11. Financial position and operating results

During 1999 to 2001, the auditor report stated a without qualifying
opinion.

Summary of consolidated financial statement

  ---------------------------------- ----------------- ----------------- ----------------
  Consolidated                       1999              2000              2001

  Financial position                                                     

  Cash and deposits in financial     1,891,704,228     280,254,672       411,970,464
  institution                                                            

  Loan to financial institutions     1,329,133,933     1,100,547,589     1,380,591,975

  Investment                         1,962,347,522     2,497,028,462     4,731,795,354

  Investment in subsidiary and       -                 2,910,800,273     -
  associated companies                                                   

  Securities receivables and accrued 3,535,984,088     2,976,371,817     908,992,315
  interest receivables                                                   

  Less: allowance for doubtful       (2,852,950,000)   (2,740,240,000)   (189,688,198)
  accounts                                                               

  Securities receivables and accrued 683,034,088       236,131,817       719,304,117
  interest receivables – net                                             

  Fixed assets – net                 140,196,037       206,464,101       165,855,707

  Other assets                       237,400,033       227,943,013       312,156,023

  Total assets                       6,243,815,841     7,459,169,927     7,721,673,640

  Foreign borrowings                 163,026           1,433,776,150     1,139,943,487

  Trading transaction with           475,433,837       134,953,882       756,226,059
  securities companies                                                   

  Securities business payable        -                 -                 -

  Loans and advance from related     -                 214,009,977       27,361,648
  companies                                                              

  Other liabilities                  401,322,418       117,013,153       136,530,906

  Total liabilities                  876,919,281       9,586,866,102     2,060,062,100

  Paid-up capital                    14,930,531,370    14,930,531,370    14,933,526,860

  Advance from share issue           -                 -                 -

  Warrants                           101,922,580       -                 -

  Equity                             5,366,896,560     5,559,163,893     5,661,611,540

  Profit & loss statement                                                

  Securities business income         1,533,906,403     680,920,908       728,542,987

  Securities business expenses       148,654,535       123,022,008       111,601,626

  Reversal of bad debt and doubtful  (16,302,527)      (25,724,345)      6,962,423
  accounts/(bad debts and doubtful                                       
  accounts)                                                              

  Share of profit/(loss) in          -                 216,676,730       -
  subsidiary & associated companies                                      

  Total net revenue                  1,466,947,989     831,768,925       719,592,652

  Operating expenses                 843,064,715       680,457,468       654,445,671

  Gain on disposal of investment in  623,883,274       151,311,457       65,146,981
  associated companies                                                   

  Net profit/(loss)                  712,420,795       63,723,984        22,407,208

  Cash flow statement                                                    

  Cash flow from operation           (2,039,207,567)   (474,435,340)     841,874,707

  Cash flow from investing           137,025,276       (2,601,001,289)   (538,952,278)
  activities                                                             

  Cash flow from financing           2,635,934,928     1,425,026,150     (300,105,782)
  activities                                                             

  Cash and cash equivalent - ending  1,717,916,933     181,443,676       307,493,086

  Company only                       1999              2000              2001

  Financial position                                                     

  Cash and deposits in financial     1,795,325,511     111,972,640       297,280,326
  institution                                                            

  Loan to financial institutions     1,231,739,896     977,868,849       1,270,912,329

  Investment                         1,962,347,522     2,489,272,390     1,563,125,329

  Investment in subsidiary and       164,077,045       1,529,204,736     2,351,097,054
  associated companies                                                   

  Securities receivables and accrued 3,535,984,088     2,976,371,817     908,992,315
  interest receivables                                                   

  Less: allowance for doubtful       (2,852,950,000)   (2,740,240,000)   (189,688,198)
  accounts                                                               

  Securities receivables and accrued 683,034,088       236,131,817       719,304,117
  interest receivables – net                                             

  Fixed assets – net                 130,540,387       193,081,111       154,238,913

  Other assets                       216,770,512       196,095,862       167,349,707

  Total assets                       6,185,702,519     5,733,627,405     6,523,307,775

  Foreign borrowings                 163,026           -                 -

  Securities business payable        475,433,837       134,953,882       756,226,059

  Debentures                         -                 -                 -

  Other liabilities                  378,842,015       83,928,835        105,470,176

  Total liabilities                  854,438,878       218,882,717       861,696,235

  Paid-up capital                    14,930,531,370    14,930,531,370    14,933,526,860

  Advance from share issue           -                 -                 -

  Warrants                           101,922,580       -                 -

  Equity                             5,331,263,641     5,514,744,688     5,661,611,540

  Securities business income         1,392,785,456     489,859,471       389,023,534

  Securities business expenses       148,737,535       41,885,076        39,087,694

  Reversal of bad debt and doubtful  (16,302,527)      (25,724,345)      6,962,423
  accounts/(bad debts and doubtful                                       
  accounts)                                                              

  Share of profit/(loss) in          64,216,042        159,701,173       184,216,052
  subsidiary & associated companies                                      

  Total net revenue                  1,351,977,758     658,189,623       571,008,115

  Operating expenses                 770,181,110       594,465,639       548,600,907

  Gain on disposal of investment in  581,796,648       63,723,984        22,407,208
  associated companies                                                   

  Net profit/(loss)                  712,420,795       63,723,984        22,407,208

  Cash flow statement                                                    

  Cash flow from operation           (2,001,966,898)   (412,487,893)     751,983,399

  Cash flow from investing           163,326,332       (1,189,210,009)   (571,350,818)
  activities                                                             

  Cash flow from financing           2,643,434,928     -                 1,226,881
  activities                                                             

  Cash and cash equivalent - ending  1,713,670,542     111,972,640       297,280,326
  ---------------------------------- ----------------- ----------------- ----------------

  ---------------------------------- ------------ ------------ ------------
  Consolidated                       1999         2000         2001

  Profitability Ratio                                          

  Gross profit margin (%)            89.25        81.93        84.68

  Net profit margin (%)              48.56        7.66         3.11

  Return on equity (%)               21.42        1.17         0.40

  Return on investment (%)           16.80        3.75         8.25

  Efficiency Ratio                                             

  Return on assets (%)               14.42        0.93         0.30

  Assets turnover (times)            0.30         0.12         0.09

  Financial Ratio                                              

  Liquid assets to loan (times)      NA.          2.70         5.72

  Earning revenue to loans (times)   NA.          2.67         5.99

  Liquid assets to total assets (%)  118.79       51.99        84.49

  Earning assets to total assets (%) 63.66        51.40        88.47

  Debt to equity (times)             0.14         0.34         0.36

  Other ratios                                                 

  Securities investment to total     31.43        33.48        61.28
  assets (%)                                                   

  NCR to net liquid assets (SEC      706.41       674.62       185.79
  requirement)                                                 

  Company only                       1999         2000         2001

  Profitability Ratio                                          

  Gross profit margin (%)            88.15        91.45        89.95

  Net profit margin (%)              52.69        9.68         3.92

  Return on equity (%)               21.61        1.18         0.40

  Return on investment (%)           15.93        1.44         2.64

  Efficiency Ratio                                             

  Return on assets (%)               14.55        1.07         0.37

  Assets turnover (times)            0.28         0.11         0.09

  Financial Ratio                                              

  Liquid assets to loan (times)      NA.          NA           NA

  Earning revenue to loans (times)   NA.          NA           NA

  Liquid assets to total assets (%)  121.05       62.42        48.00

  Earning assets to total assets (%) 64.59        64.59        54.47

  Debt to equity (times)             0.14         0.04         0.15

  Other ratios                                                 

  Securities investment to total     36.30        43.42        23.96
  assets (%)                                                   

  NCR to net liquid assets (SEC      706.41       674.62       185.79
  requirement)                                                 
  ---------------------------------- ------------ ------------ ------------

Management discussion & analysis (Consolidated financial statements as
of December 31, 2001)

Capital adequacy

  As of December 31^(st) 2001, the Company’s net capital adequacy ratio
  stood at 185.79% which meets the minimum requirement set by the SEC.
  Such capital was in the form of cash & deposits at banks and loans to
  financial institutions (totaling Bt411.97mn)

Asset quality

The Company’s assets as of December 31^(st) 2001 totaled Bt7,721.67mn.
Management believes that the Company’s asset quality is favorable. For
securities receivables, the Company has written off bad debt and set
aside full provisions for loan losses against doubtful debt. The Board
of Directors Meeting No. 5/2002 on August 23^(rd) 2002 resolved that the
Company wrote off installment receivables and accrued interest of
Bt2,510mn, which were accrued for quite a long time and already set
aside full provisions.

Securities receivables

As of December 31^(st) 2001, the Company has categorized the aging of
securities business receivables as follows:

In dealing with receivables, the Company has complied with the relevant
notifications issued by the Office of the SEC regarding the unqualified
receivables of the securities companies. The Company classified
securities business receivables and accrued interest receivable as
follows:

  ------------- ------------- ----------- ------------- ------------- ----------- -------------
                              2001                                    2000        

                Securities    Allowance   Net           Securities    Allowance   Net
                business      for         securities    business      for         securities
                receivables   doubtful    business      receivables   doubtful    business
                and accrued   accounts    receivables   and accrued   accounts    receivables
                interest      set up by   after         interest      set up by   after
                receivable    the Company allowance for receivable    the Company allowance for
                                          doubtful                                doubtful
                                          accounts                                accounts

  Normal debt   661           -           661           167           -           167

  Substandard   58            -           58            69            -           69
  debt                                                                            

  Doubtful debt 190           190         -             2,740         2,740       -

  Total         909           190         79            2,976         2,740       236
  ------------- ------------- ----------- ------------- ------------- ----------- -------------

Progress on debt recovery during the past three years 1999-2001

Due to a sluggish capital market and economy, the debt follow-up over
the last three years was quite difficult. The Company; however, tried
very hard to follow-up with those debts by following the Financial
Institution restructuring guidelines so that they would be repaid by
several methods which concerns both the Company’s and receivables’
benefits. The Company’s types of debt restructuring are as follows:

  1. Receivables haircut

  2. Installment payment with no interest

  3. Transfer of assets or securities to repay debt

  4. Sales of securities to repay debt

  5. Change in repayment condition

  6. Lawsuit and compromise agreement at court

  7. Write-off receivables i.e., amount of receivables below Bt50,000

Bad debts and provision for doubtful accounts

  -------------------------------------------- ------------- -------------
  (Bt mn)                                      2000          2001

  Beginning                                    2,852.9       2,740.2

  add bad debt & doubtful                      57.8          33.2

  less Reversal of doubtful accounts           (32.1)        (44.9)

  Bad debt write-off                           (138.4)       (2,538.9)

  Ending                                       2,740.2       189.7

  Provision – in P&L                           25.7          (6.9)
  -------------------------------------------- ------------- -------------

  Note: The Company classified the accounting entries of bad debt and
  doubtful debt into more

  details with effect from 1999 so as to be able to deeply analyze these
  accounts

The reversal of bad debt and doubtful accounts in Profit & Loss
Statement of Bt6.9mn does not match with bad debt and doubtful accounts
of Bt33.2mn minus allowance for doubtful accounts of Bt44.9mn (equal to
reversal of doubtful accounts of Bt11.7mn) since reversal of bad debt
and doubtful accounts in Profit & Loss Statement of Bt6.9mn included
other allowances of Bt4.7mn which consisted of the following items:

  1) Amortization of accrued advisory service fee of Calcomp Electronics
  Plc. of Bt200,000

  2) Amortization of other receivables – guarantee fee – SG Asia Credit
  of Bt163,551.40

  3) Amortization of accrued registrar fee income of Thai Thamrong Co.,
  Ltd of Bt350,000

  4) Amortization of debt received from FRA offset with Thai Thamrong
  Co., Ltd.’s debts of Bt3,690,671.73

  5) Amortization of other receivables – service income from CSONE of
  Bt280,000

Reason for changes in proportions of assets

As of December 31^(st) 2001, the Company had changes in proportion of
assets as follows:

  - Cash and cash at bank declined from Bt280mn in 2000 to Bt411.97mn in
  2001. The Company’s cash at bank totaling Bt320.99mn included
  customers’ deposits at call under the Company’s name totaling Bt24.49
  and Bt296.51mn of the Company’s deposits.

  - Short-term investment in the consolidated financial statement was
  Bt1,470.31mn while long-term investment was Bt3,261.49mn. This
  included KGII’s Secured Convertible Note and Secured Note of
  Bt1,549.44mn and Bt1,575.18mn, respectively.

  - Investments in debt securities due within one year included bills of
  exchange issued by banks, totaling of Bt700mn face value have been
  pledged to secure US$12.85mn of an overseas subsidiary company,
  HOLDCO.

Analysis on operating result, efficiency, and profitability

The liberalization of brokerage commission since October 1^(st) 2000
resulted in a 72% reduction in commission revenue for the whole
industry. In comparison, effective commission fell from the fixed rate
of 0.5% to only 0.14% in June 2001 as the Company faced more intense
competition especially in terms of pricing strategies. Such factors led
to a decline in brokerage revenue of 34.48% in 2001 compared to 2000
despite the increase in average trading volume of the overall market.
However, the Company was able to experience net profit of B22.41mn or
EPS of Bt0.01, a drop of 64.83% when compared to a net profit of
Bt63.72mn in 2000 (EPS of Bt0.04). Return on equity (ROE) was down from
1.1% in 2000 to 0.4% in 2001. Details of operating results are as
follows:

1. Brokerage revenue dropped 34.48% from Bt356.62mn in 2000 to
Bt233.65mn in 2001 due to intense competition as a result of the
liberalization of commission rate. This spurred a 68.09% reduction of
average commission rate from 0.47% in 2000 to 0.15% in 2001, which led
to a decline in market share from 6.25% to 5.11%.

  However, the Company’s revenue structure in 2001 was similar to that
  of 2000 where most of the revenue came from brokerage income (derived
  mainly from securities business within the country).

Breakdown of revenue 

  ----------------------------- ------------ ------------ ------------ ------------- -------
                                Securities   Investment   Mutual Fund  Elimination   Total
                                business     (Hong Kong)  Management                 
                                (Thailand)                (Thailand)                 

  Brokerage revenue             234          -            -            -             234

  Fee & service income          8            -            191          (2)           197

  Profit/(loss) from securities 18           -            -            -             18
  trading                                                                            

  Int. income & dividend (net)  173          145          6            (63)          261

  Int. income from credit       1            -            -            -             1
  balance (net of int. exp.)                                                         

  Int. income from restructured 29           -            -            -             29
  loans (net of provision)                                                           

  Share of profit from          184          -            -            (184)         -
  subsidiary & associated                                                            
  companies                                                                          

  Other income                  30           60           6            -             96

  Total                         677          205          203          (249)         836
  ----------------------------- ------------ ------------ ------------ ------------- -------

2. Profits from securities trading in 2001 amounted to Bt18.21mn
compared to a loss of Bt125.19mn in 2000. Unrealized gain on revaluation
of investment in trading securities was Bt33.69mn and loss on trading
securities was Bt15.48mn.

3. Interests and dividends received rose 57.08% from Bt166.08mn in 2000
to Bt260.87mn in 2001 as a result of interest received from 6% of
US$70mn KGII’s notes and convertible bonds.

4. Interest on margin loans fell by 55.63% from Bt42.67mn in 2000 to
Bt18.93mn in 2001 as a result of the decrease in average interest
received from clients according to a reduction in interest level of the
financial market.

  From the policy to step up the management of risk control for margin
  loans and potentially good debts, the Company was able to improve the
  recovering of debts and doubtful accounts. In affect, the Company was
  able to convert these debts into Bt6.96mn of revenue in 2001 compared
  to Bt25.72mn of bad debts and doubtful accounts in 2000.

5. In 2000, the Company’s operating expenses dropped by 3.82% from
Bt680.46mn to Bt654.44mn in 2001 as a result of the 5.18% decrease in
personnel expenses from Bt393.44mn in 2000 to Bt373.03mn in 2001.

Comment on disposal of overseas investment

At the Extraordinary General Meeting No. 1/2001 on March 8^(th) 2001,
shareholders resolved to restructure the Company’s overseas investments.
HOLDCO, the Company’s wholly owned subsidiary, sold the overseas assets
to KGII in exchange for debentures and convertible debentures
(maturities of 5 years) Details of overseas assets and debentures are as
follows:

  - 46.6% of KGI Limited

  - 46.6% of KGI Korea Limited

  - 46.6% of KGI Korea (Holdings) Ltd.

  - 37.3% of KGI Philippines Inc

Secured Convertible Note

+---------------------------+------------------------------------------+
| Type:                     | Newly issued bonds convertible into      |
|                           | shares of KGII                           |
+---------------------------+------------------------------------------+
| Total issue amount:       | US$35mn                                  |
+---------------------------+------------------------------------------+
| Maturity:                 | 5 years (March 30^(th) 2006)             |
+---------------------------+------------------------------------------+
| Coupon rate:              | 6% (Interest payable semi-annual on the  |
|                           | outstanding amount)                      |
+---------------------------+------------------------------------------+
| Put feature:              | Up to 20% of the issue amount at face    |
|                           | value of the bond is putable to the      |
|                           | issuer at each anniversary of the bond   |
+---------------------------+------------------------------------------+
| Detachable Conversion     | Convertible into KGII shares at the IPO  |
| Feature:                  | price (within 5 years starting from the  |
|                           | issue date)                              |
+---------------------------+------------------------------------------+
| Conversion Price:         | IPO price of KGII shares                 |
+---------------------------+------------------------------------------+
| Collateral                | Overseas investments sold to KGII, to be |
|                           | reduced on a pro rata basis upon the     |
|                           | exercising of the put option as follows: |
|                           |                                          |
|                           | - 13,992,490 shares (or 23.3%) of KGI    |
|                           | Limited                                  |
|                           |                                          |
|                           | - 2,350 shares (or 23.5%) of KGI Korea   |
|                           | Limited                                  |
|                           |                                          |
|                           | - 2,350 shares (or 23.5%) of KGI (Korea) |
|                           | Holdings Limited                         |
|                           |                                          |
|                           | - 466,416 shares (or 18.65%) of KGI      |
|                           | Philippines, Inc.                        |
+---------------------------+------------------------------------------+

Secured Note

+---------------------------+------------------------------------------+
| Type:                     | Newly issued secured note                |
+---------------------------+------------------------------------------+
| Total issue amount:       | Bt1,575,175,000 (settlement in US$       |
|                           | calculated by reference to the exchange  |
|                           | rate quoted on March 30^(th) 2001 being  |
|                           | US$/Baht: 45.005).                       |
+---------------------------+------------------------------------------+
| Maturity:                 | 5 years (March 30^(th) 2006)             |
+---------------------------+------------------------------------------+
| Coupon rate:              | 6% (Interest payable semi-annual in US$  |
|                           | which is calculated by reference to the  |
|                           | exchange rate quoted on March 30^(th)    |
|                           | 2001 being US$/Baht: 45.005)             |
+---------------------------+------------------------------------------+
| Put Option:               | 20% of the issue amount at face value of |
|                           | the bond is putable to the issuer at     |
|                           | each anniversary of the bond             |
+---------------------------+------------------------------------------+
| Collateral                | Overseas investments sold to KGII, to be |
|                           | reduced on a pro rata basis upon the     |
|                           | exercising of the put option as follows: |
|                           |                                          |
|                           | - 13,992,490 shares (or 23.3%) of KGI    |
|                           | Limited                                  |
|                           |                                          |
|                           | - 2,350 shares (or 23.5%) of KGI Korea   |
|                           | Limited                                  |
|                           |                                          |
|                           | - 2,350 shares (or 23.5%) of KGI (Korea) |
|                           | Holdings Limited                         |
|                           |                                          |
|                           | - 466,417 shares (or 18.65%) of KGI      |
|                           | Philippines, Inc.                        |
+---------------------------+------------------------------------------+

With the sale of the overseas investments, the Company will no longer
receive earnings from Hong Kong, Korea, and the Philippines. However, it
will reap the following benefits:

  1. The Company will not be exposed to the performance of stock markets
  in Hong Kong, Korea, and the Philippines or to business risk
  associated with investing in foreign securities companies.

  2. The Company will receive interest income of approximately Bt181mn
  (coupon rate is 6% pa; assume at Bt43.25/US$).

  3. The Company may enjoy capital gains if KGII shares are listed.

Note: The major shareholder, the KGI Group, did not vote on the issue of
restructuring the overseas investments. It and the Directors it appoints
to the Company’s Board will continue to refrain from voting on all
issues which might arise in the future in connection with the said
proposal of the overseas investments (e.g., the issue of conversion of
debentures).