2. Description of business

2.1 Background and major developments

-   The Company started its securities business operation in year 1986
    after Thai Farmers Bank Public Company Limited, Finance One Public
    Company Limited, and a group of major shareholders of Finance One
    Public Company Limited acquired Goldhill Company Limited. The
    Company held securities broker, securities dealer, and investment
    advisory licenses issued by the Ministry of Finance.

-   On 18 May 1987, the Company became a member of the Stock Exchange of
    Thailand (No. 13).

-   On 15 February 1988, the Company changed its name to “Securities One
    Company Limited.”

-   On 6 May 1993, the Company registered as a public company and
    changed its name to “Securities One Public Company Limited.”

-   On 14 June 1994, SEC granted an approval to the Company to operate
    securities registrar business.

-   On 16 July 1996, the Ministry of Finance granted the Company
    approval to conduct securities underwriting business.

-   In 1997, the Company made a tender offer to acquire 100% of First
    Asia Securities Public Company Limited. After the tender offer, the
    Board of Directors of First Asia Securities Public Company Limited
    approved the delisting of First Asia Public Company Limited’s shares
    from the Stock Exchange of Thailand.

-   In 1998, the Company approved an increase of paid-up capital from
    Baht1,192million to Baht8,192million and allocated 280million shares
    to existing shareholders at the ratio of 3 existing shares to 7 new
    shares at a price of Baht5 per share and allocated 420million shares
    to KGI Group. The Company also approved the issue of 700million
    units of warrant no. 3 at the ratio of 1 common share to 1 warrant
    to those shareholders who subscribed for the new shares.

-   On 26 February 1999, the Ministry of Finance granted the Company
    approval to conduct securities borrowing and lending business,
    enabling the Company to act as a principal or an agent of the lender
    or borrower.

-   In 1999, the Company issued 1,520million units of warrant no. 4 and
    allocated them to existing shareholders whose name appeared on the
    share register book as of 12 March 1999 at the ratio of 1 common
    share to 1 warrant.

-   On 12 July 1999, the Company changed its name to “KGI Securities One
    Public Company Limited.”

-   As part of its plan to expand its securities and investment banking
    business to other countries in the region, the Company adopted the
    following measures:

-   In 1999, shareholders’ meeting approved the Company’s proposed
    acquisition of a securities and investment banking company in Hong
    Kong. In addition, the Company increased its paid-up capital from
    Baht9,880million to Baht14,880million by allocating new shares to
    existing shareholders at the ratio of 2 existing share to 1 new
    share at a price of Baht5.00 per share to be used as a source of
    funds in expanding its business overseas.

-   In December 1999, shareholders’ meeting approved the Company’s plan
    to acquire a company which operated securities business in Korea.

-   Due to restrictions on the transfer of money overseas, the Company
    invested in the Korea securities business through KGI International
    Holdings Limited (KGII), a company registered in Cayman Island and
    46.6% owned by the Company.

-   In August 2000, Board of Directors’ Meeting resolved not to ratify
    the signing of contract to acquire the securities business of
    Sassoon Group in Singapore between KGII and existing shareholders of
    Sassoon Group. In September 2000, KGII returned its assets to its
    shareholders proportionately to their holdings.

-   Between October and December 2000, KGII changed its capital
    structure and issued shares to other investors. Therefore, as of end
    of December 2000, the Company’s holding in KGII via KGI Securities
    (Thailand) International Holdings Limited (HOLDCO) was reduced to
    0.45%.

-   In March 2001, shareholders’ meeting approved the Company’s plan to
    sell its overseas investments to KGII in exchange for convertible
    bonds and bonds issued by KGII.

-   On 25 May 2001, the Company changed its name to “KGI Securities
    (Thailand) Public Company Limited.”

-   In August 2001, the Company increased its holding in One Asset
    Management Co., Ltd. from 75% to 100%.

-   On 27 September 2001, SEC granted an approval to the Company to
    operate financial advisory business.

-   Significant developments from 2002 were as follows:

2 January 2002 Pattani branch, Pattani province, was closed.

14 January 2002 Yaowaraj branch, Bangkok, was opened.

  16 January 2002 SEC authorized the Company to act as selling agent for
  mutual funds.

25 February 2002 Phuket branch, Phuket province, was closed.

1 March 2002 Private fund management division was transferred to One
Asset Management Co., Ltd., a wholly owned subsidiary of the Company.

  15 May 2002 Board of Directors’ Meeting approved the Company to set up
  KGI

  (Thailand) Holdings Limited (KTHL), a new company with registration

  in British Virgin Island, to create a more efficient structure to hold

  the Company’s overseas assets.

31 May 2002 Warrant no. 3 expired; 75,166,953 unexercised warrants were

  cancelled since they were not exercised within the stipulated exercise

  period.

24 June 2002 Udonthani branch, Udonthani province, was opened.

8 October 2002 Silom branch, Bangkok, was opened.

17 October 2002 Ratchada branch, Bangkok, was opened.

6 November 2002 The Company cancelled its private portfolio management
license.

14 November 2002 To facilitate the Employee Share Option Program of One
Asset Management Co. Ltd,, the extraordinary general Meeting of
shareholders of One Asset Management Co. Ltd. approved the increase of
its capital from Baht100 million to Baht103 million by issuing 300,000
new shares at par Baht10 to be allocated to employees and directors of
One Asset Management Co., Ltd.. The increase of capital was registered
with Ministry of Commerce on 26 December 2002, therefore, as of 31
December 2002, the Company’s holding had reduced from 100% to 97%.

1 December 2002 Cholburi branch, Chonburi province, was closed.

-   Significant developments in 2003 were as follows:

8 January 2003 Ratchadapisek branch, Bangkok, was opened.

9 January 2003 The extraordinary general meeting of shareholders no.
1/2003

approved:

-   the Company to reduce capital by cancellation of unissued shares
    previously reserved to accommodate the exercise by the holders of
    Warrant #1, Warrant #2 and Warrant #3 (which had already expired).

-   the Company to transfer its general, legal, and share premium
    reserves to compensate for part of its accumulated losses.

-   the Company’s capital restructuring plan by:

-   Approving the sale of the convertible bonds and straight bonds
    issued by KGI International Holdings Limited (KGII).

-   Approving the Company’s capital reduction by way of reducing par
    value from Baht10.00 to Baht7.50 per share and a subsequent return
    of Baht2.50 per share to all shareholders proportionately to their
    holdings (book closure date to determine the shareholders who were
    entitled to receive capital return was 17 March 2003).

-   Acknowledging the formula for the adjustment of the terms and
    conditions of Warrant #4 upon the capital reduction and return of
    capital.

11 February 2003 SEC granted an approval to the Company to operate OTC
derivative business.

17 March 2003 Asoke branch, Bangkok, was closed.

21 March 2003 Capital reduction registered with Ministry of Commerce
from Baht

17,332.5 million to Baht 12,999.4 million by way of reducing par

value from Baht10.00 to Baht 7.50 per share and return of capital of

Baht2.50 per share to all shareholders proportionately to their

holdings.

9 April 2003 The Company returned the capital to all shareholders
proportionately to their holdings, equal to Baht2.50 per share.

24 April 2003 The annual general meeting of shareholders resolved an
elimination of all of the Company’s accumulated losses (retained
deficit). During the year, the Company transferred premium on share
capital amounted Baht 652,720,615 to offset against the rest of the
accumulated losses as of 31 December 2002.

  21 October 2003 Changwattana Branch, Bangkok, was opened.

  28 November 2003 To facilitate the Employee Share Option Program of
  One Asset Management Co., Ltd., the board of directors of One Asset
  Management Co., Ltd. approved the increase of its capital from Baht103
  million to Baht104 million by issuing 100,000 new shares at par Baht10
  to be allocated to employees and directors of One Asset Management
  Co., Ltd.; therefore, as of 31 December 2003, the Company’s holding
  had reduced from 97% to 96%.

-   Significant developments in 2004 were as follows:

30 April 2004 KGI-Warrant 4 expired; 13,869,815 unexercised warrants
were

  cancelled since they were not exercised within the stipulated

  exercise period.

  1 September 2004 Pak Chong Branch, Nakornratchasima, was opened.

  20 September 2004 SEC granted an approval to list the Company as a
  registered derivatives agent and derivatives dealer.

  30 September 2004 Ratchada Branch, Bangkok was closed.

  1 October 2004 The Stock Exchange of Thailand registered the Company
  as a member of the Securities Investor Protection Fund (SIPF).

  11 November 2004 Board of directors meeting approved the Company to
  issue bills of exchange. The maximum value of the bills shall not
  exceed Baht 1,000,000,000 (One thousand million), tenor shall not
  exceed 270 days, and the bills are to be issued within 1 year upon
  SEC’s approval.

-   Significant developments in 2005 were as follows:

  1 March 2005 Ayutthaya Branch was opened.

  23 March 2005 the Company sold its investment in Ace Capital Company
  Limited (a subsidiary company excluded from consolidated financial
  statements since the Company has introduced a policy to cease
  management control of this subsidiary). Investment in that subsidiary
  is recorded at zero. The Company has recorded a gain of Baht 90
  million on the sale of the investment in the profit and loss
  statements for the year 2005.

  1 April 2005 Rama II Branch, Bangkok, was opened.

  21 April 2005 The Annual General Meeting of the shareholders of the
  Company approved a share capital reduction and the transfer share
  premium, generated from the reduction of share capital to offset the
  discount on common stock, as follows :-

-   The Company’s registered capital is to be reduced from Baht
    23,049,357,922.50 (3,073,247,723 ordinary shares of Baht 7.50 each)
    to Baht 14,938,223,475 (1,991,763,130 ordinary shares of Baht 7.50
    each) through the cancellation of 1,081,484,593 unissued ordinary
    shares, each with par value of Baht 7.50, previously reserved to
    accommodate the exercise of Warrant #4, which expired on 30 April
    2004.

-   The Company’s registered and paid-up capital is to be reduced by
    reducing the par value of shares as follow :-

  (a) The Company’s registered capital is to be reduced from Baht
  14,938,223,475 (1,991,763,130 ordinary shares at Baht 7.50 each) to
  Baht 3,983,526,260 (1,991,763,130 ordinary shares at Baht 2 each) and
  ;

  (b) The Company’s paid-up capital is to be reduced from Baht
  14,938,223,475 (1,991,763,130 ordinary shares at Baht 7.50 each) to
  Baht 3,983,526,260 (1,991,763,130 ordinary shares at Baht 2 each).

-   The share premium of Baht 10,954,697,215 generated by reducing the
    par value of the shares from Bath 7.50 to Baht 2.00 is to be offset
    against the discount on common stock of Baht 11,964,293,865. After
    the capital reduction and offset, the balance sheet will present
    discount on common stock of Baht 1,009,596,650.

  The capital reduction was approved by The Office of the Securities and
  Exchange Commission and there was no objections from the creditors.
  The Company therefore registered the change of its capital with the
  Ministry of Commerce on 30 June 2005.

  The above transaction affected only the presentation on the Balance
  Sheet and did not result in any change to total shareholders’ equity.

  12 May 2005 To facilitate the Employee Share Option Program of One
  Asset Management Co.,Ltd.,the Board of Directors of One Asset
  Management Limited approved an increase in its share capital from Baht
  104 million to Baht 105 million, through the issue of 100,000 shares
  of Baht 10 each. This increase was registered with the Ministry of
  Commerce on 27 July 2005. However, during the year, the Company
  acquired 19,540 ordinary shares from minority shareholders of the
  subsidiary. The result of the above, as at 31 December 2005, is that
  the Company’s shareholding in this subsidiary company has changed from
  96 percent to 95 percent.

  1 September 2005 Thailand Clearing House Co.,Ltd (TCH) granted an
  approval to the Company to be a member of TCH in order to support its
  planned Futures Business transactions.

  6 September 2005 Thailand Futures Exchange Public Company Limited
  (TFEX) granted an approval to the Company to be a member of TFEX.

  31 October 2005 The SEC granted a license to the Company to engage in
  Futures Business.

  10 November 2005 Board of directors meeting approved the Company to
  issue bills of exchange. The maximum value of the bills shall not
  exceed Baht 1,000,000,000 (One thousand million), tenor shall not
  exceed 270 days, and the bills are to be issued within 1 year upon
  SEC’s approval. The bills are revolving from the previous year.

-   Significant developments in 2006 (up to 31 March 2006) were as
    follows:

  24 February 2006 The Meeting of the Board of Directors No. 1/2006,
  approved the following:

  1) The reduction of the Company’s registered and paid-up capital from
  Baht 3,983,526,260 to Baht 1,991,763,130 by way of a reduction of par
  value from Baht 2.00 to Baht 1.00 per share. (The capital reduction is
  subject to Shareholders’ approval, SEC approval and there must also be
  no objections from creditors).

  2) The Company’s share premium of Baht 1,991,763,130 generated by
  reducing the par value from Baht2.00 to Baht1.00 per share, to be
  off-set against the share discount of Baht (1,009,596,650). After the
  capital reduction and offset, the balance sheet will have no share
  discount left.

  The above transaction affects only the presentation on the Balance
  Sheet and does not result in any change to total shareholders’ equity.

3)  The issuance and offering up to 99,236,870 units of warrants to
    purchase the Company’s ordinary shares to Directors and/or employees
    of the Company.

  (The issuance of warrants is subject to Shareholders’ approval, and
  the SEC approval

4)  The increase of the Company’s registered capital from Baht
    1,991,763,130 to Baht 2,091,000,000 by way of issuing new 99,236,870
    ordinary shares at a par value of Baht 1 each, totaling of Baht
    99,236,870 for the exercising of right under the warrants to
    purchase ordinary shares of the Company distributed to directors
    and/or employees.

2.2 The Company’s business overview

KGI Securities (Thailand) Public Company Limited has licenses and
approval to operate businesses as follows:

1)  Securities broker

2)  Securities dealer

3)  Investment advisory

4)  Securities underwriting

5)  Securities borrowing and lending

6)  Securities registrar

7)  Financial advisory business

8)  Selling agent of unit trusts

9)  OTC derivative business

10) Futures Business

KGI Securities (Thailand)’s shareholding in subsidiaries

As of 31 December 2005

+--------------------------+--------------------+--------------+------+
| Company                  | Countr             | B            | %    |
|                          | y of Incorporation | usiness Type | hol  |
|                          |                    |              | ding |
+--------------------------+--------------------+--------------+------+
| KGI E-World Co., Ltd.*   | Thailand           | Holding      | 100  |
+--------------------------+--------------------+--------------+------+
| One Asset Management     | Thailand           | Fund         | 95   |
| Co., Ltd.                |                    | Management   |      |
+--------------------------+--------------------+--------------+------+
| KGI Securities           | Hong Kong          | Investment   | 100  |
| (Thailand) International |                    |              |      |
|                          |                    |              |      |
| Holdings Limited         |                    |              |      |
+--------------------------+--------------------+--------------+------+
| KGI (Thailand) Holdings  | British Virgin     | Investment   | 100  |
| Limited                  | Islands            |              |      |
+--------------------------+--------------------+--------------+------+

*In liquidation

(See details of investment in subsidiary companies under equity method in section 7 of the notes to financial statement)

Subsidiary companies included in consolidated financial statements 

KGI E-World Co., Ltd.

Formerly known as “Thanyathada Co., Ltd.,” a wholly owned subsidiary of
the Company. Its name was changed to “KGI E-World Co., Ltd.” This
company holds a website address. KGI E-World Co.,Ltd filed for
deregistration with the Ministry of Commerce on 29 December 2005, and
the liquidation has yet to be completed at the end of year.

One Asset Management Co., Ltd. (1AM)

One Asset Management Co., Ltd. is incorporated in Thailand, with 95% of
shares held by the Company, and its business is fund management. The
funds it has been managing include mutual funds, provident funds, and
private funds.

KGI Securities (Thailand) International Holdings Limited (HOLDCO)

Formerly known as “KGI Securities One International Holdings Limited”, a
wholly owned offshore subsidiary established in Hong Kong. Its name was
changed to “KGI Securities (Thailand) International Holdings Limited” on
December 7, 2001.

KGI (Thailand) Holdings Limited (KTHL)

KGI (Thailand) Holdings Limited (KTHL), a wholly owned offshore
subsidiary established in British Virgin Islands.

Policy for group operations

KGI Securities (Thailand) Plc. and its subsidiaries have hired
professional managers and appointed directors to be responsible for
setting policies for the Company and its subsidiaries.

  2.3 Revenue Structure

During year 2005, the majority of the operations of the Company and its
subsidiary companies involved the single business segment of securities
related business, including Securities broker, mutual fund management,
securities dealer, financial advisory business, securities underwriting,
securities borrowing and lending, selling agent of unit trusts.

(See details in Section 28 “Financial Information by Segment” of Notes
to Financial Statements)

As of 31 December 2005, the Company has total income of Baht 1,179
million. The income is derived mainly from Baht 675 million of brokerage
fee (57%) and Baht 253 million of fees and services income (21%), the
income structure for the year 2005 is as follows:

Income Structure of the year 2005 

+------------------------+------+-----+------+-----+------+-------+
|                        | Ope  | %   | In   | Con | T    | % of  |
|                        | rate | Sh  | come | tra | otal | total |
|                        | By   | are | of   |     |      | i     |
|                        |      | H   | 2005 |     |      | ncome |
|                        |      | old |      |     |      |       |
|                        |      | ing | (be  |     |      |       |
|                        |      |     | fore |     |      |       |
|                        |      | By  | con  |     |      |       |
|                        |      | C   | tra) |     |      |       |
|                        |      | omp |      |     |      |       |
|                        |      | any |      |     |      |       |
+------------------------+------+-----+------+-----+------+-------+
| 1. Brokerage fee       | Com  | -   | 67   | -   | 67   | 5     |
|                        | pany |     | 4.68 |     | 4.68 | 7.24% |
+------------------------+------+-----+------+-----+------+-------+
| 2. Fees and services   | Com  | -   | 3    |     | 3    | 2.85% |
| income/1               | pany |     | 3.64 |     | 3.64 |       |
+------------------------+------+-----+------+-----+------+-------+
| 3. Fees and services   | 1    | 95% | 22   | (0. | 21   | 1     |
| income                 | AM/2 |     | 0.05 | 91) | 9.14 | 8.59% |
+------------------------+------+-----+------+-----+------+-------+
| 4. Gain (loss) on      | Com  | -   | (11  | -   | (11  | (1    |
| trading in securities  | pany |     | .88) |     | .88) | .01)% |
+------------------------+------+-----+------+-----+------+-------+
| 5. Gain (loss) on      | HOLD | 1   | (0   | -   | (0   | (0    |
| trading in securities  | CO/3 | 00% | .75) |     | .75) | .06)% |
+------------------------+------+-----+------+-----+------+-------+
| 6. Gain on sale of     | Com  | -   | 9    | -   | 9    | 7.64% |
| investment in          | pany |     | 0.00 |     | 0.00 |       |
| subsidiary             |      |     |      |     |      |       |
+------------------------+------+-----+------+-----+------+-------+
| 7. Interest and        | Com  | -   | 13   | (   | 7    | 6.32% |
| dividends /4           | pany |     | 0.86 | 56. | 4.45 |       |
|                        |      |     |      | 41) |      |       |
+------------------------+------+-----+------+-----+------+-------+
| 8. Interest and        | HO   | 1   | 0.15 | -   | 0.15 | -     |
| dividend               | LDCO | 00% |      |     |      |       |
+------------------------+------+-----+------+-----+------+-------+
| 9. Interest and        | 1AM  | 95% | 4.67 | -   | 4.67 | 0.40% |
| dividends              |      |     |      |     |      |       |
+------------------------+------+-----+------+-----+------+-------+
| 10. Interest on margin | Com  | -   | 7    | -   | 7    | 6.29% |
| loans                  | pany |     | 4.11 |     | 4.11 |       |
+------------------------+------+-----+------+-----+------+-------+
| 11. Share of profit    | Com  | -   | 3    | (   | -    | -     |
| from subsidiary        | pany |     | 9.83 | 39. |      |       |
|                        |      |     |      | 83) |      |       |
| Companies accounted    |      |     |      |     |      |       |
| for                    |      |     |      |     |      |       |
|                        |      |     |      |     |      |       |
| Under equity method    |      |     |      |     |      |       |
+------------------------+------+-----+------+-----+------+-------+
| 12. Other income       | Com  | -   | 2    | -   | 2    | 1.73% |
|                        | pany |     | 0.38 |     | 0.38 |       |
+------------------------+------+-----+------+-----+------+-------+
| 13. Other income       | 1AM  | 95% | 0.16 | -   | 0.16 | 0.01% |
+------------------------+------+-----+------+-----+------+-------+
| TOTAL INCOME           |      |     | 1,27 | (   | 1,17 | 10    |
|                        |      |     | 5.90 | 97. | 8.75 | 0.00% |
|                        |      |     |      | 15) |      |       |
+------------------------+------+-----+------+-----+------+-------+

Note /1 See details of Fee and service income in note of financial
statement No. 20: Fees and

Services Income.

/2 1AM: One Asset Management Co., Ltd, 95% owned by the Company.

/3 HOLDCO: KGI Securities (Thailand) International Holdings Limited,
100% owned by the Company.

/4 The Company received dividend of Baht 56 million from 1AM.

  2.4 Business goal for the next 3 to 5 years

The Company’s goal is to provide a full range of services for its
clients. The Company aims to develop its investment banking business,
stock borrowing and lending business, derivatives business and Futures
business.