 10,228,442 Shareholders' Equity: Capital 24 15,800,000 8,366,148 Amount deducted from the capital - (45,033) Net capital 15,800,000 8,321,115 Regular reserve 25 732,885 426,200 Investment reserve 26 2,946,262 7,544,945 Accumulated profit (loss) - 300,084 Total shareholders' equity 19,479,147 16,592,344 Total liabilities & shareholders' equity 29,317,341 26,820,786

Mobarakeh Steel Company, Private Joint-Stock Profit (Loss) Statement For the Fiscal Year ending 20 March, 2006

Note 1384 (2005/06) (Revised) 1383 (Rls) (2004/05) (Rls) Income derived from products sales 27 17,638,975 16,122,099 Deducted: Cost price of sold goods 28 (10,249,539) (8,076,960) Gross profit 7,389,436 8,045,139 Deducted: Sales, administrative and general 29 (1,867,078.00) (1,336,088) expenses Net of other operational incomes & 30 117,979.00 110,541 expenses (1,749,099) (1,225,457) 5,640,337 6,819,592 Operational profit Added (Deducted ): Financial expenses 31 (128,367.00) (165,810) Net of other non-operational incomes 32 321,653.00 (223,006) & expenses 193,286 (388,816) Profit resulted from ordinary activities 5,833,623 6,430,776 before tax Tax on profit of regular activities 18 - (1,193,826) Net profit 5,833,623 5,236,950 Accumulated Profit (Loss) Account Circulation

Net profit 5,833,623 5,236,950 Loss accumulated in the beginning of - - the year Annual modifications 34 300,084 (419,699) Profit (loss) accumulated in the 300,084 (419,699) beginning of the year-modified Allocable profit 6,133,707 4,817,251 Profit Allocation: Regular reserve (306,685) (128,162) Investment reserve (2,880,202) (2,178,698) Clauses J of note 1 of 1385 (2,333,449) (1,953,987) (21/03/2006-20/03/2007) Budget Act Offered dividend (613,371) (256,320) Total allocated amounts (6,133,707) (4,517,167) Profit accumulated in the end of the - 300,084 year

Since the parts constituting the comprehensive profit and loss are limited to the annual profit and loss, therefore the comprehensive profit and loss has not been presented.

Mobarakeh Steel Company, Private Joint-Stock Cash Flows Statement For the Fiscal Year ending 20 March, 2006

Note 1384 (2005/06) 1383 (2004/05) Rls Rls Operating Activities Net input cash flow of operating 35 4,055,836 3,958,444 activities Output of investments & interest paid for financing Interest received on short-term 48,576 14,464 investment deposit Interest received for making 9,761 5,876 investment in other companies Interest paid for financial facilities (128,367) (164,421) Payable dividend including 30% (1,851,702) (302,015) governmental dividend. Net cash flow output derived from (1,921,732) (446,096) the investments and interest paid on financing Income tax Paid income tax including tax (1,027,701) (1,116,225) prepayment Investment Activities the amount received for other assets 2,296 (293,457) sales Payment made for an increase in (1,576,716) (1,591,949) tangible fixed assets Return from tangible fixed assets 5,150 36,563 sales Net cash flow output derived from (1,569,270) (1,848,843) the investments activities Net input (output) of cash flow (462,867) 547,280 before financing activities Financing activities Financial facilities received 94,023 1,744,845 Re-payment of the principal of the (847,721) (1,160,970) financial facilities received Net input (output) of cash flow (753,698) 583,875 derived from financing activities Net cash flow increase (decrease) (1,216,565) 1,131,155 Balance of cash flow in the 2,591,635 1,460,480 beginning of the year Balance of cash flow in the end of 1,375,070 2,591,635 the year

The explanatory notes are an integral part of the financial statements.

1. Company's Profile 1.1. General Mobarakeh Steel Co., Private Joint-Stock, has been recorded under Reg. # 7841 with Isfahan Companies & Industrial Ownership Registry on 19 March, 1991 and it was put into operation as an operating body of Mobarakeh Steel Complex on 21 March, 1993 and started its work. According to minutes of the extraordinary general meeting of the company dated 11 May, 2004, the type of company has been changed from private joint stock to public joint stock company. The head office of the company is Isfahan, Esfahan Mobarakeh Steel Company.

1.2. Main Activity of the Company The object of the company as stated in article 3 of the articles of association is as follows: A. Operating the Steel-Making Area of Mobarakeh Steel Complex located at 74th Km. of Isfahan City. B. Doing any type of manufacturing and trading activities including home and overseas activities, directly or indirectly pertaining to the object of the company. C. Entering into partnership and making investment in other companies by establishing new companies or subscribing for the shares of the new companies or purchasing or subscribing the shares of existing companies. D. Preparing, compiling and publishing scientific, technical and research papers and doing research and advertising works pertaining to object of the company. E. Giving assistance and help to cultural, educational and athletic institutions. F. Doing other affairs effective in the promotion of the company's goals in any manner.

1.3. Employment Status The average number of employees of the company has been as follows within the fiscal years: 1384 (2005/06) 1383 (2004/05) Permanent Employees 6682 persons 6643 persons

2. Grounds for Preparing Financial Statements The financial statements are mainly made on the basis of the cost price of the preparation date and the current values have been applied in necessary cases.

3. Summary of the Most Important Accounting Procedures

3.1. Materials and Goods Inventory: The inventory of the materials and goods will be evaluated by the "minimum cost price and net sales value". If the cost price is more than the net sales value, the difference of which will be known as reserve for a decrease in the inventory value. The cost price of the inventories will be calculated by applying the following methods. The net sales value will be calculated on the basis of the price of replacing raw materials, spare parts

and auxiliary parts and it will be calculated on the basis of returnable net value for in-process production goods and finished goods.

Method of Cost Price Calculation Raw materials annual average Auxiliary materials annual average Materials for repair & maintenance annual average In-Process goods average cost price in view of finishing percentage Finished goods average cost price of annual production Original and spare parts annual average

3.2. Tangible Fixed Assets

3.2.1. The tangible fixed assets except the one mentioned in clause 3.2.2 is recorded on the basis of cost price. The cost of optimization and overall repairs which cause a significant increase in capacity or effective life of the tangible fixed assets or basic improvement in the effective quality is considered as capital costs and is depreciated during the rest of the effective life of the relevant assets. The costs of maintenance and minor repairs of the assets will be considered as current costs and it will be included in the profit and loss account of that period of time. It will be done for maintaining of the economical benefits of the trading unit out of the revised operation standard of the primary assets.

3.2.2. In reference to article 62 of the Act of the Third Economic, Social and Cultural Development Plan of the Islamic Republic of Iran and according to the standards of the implementing regulations of the said article the fixed tangible assets were revised in the end of 1380 (21/03/2001-20/03/2002) (Iranian calendar). It was stated in the company books of company in the beginning of year 1381 (21/03/2002-20/03/2003).

3.2.3. The depreciation of the tangible fixed assets is computed in view to the effective life estimated for the relevant assets (with considering the depreciation regulations subject to article 151 of Direct Taxation Act as amended in Bahman 1381 (Feb., 2003)) and on the basis of the rates and procedures stated in the following table:

Process Depreciation Rate Depreciation Buildings 7% & 8% & 10% Descending Manufacturing machinery, furnaces 8% Descending and accessories Building construction and road 25% Descending construction machinery and cranes Tools 4-year Direct Mobile compressors 15% Descending Data processing system 10-year Direct Telecommunications equipment & 10-year Direct devices Motor-Vehicles 25%, 35%, 30% Descending Furniture & fixtures 10-year Direct

3.2.4. The depreciation of the tangible fixed assets is calculated from the date the depreciable asset is ready to be brought into operation and it is in the disposal of the company. While, the depreciable asset which is provided to the company within the month is not considered for the said month. In cases that the depreciable assets is not used after readiness for operation because of work stopping of any other reason, the rate of its depreciation during the period which is not in use will be equivalent of 30% of the depreciation reflected in the above table. If the depreciation calculation is on the basis of duration the 70% of the rest term when the assets have not been used will be added to the duration determined for the assets depreciation stated in the above table.

3.2.5. According to circular letter No.74876 dated 19 March, 2003 of the National Taxation Affairs Organization the re-appraised fixed assets depreciation have been calculated on the basis of the period ´2 and/or half of the rates of the schedule of article 151 of the Direct Taxation Act.

3.2.6. In reference to note 3 to article 150 of the Direct Taxation Act, the fixed assets depreciation for the Development Projects has been calculated on the basis of a half of the period or the rates of the schedule of article 151 of the said Act.

3.3. Investments: The long-term investments will be included in the accounts as the cost prices at the time of purchasing. In some cases it will be audited as "cost price" after deduction of any type of reserve for permanent decrease in the value of each investment and or it will be audited as "special value". The income derived form long-term investments will be included and recorded in the accounts when it has been realized (i.e., when the profit is reported and approved by the investment accepting companies.)

3.4. The financial support expenses are identified as the expense of the year except to the expenses which are directly assigned to the manufacturing of "qualified assets".

3.5. Conversion of foreign currency: Foreign currency transactions, monitory foreign currency items with the current price of bank system (free) will be converted on the date of balance sheet and non-monitory items which have been recorded, at the chronological cost price according to the foreign currency will be converted with the current price of bank system (free) on the date of making transaction. The difference made by the settlement or conversion of monitory foreign currency items as an income or the cost of identification period.

3.6. Personnel's service termination allowances reserve: The personnel's service termination allowances reserve is calculated on the basis of the last two months' salary and allowances of each of the personnel at the end of the fiscal year for each year of the service and is considered in the accounts. The amount of staffs' service redemption reserve will be accounted according to the relevant amounts of the staffs' vacation leave reserve and be paid when the service terminated.

4. Cash Inventory

The cash inventory on the date of balance-sheet is divided as follows: 20/03/2006 20/03/2005 (Rls) (Rls)

Balance in banks 1,374,732 2,591,067 Liquid Funds Inventory 338 568 Foreign currency deposit 1,375,070 2,591,635

4.1. The balance with the banks on the date of the balance-sheet is as follows:

20/03/2006 20/03/2005 Checking account (Rls) (Rls) Bank Sana't-va-Madan, Tehran branch 0100002207002 6,645 6,645 Bank Sana't-va-Madan, Isfahan branch 0100006461002 3,009 5,000 Societe General Bank of French 007300324117 45 80,112 Iran-Europe Bank, Hamburg Branch (Dollar) 560029 - 914 Iran-Europe Bank, Hamburg Branch (Dollar) 560436 182,799 88,640 Iran-Europe Bank, Hamburg Branch (Dollar) 560010 78,486 45,162 Iran-Europe Bank, Hamburg Branch (Dollar) 560002 194,274 1,309,867 Iran-Europe Bank, Hamburg Branch (Euro.) 560108 120,407 89,154 Bank Fortis, Milan Branch (Euro) 7032983-55 329,336 237,134 Bank Fortis, Belgium Branch (Dollar) 1385671874 - 17,193 Bank Saderat Esfahan, Isfahan Branch 3222 23,819 31,193 Bank Saderat Esfahan, Mobarakeh Steel Complex Branch 898 59,706 104,239 Bank Saderat Esfahan, Mobarakeh Steel Complex Branch 9999 52,540 112,428 Bank Tose-e-Saderat Iran, Central Branch 31275 3,925 1,984 Bank Tose-e-Saderat Iran, Central Branch (Dollar) 78106 33,496 111,497 Bank Saderat Iran, Dubai Branch (Dollar) 113185010 80 610 Bank Melli Iran, Mobarakeh Steel Complex Branch 1616 12,928 30,759 Bank Melli Iran, Mobarakeh Steel Complex Branch 1500 5,447 13,638 Bank Melli Iran, Mobarakeh Steel Complex Branch 1333 - 18,350 Bank Melli Iran, Mobarakeh Steel Complex Branch 1717 51,893 14,356 Bank Melli Iran, Mobarakeh Steel Complex Branch 1332 999 113,644 Bank Melli Iran, Mobarakeh Steel Complex Branch 1515 121,464 221,448 Bank Mellat Esfahan, Isfahan Branch 15555 2,243 7,442 Bank Mellat Esfahan, Central Branch 15556 60,460 64,272 Bank Melli Iran, Isfahan Branch 54244 20,974 17,386 Bank Melli Iran, Isfahan Branch (Dollar) 600732 25,730 10,135 Bank Mellat Esfahan, Bimeh Branch 3262 4,421 3,146 IRI Central Bank 16516 268 268 IRI Central Bank (Dollar) 138 508 453 Bank Sepah, Mobarakeh Steel Complex Branch 1111,14 27,762 23,366 Bank Sepah, Mobarakeh Steel Complex Branch 1212 34,239 37,396 Bank Sepah, Mobarakeh Steel Complex Branch 787 33,445 25,300 Bank Melli Iran, Park-e-Tehran Branch 3949 3,149 36,123 Bank Tejarat, Esfahan Branch 6311 4,741 - Bank Keshavarzi, Esfahan Branch 18118 3,248 - Bank Saderat, Mojtame Branch (Dollar) 100001 294,899 -

Bank Saderat, Mojtame Branch (Euro) 1100001 56,144 - 1,853,529 2,879,254 (478,797) (288,187) 1,374,732 2,591,067 The blocked funds for negotiable credits. (Note # 10)

4.1.1. Checking accounts Nos. 1515, 9999, 15555, 3949 and 1212 are for the income derived from the sale of principal products and account # 1616 is for the income derived from the sale of peripheral products. Other current accounts of company are supported by the foregoing accounts.

4.1.2. According to letter # B/22836/55 of the director general of Treasury and resolution # 24246/6051 dated 24 April, 2002 of the Board of Ministers, Isfahan Mobarakeh Steel Company is considered as a subdivision of the Organization of Development and Reconstruction of Mines and Mineral industries of Iran. This organization is considered as a governmental organization and is subjected to general regulations laws so the above mentioned company is also subjected to name statement. The company is not required to take a permit from Treasury for opening Rial and foreign currency accounts and may take an action in this regard by observation of monitory and bank regulations.

4.1.3. The opening of letters of credit and making payment to the beneficiary's credit at Iran- Europe Bank is done upon receiving the company's order for opening irrevocable L/Cs. Iran- Europe Bank withdraws from the company's foreign currency accounts the amount equivalent to the value of the said credit and pays it to the company's another account which is specific for the L/Cs. Upon receipt of the notes relevant to each credit and conformation with the conditions, the said amount will be paid to the beneficiary. In addition, bank interest is levied on the said blocked amounts. In addition, banking profits will be accrued to these funds, an amount of Rls 487,897.00 of the funds blocked has been considered for opening L/C for materials and goods orders by Iran and Europe Bank.

4.1.4. The balance of foreign currency accounts has been changed on the basis of rate notified by IRI Central Bank at Rls 9,140.00 a dollar and Rls 11,125.00 a euro and on the basis of clause 3-5 of "Summary of the most important accounting events". The circulation of the said accounts during the 1384 (21/03/2005-20/03/2006) fiscal year is stated in the table on the next page.

Iran-Europe Bank, Hamburg Branch

Checking Account No. 560002 560029 560010 560436 560108 Description USD USD USD USD Euro Balance in the beginning 147,773,784.91 103,152.23 5,094,951.21 10,000,000 7,497,010.74 year Cash received from 226,541,924.06 - - - 2,897,537.65 customers Interest income & 3,392,701.73 2,280.30 635,246.88 1,118,819.14 98,423.61 discounts Received from foreign exchange checking - - 2,860,869.65 40,000,000 - account received from Askotak 49,990.09 - - - - received from Irasko 182,440.17 - - - 564,338.27 Payment of the duty mission allowance of the - - - - - personnel Payment of loan - - - - - Payment for Letters of (73,636,941.24) - - - (30,513.20) Credit Banking, L/Cs, profit and sales commissions, (1,653,633.98) - - (113.59) (38,514.35) changes Payment to Iemid-rou (12,851,230) - - - - Payment due to orders - - - - (165,148.50) and other services Payment to Rial and foreign exchange (378,543,666.12) (105,432.53) (3,951.61) (31,118,819.4) - checking accounts Balance at the end of the 21,255,369.62 - 8,587,116.13 19,998,886.15 10,823,134.22 year

IRI Central Bank Bank Melli Bank Saderat Esfahan Dubai USD USD USD 51,158.53 1,143,369 68,843.31 - 3,841,396 - 4,393.98 - - - 10,000,000 ------(220,442.88) - - - - - (11,940,021.11 (45) ------(9,234.19) - - (60,000) 2,815,066.82 2,815,066.82 8,789.31

Bank Saderat, Bank Saderat, Societ General Bank Tose-e- Bank Fortis Mobarakeh Mobarakeh

Bank Saderat Milan Steel Complex Steel Complex Branch Branch Description USD Euro Euro Euro Dollar Balance in the beginning 9,037,887/14 12,578,597/52 19,940,654/87 65,246,822/83 280,060,000 year Cash received from 25,183,779/06 - 43,428,388/68 - 9,370 customers Interest income & discounts - - 420,617/74 - 229,314 Received from foreign - 23,500,000 6,097,329/14 - 36,984 exchange checking account received from Askotak - - - - - recerved from Irasko - - - - - Payment of the duty mission - - - - - allowance of the personnel Payment of loan (20,737,358/33 - (35,606,669/55 - - Withdrawal for Letters of - (26,949,955/23 - (40,160,869/53 (24,082,827/65 Credit Banking, L/Cs, profit and (86,285/26) (462,288) (3,828,061/09) (6,881/84) (674,012/97) sales commissions, changes Payment to Iemid-rou - (16,677,203) Payment due to orders and - (1,565/1) (849,050/49) (32,430/16) (3,136,876) other services Payment to foreign exchange checking accounts (13,393,048) (5,000,000) - (20,000,000) (203,500,000) and Rial Balance at the end of the 4,974.61 3,664,789/19 29,603,209/30 5,046,641/30 32,264,749/38 year

Total Total Dollar Euro 465,911,743/85 92,684,488/44 365,576,469/12 46,325,926/33 5,382,756/03 519,041/35 76,397,853/65 6,097,329/14 49,990/09 - 182,440/17 564,338/27 (220,442/88) - (20,737,358/33) (35,606,669/55) (136,609,745/23) (40,191,382/73) (2,876,378/8) (3,873,457/28) (29,528,433) - (3,147,674/29) (1,046,629/15) (631,724,917/66) (20,000,000) 88,656,302/72 45,472,984/82

5. Trade Accounts & Notes Receivable The trade accounts and notes receivable can be divided as follows on the date of preparing balance-sheet: 20 March, 2006 19 March, 2005 (Rls) (Rls) Trade accounts receivable 3,368,190.00 1,380,188.00 Trade notes receivable 746,479.00 376,524.00 4,114,669.00 1,756,712.00

5.1. Trade Accounts Receivable The trade accounts receivable on the date of balance-sheet is divided as follows: 20 March, 2006 19 March, 2005 (Rls) (Rls) Credit granted to domestic customers 2,753,601 906,046 Foreign customers' debt (Export L/Cs) 614,589 474,142 3,368,190 380,188

5.1.1. The credit granted to domestic customers is for the sale of the products. It has mainly been settled in the next fiscal year. In addition, the relevant balance including Rls 2,008,811 for Rial L/C.

5.1.1.1. According to the resolution ratified by the board of directors and the approval of the committee of credits and amount of Rls 333 billion has been allocated as credit to be paid to the domestic customers during the current year. 5.1.1.2. The profit achieved by the granted credits to the customers for warehouse orders of service centers will be exempted from any tax up to 75 days, the surplus amount with the price of 14%, all have been audited according to the resolution of the board of directors effective the date matured and have been paid to the accounts of the customers. In order to adapting the price of the products, delivered in Metal Stock Exchange, to the products, deliverable in the company, the price increase will be considered 6% for selling through long term L/Cs, 14% for selling without L/Cs and 8% for quick delivery of the products, each year.

5.1.2. The foreign exchange section of foreign customers (for steel products sales) has been settled until the date of preparing financial statements which is divided as follows:

Foreign ExchangeForeign Exchange Amount Amount (Rls )

Bali Klakner PLC Co. Dollar 29,581,095/92 270,372

Tara Steel Trading Co. Dollar 11,772,557/89 107,144 Steel Export Co. Dollar 4,158,703/53 38,011 Arma Trading Co. Dollar 3,974,092/78 36,150 Nimans Co. Dollar 3,701,377/42 33,831 London Estamcor Limited Co. Dollar 3,148,357/88 28,774 Pars Jam Co. Dollar 2,639,982/71 24,096 Aljazireh Co. Dollar 2,530,000/80 23,104 Adpiko Co. Dollar 2,320,863/87 21,197 Beterfioucher Co. Dollar 1,551,913/61 14,184

Axel Co. Dollar 1,080,828 9,878 Alshamlan Co. Dollar 391,069/28 3,574 Arian Felez Co. Dollar 245,432/40 2,240 Takado Co. Dollar 222,061/41 2,030 Houzan Co. Dollar 470/56 4 67,268,808/06 614,589

5.2. The above-mention receivable notes have mainly been honored or settled until the date of preparing financial statements.

6. Iranian Mines and Mining Industries Development and Renovation Organization

20 March, 2006 20 March, 2005 Credit Debit Credit Debit Rls Rls Rls Rls Clause J, Note 5 of 1384 (21/03/2005-20/03/2006 - 941,936 - - Budget Act Dividend - 3,558 - 148,225 Budget for Development for Project - 67,177 - 67,677 Budget for Development for Railway Project - 6,298 - 6,298 Others 61,430 - 544,164 - 61,430 1,018,969 544,164 222,200

6.1. In view of transfer of 10% of the shares of the company, the subject of the explanation 24, it has been decided that the payment of 30% of the profit respecting the years of 1382 (21/03/2003-20/03/2004) and 1383 (21/03/2004-20/03/2005), the subject of clause "C" of note 1 of Budget Law of the years of 1383 (21/03/2004-20/03/2005) and 1384 (21/03/2005- 20/03/2006) be paid to the Organization of Development and Reconstruction of Mines and Mineral Industries of Iran. The account transactions mentioned, are as follows:

20 March, 2006 Million-Rls A part of the liability according to clause "D" of note # 1 of the Budget Law of 355,205 1383 (21/03/2004-20/03/2005) The profit of fiscal year of 1383 (21/03/2004-20/03/2005) according to clause 1,953,988 "J" of note # 1 of the Budget Law of 1384 (21/03/2005-20/03/2006) 2,309,193 Payment for civil projects to the organization of Development and (304,000) Reconstruction during the fiscal year of 1384 (21/03/2005-20/03/2006) (according to permit # 55/37844/1 dated 26 March, 2005) Payment to the organization of Development & Reconstruction of Mines and (1,063,257) Mining Industries of Iran during the fiscal year of 1384 (21/03/2005 20/03/2006) 941,936

6.2. In view that this company is affiliated to Iranian Mines and Mining Development and Renovation Organization the debit balance of account of the company due to the credit of the Development Plan of Mobarakeh Steel Company has been transferred from the account of National Iranian Steel Company to the account of the Organization. It should be noted that the said debt will be paid in four installments each in the amount of Rls 92 billion within one year. The said accounts are as follows:

20 March, 2006 20 March, 2005 Rls Rls Credits of the Mobarakeh Steel Development Plan 275,500 368,000 Deducted: the profit of the future years (72,968) (97,291) Net of the credits of Mobarakeh Steel Development 202,532 270,709 Plan Deducted: Long-term Share (note # 21) (135,355) (203,032) 67,177 67,677

According to the contract made between the Ministry of Finance and Economic Affairs and National Iranian Steel Company (NISCO), the subject of article 32 of Planning and Budget Act, all assets and property of the said project will remain in security with the Ministry of Finance and Economic Affairs.

7. Member & Subsidiary Companies

The balance of the account of the member and subsidiary companies on the date of the balance-sheet is as follows: 20 March, 2006 (Rls) 19 March, 2005 (Rls) Credit Debit Credit Debit Member Companies: NISCO - 245,322 - 266,113 Ascotec Co. of Germany 39,315 11,383 253,900 87,211 IRASCO 71,670 - 39,406 55,157 Khouzestan Steel Co.; Loan Granted 115,522 365 238,446 - Esfahan Steel Co. 24,767 10,374 36,715 25.146 IRETIC, Expansion Project Contracts 16,025 - 52,703 - Gol Gohar Iron Ore; Stone Powder Purchasing - - - 573 Iran Steel Trading Services; Product Sales 394 - - - Iran Steel Alloy Co.; Product Sales - - 49 Chadermelo Mining & Industrial Co.; Iron Ore - - 190,044 - Purchasing Ascotec Co., Isfahan Branch - 699 - 699 Ascotec Co., Japan; Parts Purchasing 160 - 571 - Bandar Abbas Rolling Co. 21 - 21 Steel and Iron Research Center; for payments 15,980 - 15,981 - Chaharmahal-va-Bakhtiari Steel Project; for 492 - 219 - payments National Steel Industrial Group; Loan Granted 22,753 - 22,754 Supplying and Production of Minerals - 70 - 1,094 Tehran ASCOTEC 591 - 71 - Azarbayejan Steel Co. - Loan granted 38,185 - 38,185 - Central Iron Ore Co. 32,361 - 56,000 - Khorasan Steel Co. 2,607 41 - - 436,042 Subsidiary Companies: Methyl Steel Co.; Mutual Accounts 5,857 49 9,925 - Automation and Systems International Co. 60 3,040 3,041 - (IRISA) Mirco Co. - - - 907 Tuka Steel Investment Co.; Mutual Transactions 3,888 15,249 8,698 1,816

Tamco Co. 1,327 - 1,600 381 Esfahan Health and Treatment Services Co. - 310 - 236 Touka Transportation - 9,417 - 2,906 Toukabeton Co. 2,500 - - - 13,632 28,065 23,264 6,246 394,475 296,319 968,280 442,288

7.1. Balance of the account of NISCO is as follows: 20/03/2006 20/03/2005 (Rls) (Rls) Tin-plated Project 171,385 212,013 For payment to Finitekna Co. 78,136 78,136 5% of sales difference 75,772 97,827 Other mutual accounts 19,651 (4,732) For the costs of half-floor of Medadi Bldg. 14,118 14,118 Down payment received for goods sales 517 517 Dividend - 34,445 359,579 432,324 Deducted: long-term share (114,257) (166,211) 245,322 266,113

8. Other Accounts Receivable Other accounts receivable at the date of balance-sheet are as follows: 20 March, 2006 20 March, 2005 (Rls) (Rls) Credits granted to the personnel 150,581 97,246 Other short-term credit accounts 21,919 86,975 Persons and institutions' short-term credit 3,093 103 account Cash money deposited & debentures 580 580 176,173 184,904 Reserve for money in process of collection (3,115) (3,115) 173,058 181,789

8.1. The balance of account of the credits granted to the personnel includes the following items:

20 March, 2006 20 March, 2005

Long-term Share Current Share Long-term Share Current Share (Rls) (Rls) (Rls) (Rls) Personnel's account for housing loan 119,259 54,396 145,242 51,172 from savings & company's financial resources Personnel's account for emergency 126,459 50,780 59,382 30,176 loan against savings Personnel's account for the loan on 6,161 17,089 22,012 1,389 houses in Majlesi Town Personnel's account for the loan on 59,083 16,246 - - Touka-Rail Shares Personnel's short-term credit account 13,197 12,037 20,997 14,475 Other personnel's debts - 33 36 34 Personnel's account for housing loan - - 2 - of formerly tenured employees 324,159 150,581 247,671 97,246

8.2. Other short-term credit accounts include the following items:

20 March, 2006 20 March, 2005 (Rls) (Rls) Facilities paid to service centers and units as per 19,891 84,087 resolution ratified by the board of directors %2 Provincial tolls as down payment 1,245 1,245 Third-Party persons 624 625 Personnel resigned and dismissed 111 111 Others 48 907 21,919 86,975

8.2.1. The facilities paid to the service centers and units are stated in the table on the next page.

8.2.2. The down payment of 2% provincial tolls in the amount of Rls 1,245 million is relevant to 1% municipality tolls stated in the invoice of Gol-Gohar Iron Ore Co. dated March, 2003 and 2% municipality tolls stated in the invoice of Chadormalu Mining and Industrial Company dated Esfand 1381 (20/03/2003-20/03/2003). The said amount has been considered as credit from the said companies under the title of "other accounts receivable because the said tolls are not levied on the goods purchased by this company.

Receipt of Payment Balance on Installment Balance on within Total 20.03.2005 within current 20.03.2006 Fiscal Year million-Rls million-Rls year million-Rls million-Rls million-Rls

Personnel Consumers' Cooperative Co.: Credit # 18010300 27 - 27 27 - Credit # 18010600 663 - 663 663 - Credit # 18010700 2,250 - 2,250 600 1,650 Credit # 18010800 300 - 300 300 - Credit # 18010700 - 30,000 30,000 - 30,000 3,240 30,000 33,240 1,590 31,650

Housing Cooperative Co.: 52 - 52 52 - Credit # 18011300 Islamic Azad University, 50 - 50 10 40 Mobarakeh Branch: Credit # 18010100 IRI Railway: Credit # 18011400 19,891 - 19,891 19,891 - IRI Railway: Credit # 18011200 65,260 91,100 156,360 62,544 93,816 88,493 121,100 209,593 84,087 125,506

Long term share Current share First Matured Date Installment Amount ------1,650 - 31 Dec., 2003 50 - - - - 30,000 - 22 Oct., 2008 500 31,650 - 550

- - - - 40 - 20 Feb., 1995 10 - - - - 73,925 19,891 16 March, 2005 2,109 105,615 19,891 2,669

The amount of Rls 93,816 billion is relevant to the credit to IRI Rial ways according to the triple-facet agreement made among Mobarakeh Steel Complex, IRI Railway and Wagon Pars Company. The said amount is for purchasing 300 wagons of 6 axles for transporting Iron stone according to the resolution ratified by the board of directors.

8.3. The balance of short-term credit account of the persons and institutions on the date of balance-sheet include the following items: 20/03/2006 20/03/2005 (Rls) (Rls) Pensioners' fund debt to Mobarakeh Steel 3,045 72 Co. Deposit with Telecommunications Co. 48 31 3,093 103

8.4. The rest in the amount of Rls 268 million is relevant to the amounts paid in the previous year for the mortgage of 5 residential units in Isfahan for housing the Customs personnel and Rls 12,000,000 for debentures of the IRI Central Bank.

9. Materials & Goods Inventory

The materials and goods inventory include the following items:

20/03/2006 20/03/2005 (Rls) (Rls) Spare parts 1,861,530 1,501,509 Raw Materials 1,539,510 1,100,169 Auxiliary materials & Consumable 593,647 512,979 In-process goods 343,322 441,657 Finished Goods 709,918 539,104 Operational parts 259,360 202,067 Goods placed in trust with others 36,521 36,029 5,343,818 4,333,514 On-the-way goods 522,604 628,013 5,866,422 4,961,527 Deducted: Surplus consumption in the next year (417,264) (856,298) (note # 14) 5,449,158.00 4,105,229.00

9.1. The said inventories have been counted at the end of fiscal year and it has been evaluated according to note # 3.1., "The summary of the most important accounting events".

9.2. The goods and materials under insurance coverage were Rls 12,512.5 million on the date of balance-sheet.

9.3. The increase in the raw materials and spare parts is mainly resulted from the increase in the purchase rate and also in some cases it is resulted from the increase in the volume of the above-mentioned inventories.

10. Goods & Materials Orders

The goods and materials orders comprise the following items: 20.03. 2006 20.03.2005 (Rls) (Rls) Spare parts and consumable 651,072 279,283 Equipment & Machinery 87,969 96,347 Services 45,023 58,174 Raw Materials 147,390 150,859 931,454 584,663 Capital Orders (87,969) (96,347) 843,485 488,316

Rls 478,797.00 for materials and goods orders is relevant to the funds blocked with Iran and Europe Bank for the balance of the opening order with that bank on the date of balance sheet.

11. Pre-payments

The pre-payments on the date of the balance-sheet is divided as follows: 20/03/2006 20/03/2005 (Rls) (Rls) domestic suppliers Pre-payments 328,932 159,707 Tax Pre-payments 622,699 - 951,631 159,707 11.1. Balance of the account of the pre-payments made to the domestic suppliers are as follows: 20/03/2006 20/03/2005 (Rls) (Rls)

Chadermlo Co. - Iron Stone 260,000 - Touka Tadarok Co.- Scraps 12,641 1,717 IRI Shipping lines Co., Transport 7,183 6,797 Najafabad Machine Manufacturing Co. - Spare parts 3,363 1,420 Taban Niroo Sepahan Co.- Steel making Crane 5,649 - Zob-o-Takmil Co.- Spare parts 2,608 - Bana-Rah Co. - Road construction Planning & development 2,285 - Tuka Sabz Production and Service Co. - Green space and Auto 2,080 - supplying Asad Sana't Co. - Planning and development 2,000 - Iran Insurance Co. - insurance 1,758 1,325 Kashan Taghtiran Co.; Spare parts 3,136 3,568 Petrochemical Commercial Co. - Raw materials 1,614 - Sepahan Masil Co.- Planning and Development 1,553 1,557 IRI Aviation Co. - Services 1,545 - Peyvand Dez Gostar Co. - Spare parts 1,266 - Aria Tarabar Bandar Transportation Co. - Transport 1,154 - Garma Gostar - Spare parts 1,125 - Other 17,972 143,323 328,932 159,707

11.2. The amount of Rls 621,035.6 of the tax prepayment for monthly payment of 1/12 will be paid as a partial payment for performance tax of the year of 2005 (1384), according to the Budget Law.

12. Tangible Fixed Assets 12.1. The table of cost price and the accumulated depreciation of the tangible fixed assets is stated in the table on the next page.

12.2. The accounting methods relevant to calculating the depreciation of tangible fixed assets has been revealed in clause 3.2, "Summary of the main accounting events".

12.3. According to the resolution of the annual ordinary general meeting dated 29 June, 2005 it has been decided that the tangible fixed assets and the inventory of the materials and good be insured in view of economic aspect and the approval of the board of directors. According to the resolution of the board of directors it was permitted that all assets with the maximum amount of Rls 6.800 billion be insured in view of economic aspect. The tangible fixed assets of the company (except motor-vehicles) on the date of balance-sheet were under insurance coverage against probable damages caused by fire, flood and earthquake up to Rial Million 6,385.6. In addition, the motor-vehicles of company are covered under the third-party and full risk auto-body insurance.

Cost Price & Tangible Fixed Assets Accumulated Depreciation Table Cost Price Rls Balance on Assets added in Assets Sold in ModificationsTransfers between 20.03.2005 the Fiscal Year the Fiscal Year Assets Items Land 207,396 3,195 - - 19,718 Building 2,374,427 551 (6,484) (780) 296,833 Peripheral utilities 2,055,065 - - (3,) 103,981 Machinery 8,971,612 - (30) - 1,362,439 Equipment 701,408 - - (14,850) 90,046 Motor-vehicles 56,337 168 (463) - 36,331 Furniture & fixtures 76,680 - (95) (7,114) (18,238) Escrow with others 3,390 - - - - Total 14,446,315 3,923 (7,072) (25,951) 1,891,110

In-process finishing assets 536,007 - - (25,290) (118,630) In-process finishing project 1,912,033 1,293,872 - - (1,523,166) Capital prepayments 100,973 322,116 - - (221,966) Capital orders 107,532 8,046 - - (27,609) ` 2,656,545 1,624,034 - (25,290) (1,891,371) 17,102,860 1,627,957 (7,072) (51,241) (261)

Cost Price Rls Accumulated Depreciation (Rls) Balance on Fiscal Year's Depreciation of Sold Balance on 20.03.2005 209.03.2006 Depreciation Assets 230,309 - - - 2,664,547 381,373 285,175 (608) 2,155,839 488,328 185,544 - 10,334,021 1,120,311 858,635 - 776,604 224,905 40,882 - 92,373 31,755 18,166 (454) 51,242 21,199 5,897 (46) 3,390 - - - 16,308,325 2,267,871 1,394,299 (1,108) 392,087 - - - 1,682,739 - - - 201,123 - - - 87,969 - - - 2,363,918 - - - 18,672,243 2,267,871 1,394,299 (1,108)

Accumulated Depreciation (Rls) Book Value Rls Balance on Balance on Modifications Balance on 20.03.2006 20.03.2006 20.03.2005 - - 230,309 207,396 (23) 665,917 1,998,630 1,993,054 (352) 673,520 1,482,319 1,566,736 - 1,978,946 8,355,075 7,851,300 (1,361) 264,426 512,178 476,503 - 49,467 42,906 24,582 - 27,050 24,192 55,481 - - 3,390 3,390 (1,736) 3,659,326 12,648,999 12,178,442 - - 392,087 536,007 - - 1,682,739 1,912,033 - - 201,123 100,973 - - 87,969 107,532 - - 2,363,918 2,656,545 (1,736) 3,659,326 15,012,917 14,834,987

The transfer balance of non obvious assets, completed in 1384 (21/03/2005-20/03/2006) is the amount of Rls 261 million. The transfer payment out of the account of fixtures and furniture is Rls 18,238 million which is including an amount of Rls 7,795 million of the additional furniture's in 2005 (1384) and an amount of Rls 26,033 million of the assets, title 96, which have been withdrawn from the account of furniture and transferred to the relevant accounts. The amount stated in the balances column are including the assets which are considered as costs or the assets which have been granted, withdrawn from the account of the assets and applied in the cost account.

12.4. The balance of accounts of the lands is as follows:

Price (Rls) Land for Units 170,198 Land decide the Autoban, Bandar Abbas Site 19,654 Land in Majlesi Area 3,057 Land for residential unit in Abshar St. 3,771 Land for Noshahr Villas 4,914 Land for building of Hakim Nezami Crossroads 2,496 Land for Mobarakeh Cooperative Co. 830 Land for company's office building in Darvazeh-Shiraz. 15,821 Land of Karkevand Crossroads 41 Land for building of Tehran Office 4,070 Land for building in Chaharbagh Bala St. purchased from Polyacryle Co. 2,050 Land for building of Family Clinic 832 Land for Chadegan villas 2,575 230,309 The price increase of the land is mainly including the purchase of the land by the highway of Bandar Abbas site and the lands of Amirabad.

12.5. The cost price of the buildings is divided as follows: 20/03/2006 20/03/2005 (Rls) (Rls) Non-industrial Buildings 213,990 193,657 In-premises Company Buildings 2,402,737 2,134,937 Out-premises Company Buildings 47,820 45,832 2,664,547 2,374,427

12.5.1. The price increase and transfer of non-industrial buildings are mainly including phase 1 of 30 villas in Chadegan, Isfahan, in the amount of Rls 3,092 million and the buildings beside Tin-plated unite, in the amount of Rls 1,168 million.

12.5.2. The price increase and transfer of industrial buildings in the company are mainly including the completion of Steel manufacturing building, tandem two roof halls, part I, II and III of galvanization and painting line and civil works in oxygen workshop.

12.5.3. The price increase and transfer of Industrial building out of the company are mainly including construction operation of the previous years, such as Bandarabbas warehouse and pump plant.

12.6. The transfer of peripheral installation is mainly including the equipment for production and distribution of hydrogen and oxygen, machinery and equipment for industrial water production and water unisol process.

12.7. The transfer of machinery is the amount of Rls 1,362,439 which is mainly including machinery for raw material production and machinery for steel navard.

12.8. The transfer of equipment is the amount of Rls 90,045 million which is mainly including industrial roof cranes.

12.9. The cost price of the motor-vehicles is as follows: Price (Rls)

Train and Locomotive 23,297 Diesel trucks above 10 tons and lift-trucks and dump trucks 46,701 Diesel trucks and small trucks up to the capacity of 10 tons 1,827 Truck and small truck up to 5 tons 294 Petrol vans and trailer 13,159 Personnel Motor-Vehicles (diesel and petrol) 6,941 Bicycles & Motorcycles 154 92,373 Transferees of motor-vehicles the amount of Rls 36,331 mainly includes train and locomotive and truck and diesel trucks above 10 tons.

12.10. The items include the assets in escrow with others are as follows: Price (Million Rls) Cost price for the assets delivered to Hormozgan Steel Complex at 2,423 Bandar Abbas Site Collecting and harvesting machine 523 Eight waste water disposing machines delivered to Hormozgan Steel 29 Complex Balance of L/C # 3001/205481 for the rods remained in the customs 8 office Returnable escrow assets (motor-vehicles, machinery and camp) 239 Non-returnable escrow assets (motor-vehicles and machinery) 168 3,390

12.11. Assets sold within the fiscal year are as follows:

Title Description of sold assets Name of purchase Safaiyeh organizational houses (6 units); Mainly for the personnel of Company Majlesi organizational units (93 units); Fouladshahr Buildings Land (1 unit); Container camp (86 units) Mainly for Touka Haml-o-Naghl Majlisi Cold Store Building Islamic Azad University of Majlesi Branch

Furniture Office equipment Iran minerals Preparation & Production Co.

Motor-vehicles Dump truck Benz, Mazda Van, Paykan, Land Rover , … Different people

Tools 164 non-fire fighting Capsule Different People

Granted assets

Cost price Accumulated Book value Price Profit (loss) Million Rls Million Rls Million Rls Million Rls 399 65 334 1,997 1,664 316 62 254 525 270 322 50 272 502 229 1,037 177 860 3,024 2,163

95 46 49 433 384

463 454 9 1,599 1,590

30 - 30 94 64

5,447 431 5,016 - (5,016) 7,072 1,108 5,964 5,150 (815)

12.12. Balance of the assets in process of finishing is as follows: 20/03/2006 20/03/2005 Million Rls Million Rls Construction works, installations & commissioning of the waste 11,655 10,907 water treatment house Re-installation & fluids contract 13,368 13,368 Dried and oiled trances 4,318 4,126 Exceptional construction works in iron manufacturing and steel 4,017 4,017 making areas Optimization & Modification contracts 3,063 3,063 Purchasing land and its preparation in Chadegan 9,951 6,951 Completion of 27 villas from the villas in phase 2 of Chadegan 18,673 12,286 Purchasing and installation of electrostatic oil spraying machine 3,242 1,916 lines modernization for MB sheet production 3,034 17,777 Landscaping and street construction of site projects 3,467 1,304 Supplying landscape lighting and electrical supplying for scraps site 3,935 2,404 Electrical Contract 4,823 4,206 Consulting services for industrial surveying of production lines in all sites 3,661 3,661 Rendering engineering services in the field of architecture 15,586 4,490 Rendering engineering services on workshops 4,407 2,030 Establishing domicile welding for experts 5,937 - Others 279,950 443,501 392,087 536,007

12.13. The in-process projects out of the company internal resources include the following items: 20/03/2006 (Rls) 20/03/2005 (Rls) Iron manufacturing unite 132,729 30,910 Steel manufacturing unit 136,464 39,882 Hot navard unite 42,223 24,500 Cold navard unite 1,006,410 603,355 Tandem mill unite 844 7,031 Water treatment and water pumping unite 8,635 10,007 Galvanization unit 25,207 39,434 Tin-plated and colored iron sheet 7,312 18,601 Computer Center 4,240 4,909 Bandar Abbas export warehouse 17,757 30,196 Transfer and Repairmen unite 5,839 9,267 Oxygen unite 1,128 2,482 63.6 kW post unite 851 851 Research unit 741 836 Other 292,359 1,089,772 1,682,739 1,912,033

12.14. Capital advance payments are divided as follows: 20/03/2006 19/03/2005 Million (Rls) Million (Rls) Polyacryl Co. - Bagh Ferdows Sport and Cultural Complex 100,000 - Oil Industries Engineering Co.; Designing, providing & supplying 30,191 34,596 acid washing equipment, Planning and Development Foulad Afza Sepahan - Dolomite Factory Establishment 25,001 - Tuka Beton Co.; Establishment, concrete structure & the brick 8,196 7,169 works of buildings Metec Applied Research and Engineering Institute - Construction 7,110 9,210 and Installation Farayand Machine Manufacturing Co.; Carrying out the in-hand 6,053 1,500 key of the chain machine of iron-making area. Satan Construction Co.; Execution of asphalt works of highways 2,404 1,141 Iran Atanor Co. - Installation and Commissioning of Industrial 1,830 - Projects Behpajouh Computer and Electronic Engineering Co. 1,739 - Nas-Sanat Engineering Co.; Construction & assembly of roller workshop 1,735 3,050 Safa-Nikoo Sepahan Co. - Executing the project under 1,571 12,930 development of electrical network Souliran Co. - Construction and Installation of Equipment 1,115 - Pat Sameh Engineering Co. - Construction and Installation of 1,109 - Equipment Mabani Sana't Co. - Construction and Installation of Equipment 1,080 - Isfahan Province Telecommunication Department 1,054 - Mobarez Research and Production - Industrial Machinery 1,048 - Others 9,887 31,377 201,123 100,973

12.14.1. The amount paid to Polyacryle Company is for a part of the cost of Bagh Ferdows cultural and sport complex which has been made in reference to the executive letter of agreement, clause "B" of article 117 of 4th phase of Economic Development Project Regulation.

13. Long-term Investments Investments made in companies' stocks are as follows:

Investment in Other Companies' Stocks Number of Type of Investment Date Stocks Stocks Percentage Metil Steel Co. 225,120 Ordinary 32.16 24 Sept., 1991 Tamco Construction Machinery Providing & 1,022,000 Ordinary 37.68 30 May, 1992 Installations Co., Private Joint-Stock

Tuka Foulad Investment Co. 11,109,640 Ordinary 11.11 7 June, 1987 (Public Joint-Stock) Tuka Beton Co. (Private Joint-Stock) 25,000 Ordinary 25 15 June, 1992 Esfahan Industries Health & Treatment 118,000 Ordinary 0.94 10 Jan., 1994 Services Co., Private Joint-Stock Automation & Systems International Co., Preference of 6/1with the right 180,000 27 July, 1992 Private Joint-Stock to vote at meetings Isfahan Region Metro Co. 5,000 Ordinary 22 Aug., 1991 Nominal Value Assessment Investment Cost Price on Cost Price on method income 20/03/2006 20/03/2005 Rls 100,000 Special Value 12,343 25,782 16,654 Rls 10,000 Special Value 2,503 13,459 11,941 Rls 1,000 Cost Price 3,888 8,287 4,400 Rls 100,000 Special Value 4,116 4,959 4,843 Rls 5,000 Cost Price - 590 590 Rls 50,000 Special Value 2,026 17,656 17,190 Rls 100,000 - 500 500 24,876 71,233 56,118

Subway Construction Company has been transferred to the organization of Isfahan Urban Trains. No cooperation has been made with this company in this regard as well as for capital increase. So these cases are in the process through Legal Department of the company.

14. Other Assets Other assets on the date of the balance-sheet are divided as follows:

20.03.2006 20.03.2005 (Rls) (Rls) Long-term share of personnel's loan (Note # 8.1) 324,159 247,671 telephone line, electricity and gas subscriptions 23,027 22,811 Long-term share of facilities paid to service centers and 105,615 4,406 units (Note # 8.2.1) Guaranty for personnel's received facilities with Bank 150 150 Ostan Materials and goods inventory (Note 9) 417,264 856,299 Down payment for telephone line, electricity and gas - 2,512 subscriptions 870,215 1,133,849

15. Trade Accounts Payable

The trade accounts payable on the date of the balance-sheet is divided as follows: 20.03.2006 20.03.2005 (Rls) (Rls) Domestic Suppliers 393,026 224,423 Foreign Suppliers 22,655 319,096 415,681 543,519

15.1. The balance of the account of the domestic suppliers includes the following items: 20.03.2006 20.03.2005 (Rls) (Rls) Chadermlo Iron stone company - Iron Stone 89,849 - IRI Railway Company - Railway transportation 38,732 - Parshian Steel Co. - Slab purchasing 31,467 - Golgohar Iron Stone Co. - Iron Stone 27,239 - Isfahan Power Co. - Power 17,603 - Nasooz Azar Co. 15,811 -

Nation Iranian Gas Co. - Gas 15,608 - Asia Seir Aras Co. - Railway transfer of the products 13,489 - Cani Ara-e-Sirjan Co. - raw materials 12,415 - Pishro Gheshm Co. - Zinc and raw materials 12,204 - Moein Ehia Sepahan Co. - raw materials 11,154 1,562 Zagros Steel Co. - Iron Scraps 10,361 - Amizeh Saan Arak Co. - Aluminum 9,371 4,839 Meibod Steel Co. - Chodan 8,099 - Isargaran Faal Co. - Road transportation of products 7,861 4,974 Faragostar Aluminum Co. - Aluminum 7,455 - Nasooz Iran Co. 6,582 11,653 Dir Godaz Iran Co. 6,439 3,461 Tooka Refractory Industries Co. - Refractory 6,383 4,799 Isargaran Zarrin Shahr Co. - Iron Scraps 6,185 1,878 Amir Tarabar Mobarakeh Co. - Road Transportation 5,547 3,359 Sormeh Shamin Sepahan Co. - Chodan 5,003 2,704 C Volex Kala Co. 6,171 139,029 Other 21,998 57,540 393,026 224,423

15.2. The balance of account of the foreign suppliers includes the following items: 20/03/2006 20/03/2005 (Rls) (Rls) M.M.T Co.; Raw materials 12,600 4,181 Hadid-e-Esfahan Co.; Raw materials 2,313 - Alsikal Co.; Raw materials 1,606 - Other 6,136 314,915 22,655 319,096

16. Other Accounts & Notes Payable The other accounts & notes payable are divided as follows: 20/03/2006 20/03/2005 (Rls) (Rls) Deductions payable 2,378,737 2,410,381 Contractors' insurance and good performance deposit 493,929 404,597 Non-trade notes payable 324,703 44,000 Outstanding costs reserve 218,173 226,931 Payable account to sellers 207,916 - Retirement fund of national Iranian Steel Co. out of the 26,000 - personnel annual increase Retirement fund of national Iranian Steel Co. out of sail 13,377 13,377 Others 2,354 3,624 3,674,189 3,102,910

The payment to pensioner's fund is 20% of the personnel's additional years as the employer's share, which will be paid by installment each month.

16.1. The deductions payable are as follows: 20/03/2006 20/03/2005 (RIs) (Rls) For clause J of Note 1 of the 1385 (21/03/2006-20/03/2007) 2,333,449 2,309,193 Budget Act (note # 33) The share of Basij from the profit according to regulations 24,752 25,915 Finance & Economic Affairs Dept. : Taxes levied (contractors) 20,568 12,244 Charges for emergency loan and personnel's housing 6,102 4,158 3% accumulation of sales tolls Esfand months in 1384 2,031 10,632 (20/03/2006-20/03/2006) Municipality tolls for raw materials handling 820 820 Others 15 47,419 2,387,737 2,410,381

16.1.1. An amount of Rls 24.7 billion as Basij share out of the profit yield including the rest of 2% net profit subject to note 47 of the 2nd five-year plan Act of the social and economic development, and also 1% profit according to clause D of note 8 of the Budget Act in previous years, and the rest of 1% of the profit subject of clause B of article 175 of the 3rd five-year Act of the social and economic development.

16.2. The deposit placed by the contractors for insurance premium and good work performance includes the following items: 20/03/2006 20/03/2005 (RIs) (Rls) Deposit for good work performance 286,521 231,267 Deposit placed by contractors for insurance 207,408 173,330 premium 493,929 404,597

16.3. Non-trade notes payable in the amount of Rls 324.7 billion for the checks drawn in favor of the Isfahan Finance & Economic Affairs Office for the tax levied on the operation of 1383 (21/03/2004-20/03/2005).

16.4. The reserve for the outstanding costs is as follows: 20/03/2006 20/03/2005 (RIs) (Rls) Reserve for the salary and allowances of Esfand month 44,039 45,893

Reserve for donation to the cultural and welfare organization and 15,215 6,034 institutions Reserve for personnel's work termination allowance (over one 10,000 1,173 month salary of retired personnel, redeemed personnel and …) Reserve for pension allowance 5,243 5,383 Reserve for sport expenses 2,054 56,020 Reserve for audit costs 35 900 Others 141,587 111,528 218,173 226,931

16.4.1. On the basis of the resolutions ratified by the board of directors an amount of Rls 15,215 billion has been accounted as reserve in the accounts out of the profit earned to the fiscal year for the term to recreational and cultural organizations and institutions. 16.5. The claim of the retirement Fund of NISCO in the amount of Rls 13.37 billion is relevant to the deduction out of the money earned from the products sold as per resolution ratified by the Higher Council of Steel in the previous years and circular letter of the Iranian Mines and Mining Industries Development and Renovation Organization.

17. Down Payment Received

The down payments received on the date of the balance sheet are as follows: 20/03/2006 (Rls) 20/03/2005 (Rls) Down payments received from domestic 414,658.00 698,397.00 customers Down payments received from foreign customers 2,058.00 77.00 416,716.00 698,474.0

17-1. The down payments received from domestic customers The down payments received from domestic customers include the following items: 20/03/2006 (Rls) 20/03/2005 (Rls) Iran Khodro Public Joint-Stock Co. 80,490.00 29,159.00 C Volks Commodities Company 48,299.00 185,253.00 Sazeh Gostar Co. 40,771.00 45,564.00 Saypa gerbox and exel motor engine products 16,821.00 7,177.00 Fara Sahel 14,784.00 568.00 Saypa Azin 10,845.00 3,434.00 Bahman Group (Former Iran Vanet) 9,011.00 6,459.00 Water and waste water of Tehran 8,902.00 30.00 Setareh-e-Jonoub Agent 8,618.00 - Bahonar Agent 6,172.00 - Other 169,945.00 420,753.00 414,658.00 698,397.00

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Public Joint-Stock Explanatory Notes of Financial Statements For the Fiscal Year ending 20 March, 2006

17-1-1. The down payments for selling will be received from the customers according to the regulations

and rules ratified by the company’s managers. The said amounts have been received on the basis of Next Year’s Production Schedule and the company is able to fulfill its obligations pertaining to duty production and delivery.

17-2. The down payments received from the foreign customers pertains to the balance of the pre- payment of the foreign customers is as follows: Price (Dollar) Arian Felez Co. 148,069.68 Al-Estejana Co. 43,356.96 Si-Mour Co. 21,600.00 Youniversal Teyoup Co. 7,998.14 Estren Union Co. 4,545.2 Akbar Kabir Co. 582.44 Souran Co. 317.9 Eshghabad-e-Torkamanestan Co. 0.739 226,471.059

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Public Joint-Stock Explanatory Notes of Financial Statements For the Fiscal Year ending 20 March, 2006 18. Tax Reserve The summary of the company tax status is as follows: Income subject to tax Tax Fiscal Year Tax Declared ( Rls) Tax Appraised (Rls) Final (Rls) Tax Declared (Rls) Tax Appraised (Rls) 1382 2,077,183.00 2,241,612.00 2,241,612.00 517,738.00 560,403.00 21/03/2003- 20/03/2004 1383 4,670,850.00 - - 1,167,712.00 - 21/03/2004-

20/03/2005 1384 - - - - - 21/03/2005- 20/03/2006

Tax Final (Rls) Penalty Paid (Rls) Reserve Balance Tax Reserve on 19 March, 2004 560,403.00 - 560,403.00 - 55,153.00 - - 1,166,049.00 27,777.00 1,193,826.00 - - - - - 27,777 1,248,979.00 Deducted : Advance - (523,010.00) payment for tax 27,777.00 725,969.00

18-1. The company’s operating tax has been settled and become final until the end of 1381 (21/03/2002-20/03/2003). 18-2. According to the statutory exemption, subject of article 12 of executive regulation, article 4 of facilitating and reconstruction of Domestic Industries as amended, all used by the company, the total income of the company in the fiscal year of 1384 (21/03/2005-20/03/2006) is exempted from tax payment. 18-3. According to the report of tax audit of the income, subject to performance tax in 1383 (21/03/2004-20/03/2005), has been announced as the amount of Rls 4,718,511.4. The tax for the said year have been audited according to the aforementioned report and paid to the accounts.

19. Dividend Offered On the basis of article 90, as amended, of the Trade Law and article 54 of the articles of association of the company, 10% of the net profit of the fiscal year of 1384 (21/03/2005- 20/03/2006) after deduction of the levied tax in the amount of Rial Million 613,371.00 has been considered as the offered dividend and the rest has been included in the regular reserve account.

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Public Joint-Stock Explanatory Notes of Financial Statements For the Fiscal Year ending 20 March, 2006

20. Financial Facilities Received: The summary of the statement of the financial facilities received is as follows:

The Summary of the Statement of the Financial Facilities Received Facilities Providing Resource Date Facilities Received Installment 1st Installment Re-payment Charges & Rial Million Matured Date Period Interest Rate

Society General Bank 22 July, 2004 - 22 Jan., 2005 5 months 4.73% Bank Fortis, Milan 17 March, 2000 - 15 Aug., 2001 24 months 4% Bank Fortis, Belgium 17 March 2002 - - - - NISCO 23 July, 2001 - - - - Sanat-va-Madan Bank 18 Jan., 2005 31,250.00 18 June, 2005 8 months 15% Islamci Development Bank (IDB) 5 Oct., 2004 32,823.00 6 Oct., 2005 1 year -

Circulation within the fiscal year Amount approved Amount Used Balance on Received or Paid in Fiscal Year Profit / Loss Balance on (Rls) (Rls) 19/3/2004 ( Rls) increase in Fiscal (Rls) 20/03/2005 (Rls Year (Rls) 221,530.00 221,530.00 177,280.00 - 178,470.00 (1,190.00) - 2,200,286.00 - 3,011,918.00 94,023.00 380,449.00 169,751.00 2,555,740.00 - - 84,129.00 - 84,129.00 - - 24,409.00 24,409.00 6,410.00 - 6,410.00 - - 170,000.00 170,000.00 170,000.00 - 170,000.00 - - 32,823.00 32,823.00 29,796.00 - 28,263 1,533.00 - 3,479,533.00 94,023.00 847,721.00 170,094.00 2,555,740.00 (2,622,198.00) (2,191,155.00 857,335.00 364,585.00

21. Long-Term Accounts: 1384 (Rls) 1383 (Rls) Iranian Mining Industries & Mines 135,355.00 203,032.00 Development & Renovation Organization (note # 6-2) National Iranian Steel Co. (note # 7-1) 114,257.00 166,211.00 249,612.00 369,243.00

22. Reserve for Personnel's Savings The balance of the account of the reserves for personnel's savings in the amount of Rial Million 126,622.00 is relevant to the amounts deducted from personnel's salary and allowances (6% employees' share and 5% company's share) for the savings fund from which loan is paid to the personnel.

23. Reserve for Personnel's Service Termination Allowances and Personnel's Service Redemption The reserve for personnel's service termination allowances is calculated according to Notes # 3-6 of "Summary of the main accounting events". The circulation of the said account is as follows : 1384 Rls 1383 Rls Balance in the beginning year and reserve for personnel's 275,030.00 225,065.00 service termination allowances Payment in fiscal year (30,811) (9,312.00) Provided reserve for personnel's service termination 143,833.00 59,277.00 allowances Provided reserve for Personnel's Service Redemption 55,146.00 - Balance in the ending year 443,198.00 275,030.00

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed. Mobarakeh Steel Company, Public Joint-Stock Explanatory Notes of Financial Statements For the Fiscal Year ending 20 March, 2006

24. Capital The capital of MSC includes 15,800,000,000.00 ordinary registered 1,000-Rial shares paid up in cash. The shareholders and their shares are as follows : Description Rls Number of Stocks Percentage of

Stocks Organization of Development and 15,799,999.8 15,799,999.800 99.99 Renovation of Mines and Mineral Industries of Iran. Isfahan Steel Joint Stock Co. 0.05 50 Khouzestan Steel Co. 0.05 50 Mining Products Supplying & Distribution Co. 0.05 50 National Iranian Steel Co. 0.05 50 15,800,000.0015,800,000,000.0 100 In reference to resolution # 33634/29022 dated 2 Aug., 2005 ratified by the Board of Ministers, 10 percentage of the shares of the company has been transferred for settlement of government debts which have not been completed up to the date making the financial statements and statutory formalities of transfer the shares, mentioned above. According to resolution mentioned above, 10% of the shares of the Organization of Development and Renovation of Mines and Mining Industries of Iran is to be divided and transferred as follows:

Description Rls Number of Stocks Percentage of Stocks Social Security Organization 600,400.00 600,400,000.00 3.8 National Retirement Organization 568,800.00 568,800,000.00 3.6 Social Security Organization for Armed 189,600.00 189,600,000.00 1.2 Forces Medical Services Insurance Organization 126,400.00 126,400,000.00 0.8 Astan-e-Ghods-e-Razavi 72,680.00 72,68,000.00 0.46 Farhangian's Fund 22,120.00 22,120,000.00 0.14 1,580,000 1,580,000,000.00 10

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Public Joint-Stock Explanatory Notes of Financial Statements For the Fiscal Year ending 20 March, 2006

24-1. The changes in the capital are as follows: Rls Balance in the beginning year 8,366,148.00 decrease made in the capital of the company according to (45,033.00) resolution of extraordinary general meeting dated 29 Dec., 2004, Reg. # 3723 dated 26 May., 2005 Increase made in the capital of the company according to 2,560,587.00 resolution of extraordinary general meeting dated 31 May, 2005, Reg. # 5433 dated 26 June, 2005

Increase made in the capital of the company according to 4,918,298.00 resolution of extraordinary general meeting dated 4 Feb., 2006, Reg. # 19229 dated 1 March, 2006 15,800,000.00 The capital increase at the amount of Rls 2,560,587.00 has been made out of the stored amount of Development Project and the capital increase at the amount of Rls 4,918,298.00 has been made out of the non divided profit of the capital stored.

25. Regular Reserve The amount of Rls 306,685.00 has been paid to the regular reserve account out of the allocable profit according to article 140 of the Trade Law, as amended, and article 73 of the articles of association of the company. In view of the provisions of the said articles, money shall be transferred to the regular reserve account until the balance of the account reaches 10% of the capital amount of the company. The regular reserve cannot be transferred to the capital of the company. It can be divided among the shareholders only when the company has been wound up.

26. Capital Reserve The capital reserve includes the following items: Capital reserve (Rls reserve (Rls) Total (Rls) Balance in the beginning year 4,984,358.00 2,560,587.00 7,544,945.00 Transfer to the capital account (4,918,298.00) (2,560,587.00) (7,478,885.00) Transfer from the profit of the current fiscal year 2,880,202.00 - 2,880,202.00 2,946,262.00 - 2,946,262.00

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Public Joint-Stock Explanatory Notes of Financial Statements For the Fiscal Year ending 20 March, 2006

27. Income Derived from Products Selling Income derived from products selling is divided as follows: 1384 (21/03/05-20/03/06) 1383 (21/03/04-20/03/05) Domestic sales : Tons Rls Tons Rls Pellets 72,658.280 52,516 29,997.400 20,964 Slab 1,080.720 2,976 22,542.740 68,385 Hot rolling slab 41,284.900 107,435 37,113.760 96,381 Hot Coil 2,208,051.731 8,598,661 1,757,561.342 6,835,903 Hot Sheets 262,455.831 1,060,287 242,158.870 973,002 Cold Coil 160,354.400 918,856 368,210.179 1,733,741 Cold slender coil 8,925.020 55,437 14,632.797 73,110 Galvanized Sheets - - 28.600 184

Colored Coil 57,102.375 387,930 22,818.857 142,194 Cold Sheets 136,279.787 800,338 199,027.101 966,772 Acid-Washed Coil 137,638.320 555,780 136,147.504 559,060 Galvanized Coil 121,422.439 762,093 121,499.954 664,236 Tin-Coated Coil 12,933.358 82,290 4,199.853 18,908 Tin-Coated Plates 48,493.069 321,776 26,577.064 131,955 3,268,680.230 13,706,375 2,982,516.021 12,284,795 Export Sales: Slab - - 31,980.509 116,603 Hot rolling slab 40,697.026 111,781 63,145.549 181,123 Hot Coil 913,352.809 3,469,270 767,423.282 3,294,684 Hot Sheets 77,612.951 613,107 48,907.640 324,706 Cold Coil 827.740 2,103 - - Galvanized Coil 1,343.760 7,674 3,236.640 18,636 Acid-Washed Coil 3,536.500 16,605 315.240 1,552 1,037,370.786 3,932,600 915,008.860 3,937,304 4,306,051.016 17,638,975 3,897,524.881 16,222,099

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending 20 March, 2006

27-1. Domestic Sales: The company products were sold to the manufacturing workshops and factories in 1382 (21/03/2003-20/03/2004) before the Metals Stock Exchanges started. A part of the company products were sold through the Stocks Exchange and others through the ordinary sales systems after the Metals Stocks Exchange was started. The products are manufactured and delivered via the orders placed by customers against the collection of a part or total of the price of the products before the issuance of the order and the rest shall be paid at the time of delivery of the product or it will be as credits granted to the customers acceding to the resolutions ratified by the committee of credit and the board of directors. The price of the products used to be fixed and decided according to the resolutions and notices made by the concerned organization (Ministry of Commerce) before the Stocks Exchange was

started. At present, the price is fixed on the basis of the laws and rules of the Stocks Exchange and is enforced and applied at the time of the issuance of the final order issuance. It should be noted that the charges of extra services requested by the customers including the quality control, packaging and the number of cutting, edge condition and other services shall be received from customers according to the resolution. In 1384 (21/03/2005-20/03/2006), 21% of the sale of the company's' products has been made directly in stock exchange hall 79% of the sale has been made in the company and all have been recorded in Matching chamber.

27-2. Export Sale: The export of the company's product has been began of the time of exploitation of the company with the aim of development and expansion of international markets of the export products of the company, customers' satisfaction meet through on time delivery of the products, good quality according to International standards and guarantee the minimum profit for the company since 1372 (21/03/1993-20/03/1994) and has been continued in order to mead the current foreign currency needs and implement the development projects. Esfahan Mobarakeh Steel Company deliver its product directly and indirectly. The main products are delivered, indirectly by the traders and trade middlemen. The sale of export products is rendered through sight L/C by the purchasers and the products is delivered to them by FOB delivery in Bandarabbas. After the documents are delivered to bank the amount of the relevant bill will be deposited to the account of the company. the method of pricing for the products of the company is subjected to the prices determined in International Steel Market and delivery and supply made in this market. In this may, the company will receive the prices, suggested by the potential customers by suggesting the sate to them and after making a study of the suggestions made, will select the highest price according to the company's system.

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements

For the Fiscal Year ending 20 March, 2006

27-2-1.The amount and percentage of the domestic sales and export of the company products to the customers are as follows: Sales (Tons) Percent per Sales Saveh Profile Co. 305,707.463 7.10 C Volks Commodities Co. 271,852.173 6.32 Balikelakenr Co. 219,098.694 5.09 Tara Co. 187,161.521 4.35 ASCOTEC Co. 177,819.153 4.13 Sepahan Industrial Group 161,465.760 3.75 Sani Kaveh Iron & Steel Co. of Tehran 133,213.415 3.09 Esfahan Steel Co. 115,810.725 2.69 Armatriding Co. 108,143.626 2.51 Nobel Co. 78,178.336 1.82 Ehya Sepahan Co. 77,987.002 1.81 Donyay-e-Felez Co. 64,281.605 1.49 Sepanta Industrial Co. 60,855.420 1.41 Foulad Gostar Yazd Co. 56,788.594 1.32 Steel Services Co. 55,743.636 1.29 Stamcor Co. 51,581.336 1.20 Kachou Industrial Co. 51,555.215 1.20 Mofid Agent 49,185.600 1.14 Sahand Steel Industries Co. 46,819.005 1.09 Jonoub Steel Co. 46,581.432 1.08 Tous Steel Co. 45,620.463 1.06 Sazeh Co. 44,872.043 1.04 Derakhshan Steel Co. 43,301.300 1.01 Touka Boresh Co. 40,557.134 0.94 Iran-Khodro Co. 40,223.031 0.93 Sepanta Profile Co. 39,873.560 0.93 Nour Steel Co. 37,947.947 0.88 Kousha Novin Co. 37,714.860 0.88 Setareh-Jonoub Co. 37,567.760 0.87 Sadid Mahan Co. 36,048.303 0.84 Other 1,582,494.904 36.75 4,306,051.016 100

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

27-3. The export sales of the products are as follows:

Quantity - Tons USD Euro Rial Hot-rolling coils 913,352.809 378,861,785 4,412,546 3,469,270 Hot-rolling sheets 77,612.951 35,824,347 - 323,107 Hot-rolling slabs 40,697.026 12,385,454 - 111,781 Cold-rolling coils 827.740 459,664 - 4,163 Galvanized coils 1,343.760 847,797 - 7,674 Acid-washed coils 3,536.500 1,849,108 - 16,605 1,037,370.786 430,228,155 4,412,546 3,932,600

27-4.The profit derived from the export is calculated as follows: Rls Export sales of the products 3,932,600 Deducted: - Cost price of the exported products 1,884,383 - Incidental costs of export (Note 31-1) 239,189 Export Share : - Sales, administrative and general costs 445,044 - Financial costs 36,537 2,605,153 Net profit out of the export of products 1,327,447

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

28. Cost price of the sold goods Cost price of the sold goods is calculated as follows: 1384 (Rls) 1383 (Rls) Raw materials inventory in the beginning of the fiscal year 1,100,169 677,751 Added : Net purchase during the fiscal year 5,385,468 4,290,384

Ready for use raw materials inventory 6,485,637 4,968,135 Deducted : Raw materials inventory in the end of the fiscal (1,539,510) (1,100,169) year Cost price for the used raw materials 4,946,127 3,867,966 Direct wages 728,190 496,620 Overheads 4,647,701 3,733,794 Cost price of products 10,322,018 8,098,380 Added: In-manufacturing goods inventory in the beginning of 441,657 491,345 the fiscal year Deducted: In-manufacturing goods inventory in the end of the (343,322) (441,657) fiscal year Cost price of finished goods 10,420,353 8,148,068 Added: Finished goods inventory in the beginning of the fiscal 539,104 467,996 year Cost price for the ready for sale goods 10,959,457 8,616,064 Deducted: Finished goods inventory in the end of the fiscal (709,918) (539,104) year Cost price of sold goods 10,249,539 8,076,960

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

28-1. Comparison of real production, forecast schedule and nominal capacity of 1384 (21/03/2005- 20/03/2006) with the previous fiscal year is as follows: 1384 (Million Tons) 1383 (Million Tons) Real production of hot rolling unit 4.283 3.804 Production according to hot rolling plan 3.905 3.548 Nominal capacity of hot rolling unit (with standard 4.000 4.000 compound)

Percent Percent Real & forecast production ratio 109.7 107.21 Real production & nominal capacity ratio 107 95.1 Forecast schedule & nominal capacity ratio 97.6 88.7

It should be noted that the nominal capacity of hot-rolling line is variable and is exactly depended on production compound. The compound of production is depend on the market need. The compound of standard production of nominal capacity of hot rolling line is 4 Million tones according to execution of development projects. But if the production compound is easier than standard compound, the capacity will be more than 4 Million tones and if it is harder than the standard compound, the capacity will be less that 4 Million tones. (In 1384 (21/03/2005-20/03/2006), the production compound of hot rolling line has been easier than the standard compound.)

28-2.Raw materials purchasing are as follows: 2005 (1384) 2004 (1383) (Rls) (Rls) Iron-Ore & Pellets 1,858,687 1,239,540 Ferro-alloys 322,521 498,969 Coils & Slabs 1,211,025 693,122 Iron scraps, steel & cast-iron 925,984 1,062,277 Additives : Lime, dolomite and glass water 240,521 127,444 4,558,738 3,621,352 Purchasing peripheral costs : Handling, 826,730 669,032 release, insurance and customs 5,385,468 4,290,384

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed. Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

28-2-1. Main suppliers of the raw materials for the company in 1384 (21/03/2005-20/03/2006) have been as follows: Type of materials Percentage Price (Rls) Chadermelo Industrial & Mineral Co. Iron limestone 25.29 1.153,011 Khouzestan Steel Co. Slab 21.15 964,307 Gol Gohar Iron Ore Co. Iron Ore 15.16 690,881 Tuka Tadarok Trading Co. Iron scraps 5.59 254,908 Pershian Steel Co. Steel slab 3.50 159,467 BETTER FUTURE Ferro-Alloy 3.19 145,630 Ehya-e-Foolad Zagross Co. Iron scraps 2.55 116,418 Ascotec Co. Coil 2.06 94,067 Faryab Mines Co. Ferromanganese 1.92 87,598 Iran Aluminum Co. Aluminum coils 1.62 74,024 Tabriz Wire and Coil Co. Aluminum 1.60 72,897 Meybod Steel Co. Cast Iron 1.31 59,504 Zagros Steel Co. Coal 1.14 52,115

Moein Ehya Sepahan Co. Iron scraps 0.96 43,930 Sarmad Shamim Sepahan Iron scraps 0.83 37,772 Nika Profile Co. Cast Iron 0.82 37,407 Hozmahee Esfahan Co., Mineral & Industrial Iron limestone 0.81 36,859 Faragostar Alton Aluminum Manufacturing Co. Aluminum 0.50 22,895 NORECOM LTD Ferromanganese 0.47 21,453 Mahtab Sanat Chehelsotoon Co. Coal 0.39 17,611 Azar Refractory Products Co. Dolumite 0.33 15,001 Amizeh Sazeh Arak Co. Spepheral Aluminum 0.32 14,624 Sirjan Mineral Procuction Co. Aluminum 0.28 12,914 Falat Iran Barite Co. Bentonite 0.25 11,428 Dorin Kashan Co. Bentonite 0.20 9,308 Silikat Gostar-e-Esfahan Co. Glass water 0.16 7,286 Padideh Tarh-e-Emrouz Co. Iron scraps 0.16 7,220 Sepahan Steel Reduction Co. Iron scraps 0.14 6,484 Tuka Refractory Products Co. Calcium Alummate 0.13 5,906 MINEX METALLURGICAL Graphite 0.13 5,778 CHEMICALS Calcium Alummate 0.13 5,770 SAMANCOR high carbon Ferro-manganese 0.12 5,557 Iranian Mines & Mining Industrial Co. Iron scraps 0.11 4,885 Novin Sanat Espadana Co. Iron scraps 0.10 4,635 Pars Felez-e-Nasr Co. Iron scraps 0.09 4,024 Kowsar Sabz-e-Sepahan Co. Iron scraps 0.09 3,943 National Iranian Iron ore Co. Choghart iron ore 0.08 3,640 Isfahan Steel Co. Coke 0.07 3,062 M.M.T - Luxembourg Iron scraps 0.04 1,983 Other 6.20 282,536 100 4,558,738

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

28-3. Direct labour costs of production include the following items:

1384 (Rls) 1383 (Rls) Bonus, other allowances &… 408,909 319,303 Salary & wages 129,257 108,689 Overtime, work shift and holiday work 87,677 76,977 Service termination allowances 144,170 59,277 Pension allowances 85,865 44,798 Job allowances (annual) 20,918 19,392 Savings fund 12,628 10,846 New Year's bonus 12,509 10,201 Leave redemption 56,572 659 Other 6,592 10,241 965,102 660,383 Deducted : the share of the following:

Overheads (Note # 28-4) (136,799) (86,355) Distribution & Sales (Note # 29-1) (11,016) (7,795) General & administrative (Note # 29-2) (85,564) (61,303) Non-Absorbable items (3,533) (1,907) Expansion project - (6,403) 728,190 496,620

28-3-1. Increase in personnel's salary and allowances costs in the 1384 (21/03/2005- 20/03/2006) fiscal year as compared to the 1383 (21/03/2004-20/03/2005) fiscal year is mainly due to the annual increase. 28-3-2. The reserved leave not have been used by the personnel up to the end of 1384 (21/03/2005- 20/03/2006), has been paid to the accounts for the first year leave reserve.

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

28-4. Overheads are divided as follows: 1384 2004 (1383) (21/03/05-20/03/06) (21/03/04-20/03/05) (Rls) (Rls) Properties, Machinery & Equipment Depreciation Expense 1,336,906 1,098,633 Warehouse Consumption, Auxiliary Materials 962,399 778,913 Energy Expenses (electricity, water & gas) 903,339 819,771 Warehouse Consumption, Spare Parts 708,429 335,313 Legal Persons Services (Inside the company) 513,593 443,048 Cultural and Sport Activities 73,635 69,721 indirect wage (note # 28-3) 136,799 86,355 Materials Consumption, Repair, Maintenance & Direct Delivery 126,841 127,911 Warehouse Consumption Operational Parts 20 113,717 86,269 Technical Services, Consulting & Management 52,204 46,114 Legal Persons Services (Outside the company) 51,289 40,670 Non cash bonunse to personnel 48,254 26,888 Personnel's’ Transport Service Costs 41,735 21,252 Personnel's Health & Treatment 40,215 34,375 Restaurant Services 33,462 36,940 Rental, Repair, Maintenance of Offices and Data Processing System 26,029 18,491 Machines Purchasing Peripheral Costs 21,384 6,723

Rental, Repair & Maintenance Expenses for Non-Industrial Motor-Vehicles 15,723 14,387 Other Services 11,929 21,060 Training & Educational Seminars 9,711 3,345 Donating to cooperative companies 5,934 6,541 Green Space 5,287 5,127 Factory’s Insurance 4,384 2,604 Factory’s Cleaning 1,153 2,851 Other 92,425 610 5,336,776 4,133,912

Deducted : Products Packaging & Loading Centers Expense(Note # 29-1) (490,788) (345,587) Warehouse # 30 Overhead Expense Transferred to Fixed Assets (128,829) (1,222) General & Administrative Expenses (41,355) (31,611) Transfer to not-attractive account (25,443) (21,565) Other Sales & Distribution Expenses (Note # 31.1 ) (2,660) (133) 4,647,701 3,733,794

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed. Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

28-4-1. The energy (electricity and consumed fluids) costs is divided as follows : 1384 1383 (21/03/05-20/03/06) (21/03/04-20/03/05) (Rls) (Rls) Electricity 548,014 527,753 Methane Gas 344,645 282,298 Water 10,680 9,720 903,339 819,771 - Increase in costs as compared to the previous fiscal year is mainly due to increase in consumption rate and also increase in consumption volume. 28-4-2. The costs of the legal persons' services (Inside the company) at the end of fiscal year are divided as follows: Contractor's name Price (Rls) Tuka Foulad Co. Galvanized sheets production line - workshop 123,961 operating Behsazsn Co. Repair and maintenance of machinery 44,888 Tuka Refractory Products Co. Supplying refractory products and rendering services 33,689 Barghara Co. Operating and Repair and maintenance of cranes 25,817 Dejpad Co. Repair and maintenance 25,626 Pak Bon Sepahan Co. Industrial cleaning services 20,528 Pouya Mashine Co. Repair of machinery 16,117 Sayal Poulad Novin Co. Maintanance of chotoricing systems 15,366

Construction & Installation Management of hot rolling area warehouses 10,802 Machinery Sypplying Co. Iran Card Co. Repairs 9,191 Taban Pishro Co. Repair and maintenance of cranes 7,732 Fara Nasb-e-Fajr Co. Repair and maintenance of cranes 7,533 Tuka Tadarok Co. Praparing & Scrap Shearing 7,225 Edalat-Joo Co. Packaging & palt making 7,050 Mobarakeh Industrial Rubbers Co. Repair & Maintenance of conveyor belt 6,871 Other 150,197 513,593 Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed. Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

28-4-3. Production depreciation costs are divided as follows: 1384 1383 (21/03/05-20/03/06) (21/03/04-20/03/05) (Rls) (Rls) Machinery & Equipment 904,259 723,545 Other Tangible Assets 204,867 188,666 Industrial Buildings 269,613 226,086 Non-Industrial Buildings 15,562 11,461 1,394,301 1,149,758 Deducted : Share of the offices Administrative & Organizational (Note # 29-2) (30,507) (24,475) Distribution & Sales (Note # 29-1) (2,570) (1,174) Not-attractable costs (24,318) (25,476) 1,336,906 1,098,633 28-4-4. The expenses of the recreational and cultural activities are itemized as follows: Amount (Rls) Expenses of sporting services 60,594 Accommodation and services by Thamin-ol-Aameh HQ. 9,360 Accommodation and services by Steel Cooperative Co. 5,768 Services by Travel and Tourism Co. 4,424 Accommodation and services at Al-ghadir hotel and Madaen hotel 3,970 Accommodation and services by Iran Travel 1,678 Expenses for Islamic publicity 1,103 Holding training courses of Koran by Darol-Koran and Mahd Koran 465 Holding camp for Basijian of Co. 263 Other 195 87,820

Deducted: shares of offices: Administrative and public (Note # 29-2) (12,412) Distribution and sales (Note # 29-1) (1,773) 73,635

Sport services amounts are including the payment of the amount of Million Rial 7,992 in the account of Sepahan Foolad Sport Club and the amount of Million Rial 7,992 for the cost of personnel's sport. According to the provisions of clause "B" of article 117 of Economic Development Planning Act, the company is allowed to allocate 1% of its credits for carrying out affairs relevant to the physical education and sports such as connstructing and managing sports club, constructing and expanding sport places, rendering sport services and donoting to the Physical Education Organziation. According to the agreements made with the supervisory council of Isfahan Province the rest of the amount allocated to the allocable amount for this matter will be expended for constructing and expanding sport places.

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed. Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

28-4-5. Management, consulting and technical services costs is as follows :

Contractor name Price (Rls) Products sales Agent C Volks Commedities Co. 33,178 Service purchase MINES AND METALS 7,214 Expertise services & counsulting NIPPON (NSC) 7,109 Engineering and designing services Ika Co. 5,023 Services purchase IRASCO 4,968 Expertise services & counsulting VOSET 4,129 Research Projects Isfahan University of Technology 3,414 counsulting services Isfahan Engineering Research Center 2,432 Research Projects Esfahan Research and Science 1,472 Township Engineering Services Faratahghigh Sepahan Co. 1,074 Other 18,314 88,327 Deducted: Share of officess Administrative & general (Note # 29-2) (3,130) Distribution & sales (Note # 29-1) (32,993) (52,204)

28-4-6. The costs for renting, office repair and maintenance and data processing system machines are as follows: Price (Rls) Management services, repair & maintenance of automation and data system 35,084 of production line by IRISA Co. Computer software & hardware services by SAG EAST GMBH 2,486 Computer software & hardware services by Dade-Varz-Joya Group Co. 669 1Mega byte providing Internet 464 Others 146 38,849

Deducted: Share of the offices

Distribution & sales (Note # 29-1) (2,331) Administrative & general (Note # 29-2) (10,489) 26,029

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

29. Sales, Administrative & General Costs Sales, administrative & general costs are divided as follows: 1384 1383 (21/03/05-20/03/06) (21/03/04-20/03/05 (Rls) (Rls) Distribution & Sales Costs 783,869 589,703 General & Administrative Costs 1,083,209 746,385 1,867,078 1,336,088

29-1. Distribution and sales costs include the following items: 1384 1383 (21/03/05-20/03/06) (21/03/04-20/03/05) (Rls) (Rls) Costs of handling, packaging and loading centers 490,788 345,587 transferred from overheads (Note # 28-4) Handling of export products to exit gates 239.189 197,421 Technical services costs (Note # 28-4-5) 32,993 32,781 Personnel’s expenses (Note # 28-3) 11,016 7,795 Depriciation costs (Note # 28-4-3) 2,570 1,174 Repair and Maintenance of Office machines 2,331 166 (Note # 28-4-6) Cultural and recreational activities (Note # 28-4-4) 1,773 775 Freight, Repairing and Maintenance of non- 521 474 industrial machines Insurance 3 3 Other 2,685 3,527 783,869 589,703

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

29.2. The general and administrative costs is divided as follows: 1384 1383 (21/03/05-20/03/06) (21/03/04-20/03/05) Rls Rls The share of pensioner's fund out of product sale (note # 29-2 766,800 472,383 1) Salary & wages (Note # 28-3) 85,564 61,303 Other services recorded 31,558 13,187 Depreciation costs (Note # 28-4-3) 30,507 24,475 Printing services and printing form requirments 4,318 3,484 Aids subject of article 172 of Direct Taxes Act 22,921 10,250 General cleaning Factory 18,400 285 Sports and cultural activities (Note # 28-4-4) 12,412 6,972 Repair and maintenance of office machines (Note # 28 10,489 7,452 4-6) Rental, repair and maintenance of non-industrial 7,814 6,970 motor-vehicles Art and vocational services 6,953 4,372 Aids to institutes according to rules 5,850 10,912 Travel & accomodation 5,225 5,108 Formalities 4,087 3,843 Non-cash bonuses to personnel 3,671 2,689 Personnel’s transport service 3,176 2,125 Consulting, technical and legal services(Note # 28-4-5 ) 3,130 8,419 Share in overheads (Note # 28-4) 41,355 31,611 Services rendered to organizational houses 2,598 2,128 Restaurant services 2,546 3,694 Personnel’s health and treatment 2,415 2,025 Publication and advertisement 1,951 1,620 Auditing Services 1,554 1,011 Post, telegraph and telephone 812 3,355 Training courses and educational seminars costs 739 334 Green space 402 513 Insurance services 15 34 Other 5,947 55,831 1,083,209 746,385

29-2-1. As per order # 20422 dated 29 Nov., 2005 of general director of the organization of Development, concerning the Budget of 1384 (21/03/05-20/03/06) as amended, the amount of Rls 270 to the amount of Million Rial 766,800 of the maximum budget has been paid to the pensioner's fund against one kilo of the sale domestic products, with the exception of the products # 51 and 52, since the beginning of the fiscal year.

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock

Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

30. Net of Other Operational Incomes and Costs Other net operational incomes and costs include the following items : 1384 1383 (21/03/05-20/03/06) (21/03/04-20/03/05) (Rls) (Rls) Income derived from sales of instruments, extra products, 69,517 80,443 secondary products & raw materials Profit of credit sale to the customers(Note # 5.1.1.2) 97,058 65,899 Income derived from loading and weighing of the products 4,895 13,297 and retailing costs Not-attacted costs in production (53,491) (49,098) 117,979 110,541 30-1. Not-attracted costs in the production is relevant to direct wages and overheads and depreciation according to notes # 28-3 & 28-4 & 28-4-3. 30-2. The profti earned from credit selling to the customers and affiliated companies in the amount of Rial Million 97,058, having been accounted according to the statements in note 5-1-1-2.

31. Financial Expenses: The financial expenses include the following items : 1384 1383 (21/03/05-20/03/06) (21/03/04-20/03/05) (Rls) (Rls) Charges and interests of the financial facilities received 95,475 118,179 Current share in the interest on the installment of the debt 24,323 24.323 of MSC project Profits & charges of the delay fine for the facilities 8,569 21,920 received resulted from opening L/Cs Discounts granted to the customers resulted from down - 1,388 payment received 128,367 165,810

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed. Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

32. Other Non-Operational Incomes & Costs Other non-operational incomes & costs includeS the following items: 1384 (Rls) 1383 (Rls) Profit and loss of asset and foreign exchange liabilities 250,283 (287,532) Other income resulting from services rendered to other companies 84,236 6,343 Profit derived from the amounts with bank 48,576 14,464 Dividend of the investments made in other companies 24,877 8,960 Profit derived from selling tangible fixed assets 4,385 20,712 Accidents insurance received 4,025 1,866 Rental of other assets and machinery 3,000 1,326 Cash money derived from the personnel's duty- 2,081 1,424 mission in other organizations and the services rendered Loss due to delay in products delivery (6,325) (10,743) Other Incomes & Costs (93,485) 20,174 321,653 (223,006)

32-1. The foreign currency assets and liabilities will be as described in note 3-5 (the summery of the main accounting methods used in conversion of foreign currency) and the profit resulted from the changes made in the price of foreign currency will be the amount of Rial Million 250,283.00in this regard.

33. Clause "C" of Note 1 of 1385 (21/03/2006-20/03/2007) Budget Act. In view of clause "C" of Note 1 of 1385 National Budget Act, it has been decided that 40% of the profit declared for the 1384 (21/03/2005-20/03/2006) fiscal year to be paid to the account of General Incomes as profit in consistent with govenrmental shares and to be paid to the relevant share holders in consistent with private shares. Therefore, an amount of Rial Billion 2,333,449, respectively, has been deducted from the profit of the 1384 (21/03/2005- 20/03/2006) fiscal years and stated under the title of payable deductions.

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

34. Annual Modifications: 1384 1383 (21/03/05-20/03/06) (21/03/04-20/03/05)

(Rls) (Rls) The depreciation difference in fixed assets 448,154 473,630 The costs in 1383 (21/03/04-20/03/05) (49,339) - The difference in Operations tax in 1382 (42,665) (42,665) (21/03/03-20/03/04) The fine for payment of slab sale in (36,306) (36,306) 1377 (21/03/1998-20/03/1999) and 1378 (21/03/1999-20/03/2000) The difference in Operations tax in 1383 (12,059) - (21/03/2004-20/03/2005) The bonus ratified by the meeting (8,862) - Three out of thousand in chamber of commerce (501) - Profit balancing of Tooka-Foolad in 1383 1,662 - (21/03/04-20/03/05) Others - (814,358) 300,084 (419,699) 34-1. In order to present an appropriate picture of the financial condition and the results of operations, all the relevant comparative items in financial statements have been amended and re- submitted, as a result, the comparative items do not necessary agree with the financial statements, submitted in the previous fiscal year, which are as follows: Description Balance acording to Debit Credit Comparative Balance fianancial statement 20/03/05 20/3/05 Cash money 2,879,822 - 288,187 2,591,635 The payment from the organization of 321,964 222,200 - 544,164 Development and reconstruction of mines & mining industries of Iran The other received accounts 181,777 12 - 181,789 The inventory of materials & goods 3,749,634 355,595 - 4,105,229 The orders for materials & goods 222,812 265,504 - 488,316 Pre-payments 213,703 - 53,996 159,707 Observable fix assets 12,753,715 2,081,272 - 14,834,987 The projects in completion process 1,912,033 - 1,912,033 - from domestic resources Long term investments 56,130 - 12 56,118 Payment to the organization of - - 222,200 222,200 Development and Reconstruction of Mines and Mining Industries of Iran Other paid accounts and documents 3,015,307 - 87,603 3,102,910 Tax reserves 665,001 - 60,968 725,969 The development budget, paid for the 500 500 - - project The reserved profit and loss - - 300,084 300,084 2,925,083 2,925,083

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed. Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

35. Comparative Statement of Operational Profit The statement of comparing operational profit with cash flow input to operational activities is as follows: 1384 (Rls) 1383 (Rls)

Operational profit 5,640,337 6,819,592 Depreciation Costs 1,394,299 1,149,758 Net increase in the reserve for personnel's savings 181,834 67,281 & service termination allowance Increase in receivable operational accounts (1,292,687) (2,579,578) Increase in materials and goods inventory (1,343,929) (561,283) Increase in orders and prepayments (524,394) (434,515) Increase in payable operational accounts (12,922) (98,432) Decrease in the down payment received from (281,758) (477,138) customers Net amount of other incomes & non-operational 243,815 41,102 costs Modification of tangible fixed assets 51,241 31,657 4,055,836 3,958,444

36. The probable obligations and debts A. The obligation of article 235 of the commercial code of Iran, as amended: There was no obligation concerning the article 235 of the commercial code of Iran as amended on the date of the balance sheet. B. The capital obligations: There was obligation concerning the payment of capital costs, totally in the amount of Billion Rial 4,048 for the balance of 160 contracts on the date of balance sheet.

37. The events after the date of the balance sheet No event with an important influence on the financial statements has been happened since the date of the balance sheet. In addition no event has happened that its disclosure is of importance of the same time of hawing no effect on the financial statement. According to resolution of board of directors of the organization of Development and Reconstruction of Mines and Mining Industries of Iran, it was decided that the assets of the project for production of Saba Iron Sheets to be transferred from Isfahan Steel Company to Esfahan Mobarakeh Steel Company.

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

38. The costs of environment maintenance The costs for environment maintenance and pollution prevention paid by the company in the fiscal year, are as follows: Price

Million Rial Capital Costs : The exiting ducts testing machine 410 The gas testing machine TESTOXL350 70 480 The Current Costs: Regional development and evaluation costs 5,564 Molasses scattering costs in wagons in Chadermlo 2,898 General costs and costs for material and necessary tools 2,622 Radioactive material control costs 2,260 Loading and carriage 2,100 Molasses Scattering costs in wagons in Golgohar 1,559 Carriage and evacuation of solid, liquid and gass 1,525 Wastes carriage of PCB oil waste 102 Annual payment to Nuclear Energy Organization 50 The foregoing amounts have been indicated in the relevant titles 18,680 19,160 The foregoing amount have been indicated in the relevant titles.

39. The costs of researches The costs of researches of the company in the 1384 (21/03/2005-20/03/2006) fiscal year in the amount of Rial Million 15,061 are as follows: Million Rial The research projects of making contract with the universities and research 11,558 institutes Costs for the research section personnel 2,785 Other costs for research section of the company 718 15,061 The foregoing amount have been indicated in the relevant titles.

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

40. Transactions with Affiliated Persons The transactions done with affiliated persons during the fiscal year are stated in the following table: Company's Name Type of Affiliation Object of Transaction Purchase Rls Sales Rls A. Transactions subject to Art. 129: Ascotec A member of the commonP urchasing spare parts and 448,002 638,744 board of directors consumable & products sales

IRISA A member of the common Purchasing mechanized 44,173 - board of directors system services Isfahan Steel Co. A member of the common Purchasing and sales of 3,062 8,505 board of directors materials & products

B. Other affiliated persons

IRITEC A member of Group Purchasing consulting 350,464 - services Tuka Refractory Co. A member of Group Purchasing refractory 69,638 - products Tamco A member of Group Supplying machinery 11,083 - Methyl Steel A member of Group Purchasing services 52,263 - Tuka Beton A member of Group Purchasing construction 63,980 - services Tuka Foulad Investment A member of Group Purchasing different 207,115 - services Sanee Kaveh A member of Group Selling products - 545,250 IRASCO A member of Group Purchasing equipment 868,703 - Ahvaz Steel Co. A member of Group Purchasing and sales of - 463 materials & products Iran alloy steel A member of Group Purchasing parts 11,224 - Fajr Sepahan Galvanized Parts Co. A member of Group Sales of cold rolling - 14,181 Iran Mineral Materials Production and A member of Group Purchasing Dolomite 2,221 - Supplying Iran Aluminum (IRALCO) A member of Group Purchasing Aluminum 78,877 - Research and Training Institute A member of Group Training 234 - Ahwaz Rolling & Pipe Co. A member of Group Sales of product - 15,461 2,211,039 1,222,604

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

41. Comparative List of Budget & Real Operations: Approved Budget Real Operation S ignificant (non-significant) (Rial Million) (Rial Million) Deviation (Rial Million) Hot Rolling Products Sales 13,268,338 13,670,541 402,203 Cold Rolling Products Sales 3,874,256 3,912,942 38,686 Slabs Sales - 2,976 2,976 Other Sales (Pallets) 51,545 52,516 971 Total income derived from sales 17,194,139 17,638,975 444,836 Deducted: Cost price of the sold goods: Raw Materials 5,849,731 4,946,127 903,604 Wages 779,938 728,190 51,748 Overheads 4,072,683 4,647,701 (575,018)

Effect of goods inventory - (72,479) 72,479 10,702,352 10,249,539 452,813 Gross profit 6,491,787 7,389,436 897,649 Deducted: Sale, general and administrative costs 1,836,307 1,867,078 (30,771) Net of other incomes & operational costs - (117,979) 117,979 Operational profit 4,655,480 5,640,337 984,857 Financial costs 160,000 128,367 31,633 Net of other incomes & non-operational - (321,653) 321,653 costs Profit derved from regular activities before 4,495,480 5,833,623 1,338,143 tax Tax on regular activities (942,519) - 942,519 Net profit 3,552,961 5,833,623 2,280,662 Annual modifications - 300,084 300,084 Allocable profit 3,552,961 6,133,707 2,580,746 Profit allocation: Claused "C" of note 1 of 1385 - 2,333,449 2,333,449 (21/03/2006-20/03/2007) Budget Acts Regular reserve 177,648 306,685 129,037 Dividend 355,296 613,371 258,075 Capital reserve 3,020,017 2,880,202 (139,815) Total of profit division account 3,552,961 6,133,707 2,580,746

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

Approved Budget Real Operation Significant (non- (Rial Million) (Rial Million) significant) Deviation (Tone) Sale of hot-rolling products 3,380,000 3,543,455 163,455 Sale of cold-rolling products 705,000 688,857 (16,143) Sale of slabs - 1,081 1,081 Sale of other products (pelletizing products) 70,000 72,658 2,658 Total income of the sale 4,155,000 4,306,051 151,051 Rial Million Rial Million Rial Million Capital Costs: Development of iron manufacturing plant unit 462,389 354,163 (108,226) Development of steel manufacturing plant unit 1,165,770 197,151 (968,619) Hot rolling plant unite - 40,014 40,014 Cold rolling plant unite 272,240 715,384 443,144 Development of energy and fluid subsances plant 243,464 665 (242,799)

unit Completing gavanization plant unit - 26,626 26,626 Completing Tin-plated and cloured rolling plant unit - 13,918 13,918 Promotion of automation and MIS design 5,162 3,622 (1,540) Development of transportation & equipment plant 16,230 11,516 (4,714) unit Other investments 700,780 264,898 (435,882) 2,866,035 1,627,957 (1,238,078)

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed.

Mobarakeh Steel Company, Private Joint-Stock Explanatory Notes on Financial Statements For the Fiscal Year ending on 20 March, 2006

41-1. Analysis of the reasons of the main deviations in the operations from the Budget Plan A. Income deviation In general, the deviation in sales income resulted from an increase in sales quantity in relation to the increase in budget has been 151,000 tons. This deviation has been made as a result of increase of production, flourishing and attraction made in steel market specially in the last months of 1384 (21/03/2005-20/03/2006) and an increase in sales quantity of the products specially the increase in import of the products in relation to the budget predicted in such a way that this company was presented an award as an outstanding company in export in 1384 (21/03/2005- 20/03/2006). B. Deviation in the costs of the raw materials The deviation in the costs of the raw materials have been resulted as follows: 1. Promotion in consuming the materials especially in consuming the iron ores. Promotion of the performance in relation to the budget funded. 2. Decrease in the actual purchase some items of raw materials such as iron scraps in relation to the budget.

3. Difference in ranking some items of raw materials and indicating the cost of consuming materials such as Zinc, tine and color. 4. Saving in consuming some items of raw materials such as iron scraps and foreleg. 5. Decrease in consuming slabs purchased, which is a kind of raw materials in hot rolling in relation to the budget and using the slabs produced more by the company. C. Deviation of overheads; Deviation in overheads is resulted as follows: 1. Increase in products of all production lines of the company in relation to the budget, using more of the items of overheads costs such as fuel, energy, spare parts, equipment, repairing and helping materials. 2. Difference in classification of some items of raw materials and indicating of some consuming materials such as Zinc, Tin and Color. D. Deviation in capital costs: Deviation in capital costs has been resulted as follows: 1. The costs of engineering and designing services for Shahid Kharazi project was accounted in the budget but the project has not been executed yet. 2. Some invoices of contractors of the expansion project is in process and is studied by supervisory section. 3. Some projects have been predicted in budget plan but not have been executed yet such as overheads for some reasons. 4. Some projects have begun with some delay in 1385 (21/03/2006-20/03/2007) such as charge project.

Esfahan's Mobarakeh Steel Co., Public Joint-Stock, Signed and Sealed. *** True Translation Certified. Isfahan 17 July, 2006 EDS