3. Nature of Business

3.1 History, Major Changes, and Development

BTS Group Holdings Public Company Limited (formerly known as Tanayong
Public Company Limited) was established on 27 March 1968 to operate the
property development business with initial registered capital of Baht
5,000,000. The Company launched its first property development project
“Thana City” on Bangna-Trad Road Km. 14 in 1988. The project consists of
single-detached houses, townhouses, condominiums and land plots.

The Company was listed on the Stock Exchange of Thailand and commenced
the first day trading of its shares on 1 March 1991. The Company was
converted to a public limited company on 2 June 1993. Since then, the
Company has expanded its scope into various types of business, such as
property development projects, condominiums in the center of the city,
serviced apartments, office buildings, hotels and infrastructure
projects.

The Baht flotation in the 1997 economic crisis in Thailand had a severe
impact on the business sectors, particularly companies which took out
loans in foreign currencies. Due to the Baht depreciation, loan amount
in foreign currencies, including that of the Company, significantly
increased in Baht terms.

As a result, the Company entered into a business rehabilitation process
and went through debt restructuring during 2002–2006. After the
completion of the business rehabilitation process, the Central
Bankruptcy Court ordered the termination of the business rehabilitation
at the end of 2006.

Starting in 2007, the Company resumed its normal business operations.
With the management’s vision to strengthen the Company’s capability, the
Company began to reorganize the Company’s shareholding structure and
management team, as well as enter into business alliances with partners
to invest in the Company.

During 2007-2008, the Company and the Group invested in properties for
future development. The Company acquired land on Kamala beach in Phuket,
Sukhumvit Rd. in Bangkok, Kanchanaburi and Khao Yai. The Company
acquired leasehold land in Chiang Mai, which was, then, developed to be
the Group’s first boutique hotel, under the name “U Chiang Mai”. The
hotel is managed by Absolute Hotel Services Co., Ltd., a company in the
Group. The Company also began construction and provides project
management services for BTS Assets Co., Ltd.’s hotel project under the
name “Four Points by Sheraton” on Sathorn Road, Bangkok through Hip Hing
Construction (Thailand) Co. Ltd., a joint venture between the Company
and Hip Hing Oversea Limited.

The Company continues to expand its business. On 4 May 2010, the Company
acquired 94.60 % of total issued shares of BTSC and changed the
Company’s name to BTS Group Holdings Public Company Limited. As a
result, the Company’s main business has changed to the mass transit
business. Therefore, to better reflect the Company’s new main business,
on 11 May 2010, the Company changed the sector to “Transportation and
Logistics” under the “Services” industry and changed its trading symbol
to “BTS”.

The Company completed the offering and issuance of new ordinary shares
to the existing shareholders of the Company pro rata to their
shareholding (Rights Offering) and the offering and issuance of some
portion of the unsubscribed shares from the Rights Offering to a group
of financial institutional investors and the group of clients of
securities companies who are the Company’s underwriters (Private
Placement) on 14 June 2010, raising approximately Baht 11,990.2 million,
which was used to repay part of the loan previously drown down to
acquire the shares of BTSC of approximately Baht 20,656 million, leaving
approximately Baht 8,656 million outstanding.

Since 2002 the Company’s major developments related to its business
operations, management and capital are as follows:

+------+---------------------------------------------------------------+
| 2002 | -   The Company entered the debt restructuring and business   |
|      |     rehabilitation process.                                   |
+------+---------------------------------------------------------------+
| 2005 | -   Reduced par value from 10 Baht per share to 1 Baht per    |
|      |     share and decreased paid-up capital from Baht             |
|      |     4,684,557,000 to Baht 533,333,333 in compliance with the  |
|      |     business rehabilitation plan as approved by the Central   |
|      |     Bankruptcy Court.                                         |
|      |                                                               |
|      | -   Increased registered capital to Baht 5,333,333,333 by     |
|      |     issuing 4,800,000,000 newly issued shares.                |
+------+---------------------------------------------------------------+
| 2006 | -   Allocated 4,800,000,000 shares to creditors and new       |
|      |     investors and increased paid-up capital from Baht         |
|      |     533,333,333 to Baht 5,333,333,333 in compliance with the  |
|      |     business rehabilitation plan as approved by the Central   |
|      |     Bankruptcy Court.                                         |
|      |                                                               |
|      | -   The Central Bankruptcy Court ordered the termination of   |
|      |     the business rehabilitation on 14 November 2006.          |
|      |                                                               |
|      | -   The Stock Exchange of Thailand accepted the trading of    |
|      |     the Company’s shares in the property development sector   |
|      |     From 28 December 2006.                                    |
+------+---------------------------------------------------------------+
| 2007 | -   Increased paid-up capital to Baht 5,813,333,333 by        |
|      |     issuing 480,000,000 shares by a private placement to a    |
|      |     business partner.                                         |
|      |                                                               |
|      | -   Increased registered capital from Baht 5,813,333,333 to   |
|      |     Baht 8,056,923,076 by issuing 2,243,589,743 shares        |
|      |     reserved for the conversion of convertible debentures.    |
|      |                                                               |
|      | -   Established a joint venture, Kamala Beach Resort & Hotel  |
|      |     Management Co., Ltd. to operate hotels and develop        |
|      |     property in Phuket.                                       |
|      |                                                               |
|      | -   Established a joint venture, Hip Hing Construction        |
|      |     (Thailand) Co., Ltd. to operate in the construction       |
|      |     business.                                                 |
+------+---------------------------------------------------------------+
| 2008 | -   Established a joint venture company, Absolute Hotel       |
|      |     Services Co., Ltd. to operate the hotel management        |
|      |     business.                                                 |
|      |                                                               |
|      | -   Cancelled the issuance of convertible debentures and      |
|      |     offered 2,243,589,743 shares via the Rights Offering and  |
|      |     to investors and/or institutional investors via a private |
|      |     placement method.                                         |
+------+---------------------------------------------------------------+
| 2009 | -   On 28 May 2009, the Company acquired all the ordinary     |
|      |     shares and preferred shares of Kamala Beach Resort &      |
|      |     Hotel Management Co., Ltd. (“Kamala”) from Winnington     |
|      |     Capital Limited at the price of Baht 648,444,000 by       |
|      |     issuing 1,034,800,000 new ordinary shares and paying Baht |
|      |     100,000,000 in cash. The Company became the sole          |
|      |     shareholder in Kamala.                                    |
|      |                                                               |
|      | -   The Company issued 854,848,533 warrants (TYONG-W1) to its |
|      |     existing shareholders according to their shareholding.    |
|      |     The warrant exercise was completed on 13 November 2009    |
|      |     and 766,258,470 warrants were exercised. Consequently,    |
|      |     the Company issued 766,258,470 new ordinary shares to the |
|      |     warrant holders.                                          |
+------+---------------------------------------------------------------+
| 2010 | -   On 4 May 2010, the Company acquired 94.60 % of total      |
|      |     issued shares of BTSC with Baht 20,655,711,989.69 in cash |
|      |     and 28,166,879,984 new ordinary shares of the Company at  |
|      |     the price of Baht 0.688 Baht per share.                   |
|      |                                                               |
|      | -   The Company changed its name to “BTS Group Holdings       |
|      |     Public Company Limited” on 4 May 2010 and, on 11 May      |
|      |     2010, changed its sector on the SET to “Transportation    |
|      |     and Logistics” sector under the “Services” industry and   |
|      |     changed the trading symbol to “BTS”.                      |
|      |                                                               |
|      | -   Between 31 May and 7 June 2010, the Company offered       |
|      |     20,150,704,709 newly issued ordinary shares of the        |
|      |     Company to the existing shareholders of the Company       |
|      |     (“Rights Offering”). There were 14,572,185,252 shares     |
|      |     subscribed, according to their rights and                 |
|      |     oversubscription, and allocated. As for the remaining     |
|      |     5,578,519,457 unsubscribed shares, the Company offered    |
|      |     them to the group of financial institutional investors    |
|      |     and the group of clients of securities companies who are  |
|      |     the Company’s underwriters during 8 June to 11 June 2010. |
|      |     4,459,818,846 shares were subscribed and the Company has  |
|      |     allocated such amount of shares to the group of financial |
|      |     institutional investors and the group of clients of       |
|      |     securities companies who are the Company’s underwriters.  |
|      |     On 14 June 2010, the Company registered the newly paid up |
|      |     capital with the Ministry of Commerce, increasing the     |
|      |     paid up capital from Baht 35,781,271,787 to Baht          |
|      |     54,813,275,885. The Company received total proceeds of    |
|      |     approximately Baht 11,990.2 million, which were used to   |
|      |     repay part of the loan previously taken out to acquire    |
|      |     the shares of BTSC, leaving approximately Baht 8,656      |
|      |     million outstanding.                                      |
|      |                                                               |
|      | -   In addition, the Extraordinary General Meeting of the     |
|      |     Company No. 1/2010 held on 29 April 2010 approved the     |
|      |     allocation of 8,914,478,093 newly issued ordinary shares  |
|      |     of the Company for the purpose as follows:                |
|      |                                                               |
|      |     -   Up to 5,111,610,256 shares for the exercise of the    |
|      |         warrants (BTS-W2) which will be issued and offered to |
|      |         the shareholders who have subscribed to the Rights    |
|      |         Offering and to the group of financial institutional  |
|      |         investors and the group of clients of securities      |
|      |         companies who are the Company’s underwriters who have |
|      |         subscribed for the newly issued ordinary shares out   |
|      |         of the total of 20,150,704,709 shares offered at the  |
|      |         ratio of 1 warrant for 4 newly issued ordinary shares |
|      |         subscribed. The Company expects to offer the warrants |
|      |         (BTS-W2) by approximately October 2010.               |
|      |                                                               |
|      |     -   Up to 3,802,867,837 new ordinary shares to be offered |
|      |         to the remaining 5.39% of BTSC shareholders in return |
|      |         for BTSC shares that these shareholders offer the     |
|      |         Company as payment for the Company’s newly issued     |
|      |         ordinary shares. The Company expects to offer the     |
|      |         newly issued ordinary shares by approximately         |
|      |         December 2010.                                        |
+------+---------------------------------------------------------------+

3.2 Business Overview of the Company, Subsidiaries and Associates

The main business of the Company has been property development. However,
after the acquisition of BTSC, the business of the Company and its group
has changed to also include BTSC’s business. As such, the Company’s
current core businesses are:

  (1) Mass transit business namely BTS SkyTrain and BRT;

  (2) Property business, including properties along the mass transit
  route and other locations, hotels and serviced apartments, etc.;

  (3) Media business;

  (4) Services business such as hotel management, smartcard,
  construction management and golf course and sports club.

The group structure of the Company, subsidiaries and associates after
the acquisition of BTSC shares is shown in the following diagram.

Business Organization of the Company, Subsidiaries and Associates, as of
16 June 2010

  (1) Previously known as Muang Thong Lakeside Restaurant Co., Ltd.

  (2) Not in operation

  (3) Previously known as Thana City Golf & Country Club Co., Ltd.

  (4) Not in operation

3.3 Revenue Structure

After the acquisition of BTSC shares, the Company has no policy to
change the business of either the Company or BTSC. As such, the Company
will still be focusing on the property development business and BTSC
will still be focusing on the mass transit business. Therefore, after
the acquisition of BTSC shares, it is expected that farebox revenue from
the BTSC’s SkyTrain business will be the main revenue of the Group.
Revenues from property development will be a smaller portion of the
total revenue as most of the projects are still in the early development
stage.

+------------------------------+--------------------+------------------+
| (Million Baht)               | Fiscal Year ended  |                  |
|                              | 31 March           |                  |
+------------------------------+--------------------+------------------+
|                              | 2010               |                  |
+------------------------------+--------------------+------------------+
|                              | Operating Revenue  | Gross Profit     |
+------------------------------+--------------------+------------------+
|                              | (Audited)          |                  |
+------------------------------+--------------------+------------------+
| The Company                  |                    |                  |
+------------------------------+--------------------+------------------+
| Property/hotel/rental and    | 304.9              | 74.1             |
| services business            |                    |                  |
+------------------------------+--------------------+------------------+
| Revenues from construction   |                    |                  |
| services:                    |                    |                  |
+------------------------------+--------------------+------------------+
|   NHA project                | 546.2              | 30.4             |
+------------------------------+--------------------+------------------+
|   Four Points by Sheraton    | 209.4              | 24.0             |
|   project                    |                    |                  |
+------------------------------+--------------------+------------------+
| Total                        | 1,060.4            | 128.5            |
+------------------------------+--------------------+------------------+
|                              | (Audited) ⁽¹⁾      |                  |
+------------------------------+--------------------+------------------+
| BTSC                         |                    |                  |
+------------------------------+--------------------+------------------+
| Mass transit business        | 3,679.6            | 1,551.9          |
+------------------------------+--------------------+------------------+
| Space rental and services    | 1,102.4            | 750.7            |
| business (2)                 |                    |                  |
+------------------------------+--------------------+------------------+
| Total                        | 4,782.1            | 2,302.6          |
+------------------------------+--------------------+------------------+

  (1) Consolidated the financial performance of VGI and its subsidiaries
  (a company in which BTSC acquired a 100% stake in September 2009) as
  if it was a subsidiary of BTSC since 1 April 2009.

  (2) Includes income from utilities

3.3.1 Revenue Structure of the Company

Primary revenue of the Company came from the property business. Details
are shown in the table below:

+----------------------+-------+------+-------+-------+------+-------+
|                      | F     |      |       |       |      |       |
|                      | iscal |      |       |       |      |       |
|                      | Year  |      |       |       |      |       |
|                      | ended |      |       |       |      |       |
|                      | 31    |      |       |       |      |       |
|                      | March |      |       |       |      |       |
+======================+=======+======+=======+=======+======+=======+
|                      | 2010  |      | 2009  |       | 2008 |       |
+----------------------+-------+------+-------+-------+------+-------+
|                      | (Aud  |      | (Aud  |       | (    |       |
|                      | ited) |      | ited) |       | Audi |       |
|                      |       |      |       |       | ted) |       |
+----------------------+-------+------+-------+-------+------+-------+
|                      | Mi    | %    | Mi    | %     | Mil  | %     |
|                      | llion |      | llion |       | lion |       |
|                      | Baht  |      | Baht  |       | Baht |       |
+----------------------+-------+------+-------+-------+------+-------+
| Revenues from        | 100.9 | 6.4  | 48.8  | 4.6   | 10.2 | 0.4   |
| property business    |       |      |       |       |      |       |
+----------------------+-------+------+-------+-------+------+-------+
| Revenues from        | 755.5 | 48.0 | 547.4 | 51.1  | 9    | 39.2  |
| construction         |       |      |       |       | 76.0 |       |
| services business    |       |      |       |       |      |       |
+----------------------+-------+------+-------+-------+------+-------+
| Revenues from hotel, | 204.0 | 13.0 | 204.7 | 19.1  | 1    | 7.1   |
| rental and services  |       |      |       |       | 75.6 |       |
| business             |       |      |       |       |      |       |
+----------------------+-------+------+-------+-------+------+-------+
| Other income:        |       |      |       |       |      |       |
+----------------------+-------+------+-------+-------+------+-------+
|   Reversal of        | 167.0 | 10.6 | 0.0   | 0.0   | 0.0  | 0.0   |
|   allowance for      |       |      |       |       |      |       |
|   asset devaluation  |       |      |       |       |      |       |
+----------------------+-------+------+-------+-------+------+-------+
| Gain on debt         | 142.7 | 9.1  | 195.1 | 18.2  | 1,1  | 46.1  |
| settlement           |       |      |       |       | 49.2 |       |
+----------------------+-------+------+-------+-------+------+-------+
| Reversal of          | 0.0   | 0.0  | 0.0   | 0.0   | 1    | 4.6   |
| allowance for        |       |      |       |       | 14.4 |       |
| doubtful debts       |       |      |       |       |      |       |
+----------------------+-------+------+-------+-------+------+-------+
| Others               | 202.7 | 12.9 | 74.8  | 7.0   | 65.6 | 2.6   |
+----------------------+-------+------+-------+-------+------+-------+
| Total revenues       | 1,    | 1    | 1,    | 100.0 | 2,4  | 100.0 |
|                      | 572.7 | 00.0 | 070.7 |       | 91.0 |       |
+----------------------+-------+------+-------+-------+------+-------+

3.3.2 Revenue Structure of BTSC

Primary revenue of BTSC came from the SkyTrain business by collecting
fares from passengers on each of their rides. Other revenues consist of
revenue from renting advertising space in trains, on train bodies and on
stations, rental of commercial space in stations, revenue from renting
advertising space in leading hypermarkets, service income from train
operating management, service income and fees received from linkage of
sky-bridges to stations. Details are shown in the table below:

+---------------+--------+--------+--------+--------+---+--------+--------+
|               | Consol |        |        |        |   | C      |        |
|               | idated |        |        |        |   | ompany |        |
|               | Fin    |        |        |        |   | Only   |        |
|               | ancial |        |        |        |   | Fin    |        |
|               | Sta    |        |        |        |   | ancial |        |
|               | tement |        |        |        |   | Sta    |        |
|               |        |        |        |        |   | tement |        |
+===============+========+========+========+========+===+========+========+
|               | Fiscal |        |        |        |   |        |        |
|               | Year   |        |        |        |   |        |        |
|               | ended  |        |        |        |   |        |        |
|               | 31     |        |        |        |   |        |        |
|               | March  |        |        |        |   |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
|               | 2      |        | 2      |        | 2 |        |        |
|               | 010⁽¹⁾ |        | 009⁽¹⁾ |        | 0 |        |        |
|               |        |        |        |        | 0 |        |        |
|               |        |        |        |        | 8 |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
|               | (Au    |        | (Au    |        | ( |        |        |
|               | dited) |        | dited) |        | A |        |        |
|               |        |        |        |        | u |        |        |
|               |        |        | (Res   |        | d |        |        |
|               |        |        | tated) |        | i |        |        |
|               |        |        |        |        | t |        |        |
|               |        |        |        |        | e |        |        |
|               |        |        |        |        | d |        |        |
|               |        |        |        |        | ) |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
|               | M      | %      | M      | %      | M |        | %      |
|               | illion |        | illion |        | i |        |        |
|               | Baht   |        | Baht   |        | l |        |        |
|               |        |        |        |        | l |        |        |
|               |        |        |        |        | i |        |        |
|               |        |        |        |        | o |        |        |
|               |        |        |        |        | n |        |        |
|               |        |        |        |        | B |        |        |
|               |        |        |        |        | a |        |        |
|               |        |        |        |        | h |        |        |
|               |        |        |        |        | t |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
| Farebox       | 3      | 70.9   | 3      | 68.0   | 3 |        | 38.5   |
| revenue - net | ,484.7 |        | ,288.1 |        | , |        |        |
|               |        |        |        |        | 2 |        |        |
|               |        |        |        |        | 2 |        |        |
|               |        |        |        |        | 1 |        |        |
|               |        |        |        |        | . |        |        |
|               |        |        |        |        | 1 |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
| Service       | 195.0  | 4.0    | 0.0    | 0.0    | 0 |        | 0.00   |
| income from   |        |        |        |        | . |        |        |
| train         |        |        |        |        | 0 |        |        |
| operating     |        |        |        |        |   |        |        |
| management    |        |        |        |        |   |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
| Other income: |        |        |        |        |   |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
|   Service     | 106.0  | 2.2    | 45.4   | 0.9    | 0 |        | 0.00   |
|   income      |        |        |        |        | . |        |        |
|               |        |        |        |        | 0 |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
|   Advertising | 994.2  | 20.2   | 901.8  | 18.6   | 2 |        | 3.3    |
|   and         |        |        |        |        | 7 |        |        |
|               |        |        |        |        | 7 |        |        |
| merchandising |        |        |        |        | . |        |        |
|   space       |        |        |        |        | 3 |        |        |
|   rental      |        |        |        |        |   |        |        |
|   revenues    |        |        |        |        |   |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
|   Revenue     | 2.3    | 0.0    | 1.9    | 0.0    | 3 |        | 0.4    |
|   from        |        |        |        |        | 1 |        |        |
|   utilities   |        |        |        |        | . |        |        |
|   services    |        |        |        |        | 3 |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
|   Reversal of | 0.0    | 0.0    | 0.0    | 0.0    | 4 |        | 56.0   |
|   allowance   |        |        |        |        | , |        |        |
|   for         |        |        |        |        | 6 |        |        |
|   diminution  |        |        |        |        | 8 |        |        |
|   in value of |        |        |        |        | 8 |        |        |
|   project     |        |        |        |        | . |        |        |
|   costs       |        |        |        |        | 7 |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
|   Others      | 131.8  | 2.7    | 598.7  | 12.4   | 1 |        | 1.9    |
|               |        |        |        |        | 5 |        |        |
|               |        |        |        |        | 8 |        |        |
|               |        |        |        |        | . |        |        |
|               |        |        |        |        | 4 |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+
| Total         | 4      | 100.0  | 4      | 100.0  | 8 |        | 100.00 |
| revenues      | ,913.8 |        | ,835.9 |        | , |        |        |
|               |        |        |        |        | 3 |        |        |
|               |        |        |        |        | 7 |        |        |
|               |        |        |        |        | 6 |        |        |
|               |        |        |        |        | . |        |        |
|               |        |        |        |        | 7 |        |        |
+---------------+--------+--------+--------+--------+---+--------+--------+

(1) Consolidated the financial performance of VGI and its subsidiaries
(a company in which BTSC acquired a 100% stake in September 2009) as if
it was a subsidiary of BTSC since 1 April 2008.