FORM 10-Q
For the quarterly period ended June 30, 1998
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
- --------------------------------------------------------------------------------
Commission File Number: 1-13205
KING POWER INTERNATIONAL GROUP CO., LTD.
(Exact name of registrant as specified in its charter)
Nevada 75-2641513
(State of incorporation) (IRS Employer ID Number)
26th-27th Floor, Siam Tower 989 Rama I Road, Patumwan, Bangkok 10330 Thailand
(Address of principal executive offices)
011 (662) 658-0090
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X__ NO ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: August 1, 1998: 20,250,000
1
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarter ended June 30, 1998
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 36
Part II - Other Information
Item 1 Legal Proceeding 46
Item 2 Changes in Securities 46
Item 3 Defaults Upon Senior Securities 46
Item 4 Submission of Matters to a Vote of Security Holders 46
Item 5 Other Information 46
Item 6 Exhibits and Reports on Form 8-K 46
2
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KING POWER INTERNATIONAL GROUP
CO., LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 1997 AND 1998
3
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
----------------------------------
<S> <C>
Note 1998
---- 1997 ----
----
US$
US$
ASSETS
Current Assets
Cash and cash 3,355,931 3,362,656
equivalents
Trade accounts 514,104 474,176
receivable
Trade accounts receivable - related 7 241,243 1,015,610
companies
Management fee receivable - related 7 - 2,319,338
companies
Refundable value added 4 1,756,392 2,274,181
tax
Advance for duty free 16,718 -
goods
Advance to related 7 744,213 9,448,792
companies
Advance to directors 5 4,688,054 1,597,989
Merchandise inventories 6 22,887,726 12,421,293
- net
Deferred income tax 8 - 465,542
assets
Interest receivable - related 7 - 266,867
companies
Interest receivable - 289,345
Other current assets 1,842,243 699,376
------------ -----------
Total current 36,046,624 34,635,165
assets
Investments in other companies 9 248,228 129,273
Investment in marketable securities 3 38,775 23,633
(trading)
Property, plant and equipment 10 4,969,896 4,468,602
- - net
Restricted fixed deposits 11 11,609,960 6,987,726
Other long-term assets 7 1,265,649 966,815
------------ -----------
TOTAL ASSETS 54,179,132 47,211,214
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
June 30
----------------------------------
Note 1997 1998
---- ---- ----
<S> <C> <C>
US$ US$
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft 12 493,647 1,704,458
Bank loan 9,106,186 6,492,575
Notes payable 14 4,515,110 472,668
Current portion of installment purchase payable 15 37,338 32,961
Current portion of long-term loan 16 9,806 6,822
Trade accounts payable - related companies 7 4,217,243 485,199
Trade accounts payable 21,694,563 10,058,219
Leasehold improvements payable 457,684 -
Accrued concession fee 7 1,670,627 10,390,621
Other current liabilities 1,586,971 3,000,334
------------ -----------
Total current liabilities 43,789,175 32,643,857
Installment purchase payable - net 15 74,131 18,521
Long-term loan - net 16 374,959 225,163
------------ -----------
Total liabilities 44,238,265 32,887,541
Minority interest 1 591,384 360,217
Commitments and contingencies 18
Shareholders' Equity 17
Common stock - $0.001 par value, 100,000,000 shares
authorized
20,000,000 and 20,250,000 share issued and
outstanding at June 30, 1997 and 1998, respectively 20,000 20,250
Additional paid in capital 18,961,395 20,848,145
Deficit (10,139,651) (4,176,144)
Accumulated other comprehensive income 507,739 (2,728,795)
------------- ------------
Total shareholders' equity 9,349,483 13,963,456
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 54,179,132 47,211,214
============= ============
0 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six months ended
June 30,
--------------------------------------
Note 1997 1998
---- ---- ----
<S> <C> <C>
US$ US$
Sales revenue 7 55,924,265 43,700,435
Cost of
sales :
Cost of merchandise sold 7 23,695,493 17,821,111
Concession fee 7 20,147,897 13,252,146
------------------ ------------------
Total cost of sales 43,843,390 31,073,257
------------------ ------------------
Gross profit 12,080,875 12,627,178
Operating expenses :
Selling expenses
Sales salaries and welfare 3,646,293 3,720,340
Rental and service fee and other expenses
under the concession agreement 7 980,734 1,062,224
Depreciation 462,256 516,309
Others 979,049 672,131
------------------ ------------------
Subtotal 6,068,332 5,971,004
Administrative expenses 1,891,747 2,148,598
------------------ ------------------
Total operating expenses 7,960,079 8,119,602
------------------ ------------------
Income from operation 4,120,796 4,507,576
Interest income - related companies 7 - 228,037
Interest income 1,132,518 691,341
Realized gain on foreign exchange 674,376 589,655
Unrealized gain on foreign exchange - 688,923
Management fee income 7 - 140,844
Other income 180,744 62,001
------------------ ------------------
Total other revenues 1,987,638 2,400,801
------------------ ------------------
Other
expenses:
Interest expenses 442,775 679,075
Realized loss on foreign exchange - 732,470
Unrealized loss on foreign exchange - 279,111
------------------ ------------------
Total other expenses 442,775 1,690,656
------------------ ------------------
Net income before income tax 5,665,659 5,217,721
Income tax 8 - (1,586,526)
------------------ ------------------
Net income before minority interest 5,665,659 3,631,195
Minority interest (240,713) (177,578)
------------------ ------------------
Net income attributed to common shares 5,424,946 3,453,617
================== ==================
Weighted average number of common shares outstanding 19,351,188 20,250,000
Basic earnings per share 0.28 0.17
The accompanying notes are an integral part of the financial statements.
</TABLE>
6
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<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six months ended
June 30,
-------------------------------------
Note 1997 1998
---- ---- ----
<S> <C>
US$ US$
Net income attributed to common shares 5,424,946 3,453,617
Other comprehensive income, before
tax :
Foreign currency translation adjustments (2,749) 745,545
Income tax expense related to items of other - -
comprehensive income
------------------ ---------------
Other comprehensive income, net of
tax (2,749) 745,545
------------------ ---------------
Comprehensive income 5,422,197 4,199,162
================== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
-------------------------------
1997 1998
---- ----
<S> <C> <C>
US$ US$
Cash flows from operating activities :
Net income 5,424,946 3,453,617
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation 462,256 516,309
Unrealized loss on foreign exchange - 279,111
Unrealized gain on foreign exchange - (688,923)
Deferred tax assets - 408,923
Minority interest - income statement impact 240,713 177,578
Decrease (increase) in operating assets :
Trade accounts receivable - related companies (241,243) (413,495)
Trade accounts receivable (440,769) (38,378)
Refundable valued added tax (833,773) (1,310,653)
Advance for duty free goods 316,993 -
Advance for office and shop improvement 12,888 -
Advance to related companies (670,052) (7,132,846)
Advance to directors (2,811,890) (275,207)
Inventories (16,135,011) 719,063
Management fee receivable - related companies - (407,208)
Interest receivable - related companies - (165,056)
Interest receivable - 305,469
Other current assets (1,470,461) (238,611)
Increase (decrease) in operating liabilities :
Trade accounts payable - Related companies 2,806,548 (105,659)
Trade accounts payable 12,053,788 (494,604)
Advance from related companies (685,012) -
Leasehold improvements payable 132 -
Accrued concession fee 1,670,627 4,174,551
Other current liabilities 1,027,409 2,052,258
Minority interest - balance sheet impact (1,293) 11,927
------------------ ------------------
Net cash provided (used) by operating activities 1,226,796 828,166
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
(UNAUDITED)
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six months ended June 30,
1997 1998
---- ----
<S> <C> <C>
US$ US$
Cash flows from investing activities :
Reduction in investment in other company 1,647 (13,500)
Reduction in investment in marketable security 257 (2,468)
Purchase of fixed assets (3,681,217) (1,582,459)
Addition in long-term assets (1,167,409) (191,145)
----------- -----------
Net cash provided (used) by investing activities (4,846,722) (1,789,572)
----------- -----------
Cash flows from financing activities :
Proceeds (repayment) in bank overdrafts (444,157) 745,823
Proceeds (repayment) from bank loan 5,202,985 1,919,267
Proceeds (repayment) from note payable 2,765,347 49,361
Proceeds (repayment) from installment purchase payable (7,029) 4,012
Proceeds (repayment) from long-term loan 384,765 23,320
Translation adjustment (2,749) 745,545
----------- -----------
Net cash provided, (used) by financing activities 7,899,162 3,487,328
----------- ----------
Effect of exchange rate changes on cash - 41,900
Decrease (Increase) in restricted fixed deposit (2,062,508) (522,046)
Net increase in cash and cash equivalents 2,216,728 2,045,776
Cash and cash equivalents - beginning of period 1,139,203 1,316,880
Cash and cash equivalents - end of period 3,355,931 3,362,656
Supplemental cash flow information Cash paid during the period:
Interest paid 442,775 533,220
Income taxes paid - -
Non - cash transaction:
Common stock 1,200 -
Additional paid-in capital (1,200) -
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
(UNAUDITED)
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
Common Stock Additional Comprehensive Retained
------------------------
Note Shares Amount Paid in Capital Income Earnings
--------- ------------- ---------- -------------- -------------- -------------
US$ US$ US$ US$
<S> <C> <C> <C>
Balance, January 1, 1997 17,(a)(b) 18,800,000 18,800 18,962,595 (15,564,597)
Recapitalization at June 12, 1997 17 (c) 1,200,000 1,200 (1,200)
Net Income 5,424,946 5,424,946
Other Comprehensive income, net of tax
Foreign currency translation adjustment (2,749)
--------------
Comprehensive Income 5,422,197
==============
------------- ---------- -------------- -------------
Balance, June 30, 1997 20,000,000 20,000 18,961,395 (10,139,651)
============= ========== ============== =============
Balance January 1, 1998 20,250,000 20,250 20,848,145 (7,629,761)
Net Income 3,453,617 3,453,617
Other Comprehensive income, net of tax
Foreign currency translation adjustment 745,545
--------------
Comprehensive Income 4,199,162
==============
============= ========== ============== =============
Balance, June 30, 1998 20,250,000 20,250 20,848,145 (4,176,144)
============= ========== ============== =============
Accumulated
Other
Comprehensive
Income Total
------------- --------------
US$ US$
Balance, January 1, 1997 17,(a)(b) 510,488 3,927,286
Recapitalization at June 12, 1997 17 (c)
Net Income 5,424,946
Other Comprehensive income, net of tax
Foreign currency translation adjustment (2,749) (2,749)
Comprehensive Income
------------ --------------
Balance, June 30, 1997 507,739 9,349,483
============= ==============
Balance January 1, 1998 (3,474,340) 9,764,294
Net Income 3,453,617
Other Comprehensive income, net of tax
Foreign currency translation adjustment 745,545 745,545
Comprehensive Income
============= ==============
Balance, June 30, 1998 (2,728,795) 13,963,456
============= ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO.,LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six months ended June 30, Three months ended June 30,
Note 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
US$ US$ US$ US$
Sales revenue 55,924,265 43,700,435 28,542,075 21,154,789
Cost of sales:
Cost of merchandise sold 7 23,695,493 17,821,111 12,037,578 8,946,874
Concession fee 7 20,147,897 13,252,146 10,324,393 6,292,143
Total cost of sales 43,843,390 31,073,257 22,361,971 15,239,017
----------- ----------- ----------- -----------
Gross profit 12,080,875 12,627,178 6,180,104 5,915,772
Operating expenses:
Selling expenses
Sales salaries and welfare 3,646,293 3,720,340 2,041,534 2,085,657
Rental and service fee and other expenses under
the concession agreement 7 980,734 1,062,224 608,082 795,774
Depreciation 462,256 516,309 335,209 296,185
Others 979,049 672,131 490,958 393,193
----------- ----------- ----------- -----------
Subtotal 6,068,332 5,971,004 3,475,783 3,570,809
Administrative expenses 1,891,747 2,148,598 1,231,092 1,197,599
----------- ----------- ----------- -----------
Total operating expenses 7,960,079 8,119,602 4,706,875 4,768,408
----------- ----------- ----------- -----------
Income from opeation 4,120,796 4,507,576 1,473,229 1,147,364
Other Income:
Interest income - related company 7 - 228,037 - 206,950
Interest income 1,132,518 691,341 634,146 434,834
Realized gain on foreign exchange 674,376 589,655 494,907 187,096
Unrealize gain on foreign exchange - 688,923 - (981,474)
Management fee income 7 - 140,844 - 93,124
Other income 180,744 62,001 32,017 24,232
----------- ----------- ----------- -----------
Total other revenues 1,987,638 2,400,801 1,161,070 946,236
----------- ----------- ----------- -----------
Other expenses:
Interest expenses 442,775 679,075 379,058 330,673
Realized loss on foreign exchange - 732,470 (83,571) 44,524
Unrealized loss on foreign exchange - 279,111 - (139,174)
----------- ----------- ----------- -----------
Total other expenses 442,775 1,690,656 295,487 236,023
----------- ----------- ----------- -----------
Net income before income tax 5,665,659 5,217,721 2,338,812 876,103
Income tax 8 - (1,586,526) - (277,218)
----------- ----------- ----------- -----------
Net income before minority interest 5,665,659 3,631,195 2,338,812 598,885
Minority interest (240,713) (177,578) (125,128) (49,524)
----------- ----------- ----------- -----------
Net income attributed to common shares 5,424,946 3,453,617 2,213,684 549,361
=========== =========== =========== ===========
Weighted average number of common shares outstanding 19,351,188 20,250,000 19,351,188 20,250,000
Basic earnings per share 0.28 0.17 0.11 0.03
</TABLE>
The accoumpanying notes are an integral part of the financial statement.
11
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
King Power International Group Co., Ltd. (formerly Immune America,
Inc.) (the Company) is incorporated under the laws of the State of Nevada on
July 30, 1985 in pursuance of the research and development of nutritional
products to treat malfunctions of body caused by immune deficiencies. The
Company began having financial difficulties in early 1988, and subsequently
ceased operations and liquidated its assets in the second quarter of that year.
Since then through June 12, 1997, the management had kept the Company inactive.
The inactive Company was regarded as a development stage company.
On June 12, 1997, the Company exchanged 18,800,000 shares of its common
stock for 99.94% of issued and outstanding common shares of King Power Tax Free
Company Limited (formerly J.M.T. Group Company Limited) (KPT thereafter) and
94.95% of the issued and outstanding common shares of King Power Duty Free
Company Limited (formerly J.M.T. Duty Free Company Limited) (KPD thereafter). As
these two Thailand-based companies are active operating companies, therefore,
the Company was no longer a development stage company after June 12, 1997.
This exchange of the Company's common stock to the former KPT and KPD
shareholders resulted in those former shareholders obtaining a majority voting
interest in the Company. Generally accepted accounting principles require that
the company whose stockholders retain the majority interest in a combined
business be treated as the acquirer for accounting purpose. Consequently, this
transaction has been accounted for as a "reverse acquisition" for financial
reporting purpose and KPT and KPD are deemed to have acquired 94% of equity
interest in the Company as of the date of acquisition. The relevant acquisition
process utilizes the capital structure of Immune America, Inc. and the assets
and liabilities of KPT and KPD are recorded at historical cost.
KPT and KPD are the operating entities for financial reporting purpose,
and the financial statements prior to June 12, 1997 represent KPT and KPD's
financial position and results of operations. The assets, liabilities and
results of operations of both KPT and KPD are included as of June 12, 1997.
Although KPT and KPD are deemed to be the acquiring corporations for financial
accounting and reporting purpose, the legal status of the Company as the
surviving corporation does not change.
Concurrent with the reverse acquisition, the Company changed its
corporate name from Immune America, Inc. to King Power International Group Co.,
Ltd.
12
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
King Power Duty Free Company Limited is a Thailand-based corporation
engaged in selling duty free merchandise to the traveling public under the
supervision of Thai customs in various stores located in the international
terminals of the various airports located in Thailand. KPD holds from the
Airports Authority of Thailand a non-exclusive license to operate duty free
stores for all stores of this specific nature. For the duty free store
operation, KPD is exempt from input value added tax on purchases of merchandise
and from output value added tax on sales of merchandise.
King Power Tax Free Company Limited is a Thailand-based corporation
engaged in selling various souvenirs and consumer products in the international
and domestic terminals of the various airports located within Thailand to the
general public. KPT holds the exclusive operating license granted by the
Airports Authority of Thailand for all shops of this specific nature. For the
tax-free operation, KPT is subject to input value added tax on purchases of
merchandise and is exempt from output value added tax on sales of merchandise.
On October 10, 1997, the Company acquired 4,900 shares of common stock
in King Power International Group (Thailand) Company Limited" ("KPG Thai"),
equivalent to 49% of the registered capital. KPG Thai was established in
Thailand on September 11, 1997 and has registered capital totaling Baht 1
million divided into 10,000 shares of common stock with Baht 100 per shares. KPT
acquired 5,093 shares of common stock in King Power International Group
(Thailand) Company Limited, equivalent to 50.93% of the registered capital.
Ultimately, the Company owns 99.93% of equity interest in King Power
International Group (Thailand) Company Limited.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America
which include the accounts of the Company and its subsidiaries. All significant
inter-company accounts and transactions have been eliminated in consolidation.
The consolidated financial statements are presented in U.S. dollars.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Merchandise Inventory Valuation
Merchandise inventory is stated at the lower of cost or market.
Costs are determined on a weighted average basis.
13
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Currency Translation and Transactions
The financial position and results of operations of the Company's
foreign subsidiaries are determined using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
prevailing exchange rate in effect at period end. Contributed capital accounts
are translated using the historical rate of exchange when capital injected.
Income statement accounts are translated at the average rate of exchange during
the period. Translation adjustments arising from the use of different exchange
rates from period to period are included in the cumulative other comprehensive
income in shareholders' equity. Gains and losses resulting from foreign currency
transactions are included in operations.
The exchange rates as of June 30, 1997 and 1998 are $1= Baht 25.79
and Baht 42.313, respectively. The average rate of exchange for the six months
ended June 30, 1997 and 1998 was $1= Baht 25.90 and Baht 40.413, respectively.
The average rate of exchange for the three months ended March 31,1997 and 1998
was $1= Baht 25.91 and Baht 45.482, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
computed primarily utilizing the straight-line method over the estimated useful
lives of the assets as follows:
Estimated useful life
(in years)
Building .................................................. 20
Leasehold improvements .................................... 5
Selling office equipment and fixtures ..................... 5
Vehicles .................................................. 5
Maintenance, repairs and minor renewals are charged directly to expenses as
incurred. Additions and betterment to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation
thereon are removed from the accounts and any resulting gain or loss is included
in income statement.
Use of Estimates
The preparation of financial statements in conformity with US
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenue and expenses during the reporting
period. Among the more significant estimates included in these financial
statements are the estimated allowance for doubtful accounts receivable and the
deferred income tax asset allowance. Actual results could differ from those
estimates.
14
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interim financial information
The interim financial statements for the six-months ended June
30, 1997 and 1998 are unaudited. In the opinion of management, such statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the results of operations for the interim periods.
The results of operations for the six-months ended June 30, 1997 and 1998 are
not necessarily indicative of the results for the entire year.
Revenue Recognition
The Company recognizes revenue from sales of merchandise at the
point of sales.
Concession Agreement
According to the concession agreement with Airport Authority of
Thailand, King Power Tax Free Co., Ltd. is required to pay concession fee,
rental and services fee, and other related expenses at the fixed charges as
defined in the agreement.
According to the concession agreement with Airport Authority of
Thailand, King Power Duty Free Co., Ltd. is required to pay concession fee at
the fixed percentage of sales but at least equal to the fixed charge as defined
in agreement, and pay rental and service fee and other related expenses at the
fixed charges as defined in the agreement.
Accounts Receivable and Concentration of Credit Risk
The Company's retail businesses are cash flow businesses. Most of
sales have taken place with cash receipts or credit card receipts. Consequently,
the Company usually does not provide any bad debt allowance for doubtful
accounts. However, the Company does review its accounts receivable from time to
time on case by case basis to determine if any bad debt allowance is necessary
at each year end. The Company maintains its cash accounts in high quality
financial institutions.
Investment in Marketable Securities
The Company accounts for investment in marketable securities as
trading category in accordance with the provisions of Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115). Under SFAS No. 115, debt securities and
equity securities that have readily determinable fair values are to be
classified in three categories.
Held to Maturity - the positive intent and ability to hold to
maturity. Amounts are reported at amortized cost and adjusted for amortization
of premiums and discounts.
15
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Trading Securities - bought principally for purpose of selling
them in the near term. Amounts are reported at fair value with unrealized gains
and losses included in other income (expenses).
Available for Sale - not classified in one of the above
categories. Amounts are reported at fair value with unrealized gains and losses
excluded from other income (expenses) and reported separately as a component of
shareholders' equity.
Investments in Other Company
Investment in other companies under 20% of interest was accounted
for using the cost method. Provision for diminution in value of the investment
was included in the statement of income.
Fair Value of Financial Instruments
The carrying amount of cash, trade accounts receivable, notes
receivable, trade accounts payable and accrued payable are reasonable estimates
of their fair value because of the short maturity of these items. The carrying
amounts of the Company's credit facilities approximate fair value because the
interest rates on these instruments are subject to change with market interest
rates.
Income Taxes
The Company accounts for income taxes using the liability method,
which requires an entity to recognize deferred tax liabilities and assets.
Deferred income taxes are recognized based on the differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements which will result in taxable or deductible amounts in future years.
Further, the effects of enacted tax laws or rate changes are included as part of
deferred tax expenses or benefits in the period that covers the enactment date.
A valuation allowance is recognized if it is more likely than not that some
portion, or all of, a deferred tax asset will not be realized. The Company does
not provide income tax provision on unremitted earnings of its Thailand-based
subsidiaries since the Company's intention is to reinvest these earning in their
operations.
Earnings Per Share
In 1997, Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
SFAS No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any diluted effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented and, where applicable,
restated to confirm to the requirements of SFAS No. 128.
16
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accounting for Stock-based Compensation
In connection with its adoption of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-based Compensation" (SFAS
No. 123), the Company will adopt the intrinsic value method of accounting for
employee stock options and disclose the pro forma impact on net income and
earnings per share as if the fair value -based method had been applied. For
equity instruments, including stock options issued to non-employee, including
directors, the fair value of the equity instruments or the fair value of the
consideration received, whichever is more readily determinable, is used to
determine the value of services or goods received and the corresponding charge
to operations.
New Accounting Standards
In June 1997, Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130), which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statements that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related Information" (SFAS No. 131)
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," establishes standards for the way that public enterprises report
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for financial statements
for periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated.
Reclassification of Accounts
Certain accounts in the 1997 financial statements were
reclassified to conform with the 1998 financial statement presentation
17
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 - INVESTMENT IN MARKETABLE SECURITIES (TRADING)
1997 1998
------- -------
US$ US$
At Cost................................................... 77,549 47,267
Loss on decline in market value of investment............. (38,774) (23,634)
-------- --------
Net investment 38,775 23,633
======== ========
On May 23, 1995, King Power Tax Free Co., Ltd. (KPT) acquired 200,000
investment units of Bangkok Metropolitan Fund, equivalent to 0.10% of the
registered fund. Bangkok Metropolitan Fund, a five-years closed-end mutual fund,
was established and managed by The Mutual Fund Public Company Limited, and has a
registered fund totaling Baht 2,000 million divided into 200 million investment
units with par value of Baht 10 each.
There were no additions to or dispositions of investments during the
first six months of 1998. The difference in cost value of investment in US
dollar was due to using different exchange rates from year to year.
NOTE 4 - REFUNDABLE VALUE ADDED TAX
In the Company's Thailand-based subsidiaries, refundable value added
tax (VAT) represents, on a cumulative basis, the excess of input tax (charged by
suppliers on purchases of merchandise and services) over the output tax (charged
to customers on sales of merchandise and services). Value added tax is levied on
the value added at each stage of production and distribution including
servicing, generally at the rate of 7% and at the rate of 10% starting at August
16, 1997.
NOTE 5 - ADVANCE TO DIRECTORS
Advances to directors bear an interest at the rate of 10% per annum and are due
on demand.
NOTE 6 - MERCHANDISE INVENTORIES Merchandise inventories are summarized as
follows:
1997 1998
US$ US$
Merchandise............................................ 22,887,726 12,421,293
Less : Provision for damaged stock..................... - -
---------- ----------
22,887,726 12,421,293
========== ==========
18
<PAGE>
(UNAUDITED)
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 - RELATED PARTY TRANSACTIONS
1997 1998
---- ----
<S> <C> <C>
US$ US$
Trade accounts receivable - related companies
King Power International Co., Ltd. (World Trade Center) ................. - 856,393
Downtown D.F.S. (Thailand) Co., Ltd......................................... 241,243 159,217
Management fee receivable - related companies
Downtown D.F.S. (Thailand) Co., Ltd......................................... - 2,177,538
King Power International Co., Ltd. (World Trade Center) ................. - 141,800
Advances to related companies
Forty Seven Co., Ltd........................................................ 632,736 3,019,023
King Power Duty Free (CBO) Ltd.............................................. - 2,564,931
King Power International Co., Ltd. (World Trade Center) ................. - 2,329,312
King Power on Board and Sale Services Co., Ltd.............................. - 424,330
Infotel Co., Ltd............................................................ 111,477 404,840
Top China Group Co., Ltd.................................................... - 366,594
Lengle (Thailand) Co., Ltd.................................................. - 183,206
Grand Enterprise and Trading Limited Partnership............................ - 86,026
Airport Authority of Thailand............................................... - 47,684
King Power Business Development Co., Ltd. .................................. - 22,846
Deposit with a related company
Downtown D.F.S. (Thailand) Co., Ltd......................................... - 849,621
Interest receivable - related companies
Forty Seven Co., Ltd........................................................ - 79,376
King Power Duty Free (CBO) Ltd.............................................. - 66,705
King Power International Co., Ltd. (World Trade Center) ................. - 59,376
Downtown D.F.S. (Thailand) Co., Ltd......................................... - 18,822
Infotel Co., Ltd............................................................ - 15,862
Top China Group Co., Ltd.................................................... - 14,072
King Power on Board and Sale Services Co., Ltd.............................. - 6,037
Grand Enterprise and Trading Limited Partnership............................ - 2,923
Lengle (Thailand) Co., Ltd.................................................. - 2,922
King Power Business Development Co., Ltd. .................................. - 772
19
<PAGE>
Trade accounts payable - related companies
King Power International Co., Ltd. (World Trade Center) .................. - 300,212
Thai Nishigawa International Co., Ltd....................................... - 102,127
King Power Duty Free (CBO) Ltd..............................................2,712,552 82,860
Lengle (Thailand) Co., Ltd..................................................1,504,691 -
Trade accounts payable
Niji (Thailand) Co., Ltd. .................................................. - 10,723
Thai Sky Travel and Intertrade Co., Ltd..................................... - 2,472
Management fee income
King Power International Co., Ltd. (World Trade Center) ................. - 140,844
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 - RELATED PARTY TRANSACTIONS (Continued)
1997 1998
---- ----
<S> <C> <C>
US$ US$
Interest income - related companies
Forty Seven Co., Ltd........................................................ - 83,108
King Power Duty Free (CBO) Ltd.............................................. - 69,841
Downtown D.F.S. (Thailand) Co., Ltd......................................... - 19,707
Infotel Co., Ltd. .......................................................... - 16,608
Top China Group Co., Ltd.................................................... - 14,733
King Power International Co., Ltd. (World Trade Center) ................. - 10,792
King Power on Board and Sale Services Co., Ltd.............................. - 6,321
Grand Enterprise and Trading Limited Partnership............................ - 3,060
Lengle (Thailand) Co., Ltd.................................................. - 3,059
King Power Business Development Co., Ltd. .................................. - 808
Sales
King Power International Co., Ltd. (World Trade Center) ................. - 384,774
Lengle (Thailand) Co., Ltd.................................................. - 41,803
Downtown D.F.S. (Thailand) Co., Ltd......................................... 240,377 -
Purchases
Thai Nishigawa International co., Ltd....................................... 607,098 188,209
Niji (Thailand) Co., Ltd. .................................................. - 82,329
King Power Duty Free (CBO) Ltd..............................................1,146,833 53,563
Thai Sky Travel and Intertrade Co., Ltd..................................... - 4,429
Accrued concession fee
Airport Authority of Thailand............................................... 855,272 2,857,210
Concession fee
Airport Authority of Thailand...............................................4,791,631 3,865,803
Rental, service fee and other expenses under the concession agreement
Airport Authority of Thailand............................................... 391,206 391,301
</TABLE>
21
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 - DEFERRED INCOME TAX ASSETS
In Thailand business enterprises are subject to corporate income tax on
their book profits after adjustments are made for tax purposes. Provisions for
bad debts or inventory obsolescence are not deductible until the bad debt or
inventory obsolescence actually takes place. The Thailand corporate income tax
is levied at a flat rate of 30%. Net operating losses can be carried forward and
utilized within five years. Accordingly, the income tax benefit using the
average exchange rate for income statement account and the deferred income tax
asset using current exchange rate for balance sheet account have been determined
as follows:
<TABLE>
1997 1998
---- ----
<S> <C>
US$ US$
Statement of income
Current income tax .......................... (531,369) (1,615,754)
Deferred income tax assets
- Temporary differences................... 19,670 -
- Net operating loss carry-forward........ 4,501,939 29,228
--------- ---------
4,521,609 29,228
Less : Valuation allowance..................... (3,990,240) -
Income tax benefit............................. 531,369 29,228
--------- ---------
Net income tax benefit (corporate income tax).. - (1,586,526)
========= ===========
1997 1998
US$ US$
Balance sheet
Deferred income tax assets on January 1, ................... - 874,465
Adjusted exchange rate to exchange rate on June 30,.. - 101,969
- 976,434
--------- ===========
Recognition of deferred income tax assets on
- Temporary difference..........................19,670 -
- Net operating loss carry - forward....... 4,501,939 29,228
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<S> <C> <C>
- Net effect of exchange rate adjusted from average
rate to exchange rate on June 30, .............................. 19,286 (1,312)
Utilized deferred income tax assets on
- Net operating loss carry - forward.............................. (533,636) (344,543)
- Temporary differences........................................... - (194,265)
---------- --------
Deferred income tax assets on June 30,............................... 533,636 465,542
---------- --------
Net Deferred income assets on June 30 composed of
- Temporary differences........................................... 19,754 17,268
- Net operating loss carry - forward.............................. 3,987,505 448,274
---------- -------
4,007,259 465,542
Less: Valuation allowance............................................ (4,007,259) -
---------- -------
Total............................................................ - 465,542
---------- -------
As a result, the effective income tax rate for the subsidiaries is
different from the standard income tax rate. The following reconciliation shows
the differences between the effective and standard rates.
1997 1998
---- ----
Standard income tax rate........................................ (9.38%) (30.97%)
Recognition of temporary differences............................ 0.35% -
Recognition of net operating loss carry-forward................. 79.46% 0.56%
Less : Valuation allowance...................................... (70.43%) -
Income tax benefit.............................................. 9.38% 0.56%
---------- -------
Effective income tax rate....................................... - (30.41%)
========== =======
In 1997, KPD anticipated that the effective income tax rate at the end
of the year 1997 would be zero, therefore, no provision for corporate income tax
was made in the first six months of financial year 1997. As a result, the
standard income tax rate for 1997 was reduced from 30% to 9.38%.
23
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to or decline
in the net deferred tax assets and liabilities and their approximate tax effects
are as follows:
1997 1998
US$ US$
Temporary differences on January 1, on
- Provision on damaged stock .................................... - 223,124
- Provision for devaluation of investment........................ - 41,042
Deferred income tax asset - temporary differences.................. - 264,166
Adjusted exchange rate to exchange rate on June 30,
- Provision on damaged stock..................................... - (44,456)
- Provision for devaluation of investment........................ - (8,177)
Recognition of temporary difference on
- Provision for devaluation of investment........................ 19,754 -
Utilized of temporary difference on
- Provision on damaged stock..................................... - (178,668)
- Provision for devaluation of investment........................ - (15,597)
Net temporary difference on June 30, on
- Provision on damaged stock..................................... - -
- Provision on devaluation of investment......................... 19,754 17,268
Deferred income tax asset - temporary differences.................. 19,754 17,268
====== ======
</TABLE>
The net operating losses carry-forward amounts give rise to or decline
in the deferred income tax assets and their approximate effects are as follows:
24
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at June 30, 1997 Taxable Taxable loss
-------------------
loss/(profit) Loss used available for future use
------------------------
Year Subsidiaries incurred 1996 1997 at June 30, 1997
---- ------------ ------------- ---- ---- --------------------
<S> <C> <C>
US$ US$ US$ US$
1992 KPT 7,276 (7,276) - -
1993 KPT 6,998,771 (2,568,380) (979,613) 3,450,778
1994 KPT 7,205,796 - - 7,205,796
1995 KPT 2,635,110 - - 2,635,110
1996 KPT (2,575,656) - - -
KPD 799,172 - (799,172) -
1997 KPT (979,613) - - -
KPD (4,776,059) - - -
---------- ------------ ----------
(2,575,656) (1,778,785) 13,291,684
========== ============ ==========
Deferred income tax asset
- usage of operating loss carry-forward (533,636)
=============
- net operating loss carry-forward 3,987,505
==========
As at June 30, 1998 Taxable Taxable loss
-------------------
loss/(profit) Loss used available for future
------------------------
Year Subsidiaries incurred 1996 1997 1998 use at June 30, 1998
---- ------------ ------------- ---- ---- ---- --------------------
US$ US$ US$ US$ US$
1992 KPT 4,435 (4,435) - - -
1993 KPT 4,265,788 (1,565,441) (2,700,347) - -
1994 KPT 4,391,971 - (4,310,722) (81,249) -
1995 KPT 1,606,114 - - (111,868) 1,494,246
1996 KPT (1,569,876) - - - -
KPD 487,100 - - (487,100) -
1997 KPT (7,011,069) - - - -
KPD 375,208 - - (375,208) -
KPG - Thai 93,053 - - (93,053) -
1998 KPT (193,117) - - - -
KPD (4,197,387) - - - -
KPG - Thai (105,948) - - - -
------------ ------------ ------------ ------
(1,569,876) (7,011,069) (1,148,478) 1,494,246
=========== =========== =========== =========
Deferred income tax asset
- usage of operating loss carry - forward (344,543)
========
- net operating loss carry-forward 448,274
=======
</TABLE>
25
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
No valuation allowance has been provided at June 30, 1998 as the
Company has determined that it is more likely than not to realize these deferred
income tax assets.
The difference in net operating loss carry-forward amount in US
dollars from 1997 to 1998 was due to using different exchange rates from year to
year.
<TABLE>
NOTE 9 - INVESTMENTS IN OTHER COMPANIES
1997
----------------------------------------------------------
Provision for devaluation Net investments
Cost of investment in other companies
------- ------------------------- ------------------
<S> <C>
US$ US$ US$
International Tourism Promotion
Co., Ltd. .............................. 232,648 23,657 208,991
Top Trade Overseas Promotion
Co., Ltd. .............................. 38,775 2,641 36,134
Global Capital Group Co., Ltd............. 3,877 774 3,103
------- ------- -------
Total............................. 275,300 27,072 248,228
======= ======= =======
1998
-----------------------------------------------------------
Provision for devaluation Net investments
Cost of investment in other companies
------- ------------------------- ------------------
US$ US$ US$
International Tourism Promotion
Co., Ltd. ............................ 141,800 14,419 127,381
Top Trade Overseas Promotion
Co., Ltd. ............................. 23,633 23,633 -
Global Capital Group Co., Ltd. .......... 2,363 471 1,892
-------- ------- -------
Total............................. 167,796 38,523 129,273
======== ======= =======
</TABLE>
There were no changes related to the investment in these three entities
during the first six months of 1998. The difference in cost value of investment
in US dollars was due to using different exchange rates from year to year.
26
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
King Power Tax Free Co., Ltd. (KPT) acquired 60,000 shares of common
stock in International Tourism Promotion Co., Ltd., on July 5, 1995 an
equivalent to 10% of the registered capital. International Tourism Promotion
Co., Ltd. was established in Thailand on October 14, 1993, and has registered
capital totaling Baht 60 million divided into 600,000 shares of common stock
with Baht 100 per share. International Tourism Promotion Co., Ltd. suffered a
loss of Baht 534,069 in 1995 and Baht 76,057 in December, 1996, respectively.
The amount of loss was determined to be equal to the decline in the net
realizable value of the investment and has been reflected in the statement of
income for the years ended December 31, 1995 and 1996, respectively. In 1997 and
1998, no additional provision for devaluation of investment was made as there
were no 1997 and 1998 financial statements available.
King Power Tax Free Co., Ltd. (KPT) acquired 10,000 shares of common
stock in Top Trade Overseas Promotion Co., Ltd., on October 18, 1994 an
equivalent to 10% of the registered capital. Top Trade Overseas Promotion Co.,
Ltd. was established in Thailand on July 13, 1994, and has a registered capital
totaling Baht 10 million divided into 100,000 shares of common stock with Baht
100 per share. Top Trade Overseas Promotion Co., Ltd. suffered a loss of Baht
68,125 in 1994. The amount of loss was determined to be equal to the decline in
the net realizable value of the investment and has been reflected in the
statement of income for the year ended December 31, 1994. As for the year ended
December 31, 1995 and 1996, no additional provision for devaluation of
investment was made, as there was no 1995 and 1996 financial statements
available. A reserve was established in 1997 to cover the full amount of this
investment.
King Power Tax Free Co., Ltd. (KPT) acquired 10,000 shares of common
stock in Global Capital Group Co., Ltd., on July 20, 1995 an equivalent to 1% of
the registered capital. Global Capital Group Co., Ltd. was established in
Thailand on June 14, 1994, and has a registered capital totaling Baht 10 million
divided into 1,000,000 shares of common stock with Baht 10 per share. Global
Capital Group Co., Ltd. suffered a loss of Baht 19,955 in 1995. The amount of
loss was determined to be equal to the decline in the net realizable value of
the investment and has been reflected in the statement of Income for the year
ended December 31, 1995. In 1996, 1997 and 1998, no additional provision for
devaluation of investment was made, as there were no 1996, 1997 and 1998
financial statements available.
27
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 - PROPERTY, PLANT AND EQUIPMENT - NET
1997 1998
---- ----
US$ US$
Land ......................................... 204,730 124,784
Building ..................................... 200,374 122,129
Construction in process ...................... - -
Leasehold improvements ....................... 3,441,168 3,800,492
Selling office equipment and fixtures ........ 1,528,566 1,366,271
Vehicles ..................................... 475,272 424,691
---------- -----------
Total acquisition cost .................. 5,850,110 5,838,367
Less: accumulated depreciation .............. (880,214) (1,369,765)
---------- -----------
Net book value .......................... 4,969,896 4,468,602
========= ===========
NOTE 11 - RESTRICTED FIXED DEPOSITS
The Company's Thailand-based subsidiaries made restricted fixed
deposits with a commercial bank as guarantees for bank credit facilities for its
subsidiaries and a related company (Bank overdraft, Letter of Credit, Trust
receipt) and for the issuance of letter of guarantee required under an agreement
with the Airport Authority of Thailand which granted King Power Tax Free Co.,
Ltd. an exclusive operating license and granted King Power Duty Free Co., Ltd. a
non-exclusive operating license to sell merchandise and souvenirs and to rent
the commercial space to carry out such activities in the International Airport
of Thailand. Such fixed deposits are term deposits (ranging from 3 months to 12
months) with the bank, which bear interest at rates varying from 11% to 16% per
annum.
NOTE 12 - BANK OVERDRAFT
The Company obtained from a commercial bank an overdraft facility of
Baht 25 million which bears interest at the Bank's Minimum Overdraft Rate (MOR)
plus 1% per annum and is guaranteed by a director of the Company and the pledged
fixed deposit. For the six months ended June 30, 1997, the average MOR was
14.25% to 15.50% per annum and for the six months ended June 30, 1998, the
average MOR was 17.25% to 21.25% per annum.
28
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 - BANK LOAN
1997 1998
---- ----
US$ US$
Trust receipt............................5,616,461 4,601,903
Short-term loan..........................3,489,725 1,890,672
--------- ---------
Total................................9,106,186 6,492,575
========= =========
Trust receipt incurred by King Power Duty Free Co., Ltd. (KPD) bears
interest at various rates from 7.75% to 20.50% in 1997 and 12.25% to 21.25% in
1998 and is guaranteed by the aforementioned fixed deposit and guarantees from
two directors of KPD and by a related company.
King Power Tax Free Co., Ltd. (KPT) has a short-term loan with a local
bank for Baht 100 million, which bears interest at the Bank's Minimum Loan Rate
(MLR) plus 1.5% per annum. The repayment schedule is ten installments of Baht 10
million, starting in November 1996. The short-term loan is guaranteed by two
directors of KPT and by a related company. For the six months ended June 30,
1997 and 1998, the average MLR was 14.50% per annum and 19% per annum,
respectively.
NOTE 14 - NOTES PAYABLE
At June 30, 1997 and 1998 King Power Tax Free Co., Ltd. (KPT) and King
Power Duty Free Co., Ltd. (KPD) had issued a 30-day promissory note payable to a
local commercial bank, which bears interest at rates varying from 14.50% per
annum and 19% per annum, respectively.
NOTE 15 - INSTALLMENT PURCHASE PAYABLE - NET
Installment purchase payable incurred from the purchase of a vehicle of
King Power International Group (Thailand) Co., Ltd. (KPG - Thai) and from the
purchase of six vehicles of King Power Duty Free Co., Ltd. (KPD).
For KPG - Thai repayment periods are 24 monthly installments of Baht
18,427 per payment including interest at the rate of 10.25% per annum.
29
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For KPD repayment periods are 36 monthly installments of Baht 13,269
per payment including interest at the rate of 9% per annum for each of six
vehicles, respectively.
<TABLE>
1997 1998
---- ----
US$ US$
<S> <C>
Installment purchase payable............................. 111,469 51,482
Less: Current portion of installment purchase payable (37,338) (32,961)
------- -------
Installment purchase payable - net ...................... 74,131 18,521
======= =======
NOTE 16 - LONG-TERM LOAN - NET
1997 1998
---- ----
US$ US$
Long-term loan .......................................... 384,765 231,985
Less: Current portion of long-term loan ................. (9,806) (6,822)
------- -------
Long-term loan - net .................................... 374,959 225,163
======= =======
</TABLE>
In 1997 King Power Duty Free Co., Ltd. (KPD) obtained a long-term loan
from a local financial institution of Baht 10 million which bears an interest
rate of 13.5% per annum. The repayment is made by monthly installments of Baht
129,840 per payment (including interest), that started on March 4, 1997. The
long-term loan is collateralized by KPD's properties and guaranteed by a
director of KPD.
NOTE 17 - SHAREHOLDERS' EQUITY
(a) Per the reverse acquisition agreement, the shareholders of two
Thailand-based companies together received a total of 18,800,000 shares of
common stock of KPG (Formerly Immune America, Inc.) which represented 94% equity
interest as of the date the reverse acquisition agreement was effective.
Therefore, the 18,800,000 shares were assumed to be issued and outstanding as of
January 1, 1996 for the purpose of presenting comparative financial statements.
(b) Per the reverse acquisition agreement, 752,000 shares out of the
total 18,800,000 shares were put in escrow subject to certain requirements
including that the Company shall have financial statements prepared in
accordance with U.S. GAAP and shall have reached certain criteria of financial
performance as of December 31, 1997. If, as of December 31, 1997, the Company
failed to satisfy any of these conditions the 752,000 shares were to be released
to a financial consultant which was also a party to the reverse acquisition
agreement. During the first quarter of 1998, these shares were released from
escrow and issued to the financial consultant.
30
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(c) Per the reverse acquisition agreement, the remaining equity
interests were represented by 1,200,000 shares of common stock as of June 12,
1997 when the reverse acquisition was effective. These 1,200,000 shares of
common stock were represented by the following components:
<TABLE>
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning Balance at 12/31/96 275,316 275 151,186 (143,833) (6,000) 1,628
Form S-8 issuance at 5/8/97 924,684 925 69,717 70,642
Reissuing of treasury stock 6,000 6,000
Net loss at 6/12/1997 (78,270) (78,270)
-------------------------------------------------------------------------------
Total shareholders' equity 1,200,000 1,200 220,903 (222,103) 0 0
===============================================================================
</TABLE>
(d) On August 18, 1997, the Company issued 250,000 shares of its common
stock to two foreign entities, 125,000 shares each, at a price of US$ 8.00 per
share with net proceeds of US$ 1,887,000. Both entities are located in Taipei,
Taiwan, Republic of China. 125,000 shares were placed in escrowed until May 1,
1998, subject to an additional payment by the purchasers of US$ 4.00 per share
on all 250,000 shares issued or US$ 1,000,000 in the event that the earnings per
share for the Company for the calendar year ended December 31, 1997 exceeded a
certain amount per share. If the earnings per share for fiscal year 1997 were
below the specified goal, then the shares under escrow were to be released to
the purchasers without further consideration. These shares have been released
from escrow without the payment of additional consideration. No underwriter or
placement agent was used. The issuance was conducted pursuant to Regulation S
promulgated under the United States Securities Act of 1933, as amended.
31
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18 - COMMITMENTS AND CONTINGENT LIABILITIES
In order to obtain the necessary rights to operate at the international and
domestic airports in Thailand, King Power Tax Free Co., Ltd. and King Power Duty
Free Co., Ltd. entered into various agreements with the Airport Authority of
Thailand to operate at the international and domestic airports and to rent
retail and office space.
Under those agreements with the Airport Authority of Thailand both KPD and KPT
are required to pay concession fees, rental and service fees, property tax, and
other expenses. A summary of the concession and rental fees payable for the
remaining periods of these agreements are as follows:
<TABLE>
King Power Tax Free Co., Ltd. King Power Duty Free Co., Ltd.
----------------------------------------- ----------------------------------------
Rental and Service Rental and Service
Concession fee and other expense Concession fee and other expense
-------------- ------------------- --------------
<S> <C> <C>
Year (US$ in Million) (US$ in Million)
1998 7.21 0.28 7.96 0.40
1999 14.99 0.56 16.54 0.81
2000 15.80 0.56 17.13 0.81
2001 16.77 0.56 17.73 0.81
2002 17.84 0.56 - -
</TABLE>
Lease commitments
As of June 30, 1998, King Power International Group (Thailand)
Company Limited. (KPG Thailand) has a leasing commitment under a non-cancelable
operating lease agreement in excess of one year as follows:
Rental Charges Service Fee
-------------- -----------
US$ US$
1998................................. 57,251 74,272
1999................................. 114,502 148,543
2000................................. 95,418 123,786
32
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Letter of bank guarantee
As of June 30, 1998, King Power Tax Free Co., Ltd. and King Power Duty
Free Co., Ltd. were contingently liable for bank guarantees totaling US$ 15.52
million issued in favor of the Excise Department and the Airport Authority of
Thailand as a performance bond.
Unused letters of credit
As of June 30, 1998, King Power Duty Free Co., Ltd. has the unused
letters of credit amounting to US$ 1.40 million.
Installment Purchase Obligation
1997 1998
US$ US$
1997 ................................ 35,740 -
1998 ................................ 37,338 16,770
1999 ................................ 37,338 31,566
2000 ................................ 1,053 3,146
------- -------
Total ............................ 111,469 51,482
======= =======
Long-term Loan Installment Payments
1997 1998
---- ----
US$ US$
1997 ......................................... 5,033 -
1998 ......................................... 10,476 4,013
1999 ......................................... 11,960 7,289
2000 ......................................... 13,653 8,322
2001 ......................................... 15,586 9,500
2002 ......................................... 17,793 10,845
Thereafter .................................... 310,264 192,016
------- -------
Total .................................... 384,765 231,985
======= =======
33
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 19 - SEGMENT FINANCIAL INFORMATION
<TABLE>
For the six months ended June 30, 1997
---------------------------------------------------------------------------
Duty Free Tax Free All Adjustments
Retail Retail Other and Eliminations Consolidated
----------- ---------- ---------- ---------------- ------------
<S> <C> <C>
US$ US$ US$ US$ US$
Segment Information
Revenue from external customers 32,250,377 23,673,888 - - 55,924,265
Intersegment revenue - - - - -
Cost of merchandise sold 14,031,917 9,663,576 - - 23,695,493
Concession fees 9,617,364 10,530,533 - - 20,147,897
Gross profit 8,601,096 3,479,779 - - 12,080,875
Interest income 366,055 766,463 - - 1,132,518
Interest expenses 215,522 227,253 - - 442,775
Segment net income (loss) 4,755,774 909,885 5,424,946 (5,424,946) 5,665,659
Segment total assets 37,912,241 18,221,278 9,349,483 (11,303,870) 54,179,132
Expenditures for segment assets 3,393,151 300,147 - - 3,693,298
Long - Lived
Revenue Assets
------------ ------------
US$ US$
Geographical Information
Bangkok 54,714,133 5,730,255
Northern Thailand region 151,000 56,720
Southern Thailand region 1,059,132 63,135
------------ -----------
Total 55,924,265 5,850,110
========== =========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the six months ended June 30, 1998
---------------------------------------------------------------------------
Duty Free Tax Free All Adjustments
Retail Retail Other and Eliminations Consolidated
----------- ---------- --------- ---------------- ------------
<S> <C> <C>
US$ US$ US$ US$ US$
Segment Information
Revenue from external customers 25,755,344 17,945,091 - - 43,700,435
Intersegment revenue 442,967 - - (442,967) -
Cost of merchandise sold 11,418,235 6,845,843 - (442,967) 17,821,111
Concession fees 5,873,784 7,378,362 - - 13,252,146
Gross profit 8,906,292 3,720,886 - - 12,627,178
Management fee income - - 799,551 (658,707) 140,844
Interest income 654,235 281,967 49,069 (65,893) 919,378
Interest expenses 444,364 243,469 56,576 (65,334) 679,075
Segment net income (loss) 3,512,800 179,640 3,764,462 (3,825,707) 3,631,195
Segment total assets 29,287,059 20,100,729 16,324,411 (18,500,985) 47,211,214
Expenditures for segment assets 870,337 263,847 448,275 - 1,582,459
Long - Lived
Revenue Assets
----------- ------------
US$ US$
Geographical Information
Bangkok 41,998,814 5,722,970
Northern Thailand region 290,944 67,399
Southern Thailand region 1,410,677 47,998
---------- ---------
Total 43,700,435 5,838,367
========== =========
</TABLE>
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
(1) Caution Regarding Forward-Looking Information
This report contains certain forward-looking statements and information relating
to the Company that is based on the beliefs of the Company or management as well
as assumptions made by and information currently available to the Company or
management. When used in this document, the words "anticipate", "believe",
"estimate", "expect", and "intend" and similar expressions, as they relate to
the Company or its management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company regarding
future events and are subject to certain risks, uncertainties and assumptions,
including the risks and uncertainties noted. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. In each instance, forward-looking
information should be considered in light of the accompanying meaningful
cautionary statements herein.
(2) Effects on the Change in Foreign Currency Exchange System
On July 2, 1997, the Thai Government announced that the Thai Baht would
thereafter be converted to a "Managed Float" system for the relationship of the
Baht to other international currencies. This change had an immediate impact on
the Company's operations and the results of its operations. Although the
Company's results thus far in 1998 have improved significantly, measured by
sales in Baht, the financial results converted into US Dollars decreased 36.33%
for the six months ended June 30, 1998 compared to the same period in 1997. This
was attributed by the adverse change in the average exchange rate between the
Baht and the US Dollar that increased from Baht 25.90 to 1 in 1997 to Baht
40.413 to 1 in 1998. Management anticipates stability in the exchange rate,
which together with an increase in sales and a reduction in costs, will reflect
positively in the financial reports for the remaining quarters of 1998.
The Company's subsidiaries conduct their business with selling and purchase
prices based on Thai Baht, US Dollars and other currencies. Sales are made both
in Thai Baht and other currencies but eventually will be converted into Thai
Baht. Accordingly, the Company bears foreign currency transaction risks between
the date of purchase of goods for resale and the ultimate payment of the goods
in the appropriate negotiated currency.
King Power Duty Free Company, Limited (KPD) reported a financial gain of Baht
142.0 million for the six months ended June 30, 1998 compare to Baht 123.2
million in 1997, or 15.18% increase. However when converting to US Dollar by
using average exchange rate the financial gain is merely $3.5 million in 1998
compare to $4.8 million in 1997. The increase in Baht sales is mainly due to
KPD's ability to attract more buyers via unique store decoration, capable sales
force, and customized merchandise selection.
King Power Tax Free Company, Limited (KPT) has been selling goods at prices
based upon the US Dollar since its inception. Further, KPT deals in
predominately Thailand produced goods whereby all purchases are settled in Thai
Baht. Therefore, the devaluation of the Thai Baht had minimal effect on the
settlement of open trade payables of KPT. Accordingly, the devaluation had an
opposite economic impact on the operations of KPT whereby the Thai Baht
devaluation increased the overall profitability of this subsidiary. However, in
KPT's financial results for the six months ended June 30, 1998, there is a
transaction recording an unrealized loss on foreign exchange of $0.3 million.
This is principally due to readjustment of an unrealized gain of a US Dollar
denominated management contract with the amount of $2.17 million between KPT
charging to a related company, Downtown D.F.S. (Thailand) Co., Ltd. The contract
was executed on January 1, 1997 when the exchange rate for the Thai Baht to the
US Dollar was 25.56 to 1. By December 31, 1997, that exchange rate had increased
to 47.247 to 1, thus leaving a gain on the exchange rate of 21.687 per US
Dollar. However, when converting unrealized gain on foreign exchange from Thai
Baht to US Dollar, the average exchange rate of 33.8825 was used resulting in a
36
<PAGE>
recorded figure of $1.39 million, the figure that appears in the Company's
income statement as of December 31, 1997. As of June 30, 1998, the exchange rate
has strengthened to 42.313 to 1, thus leaving a loss on the readjusted exchange
rate of 4.934 per US Dollar. Using the average exchange rate of 40.413 results
in an unrealized loss of $0.3 million.
King Power International Group (Thailand) Company, Limited (KPG Thai) was
incorporated on September 11, 1997 as a cost center for the Company and its
affiliates to provide management services for, and to disburse management
charges and rental expenses among the various subsidiaries and affiliates of the
Company. In KPG Thai's statement of earnings for the six months ended June 30,
1998, this company reports net income of US$106,878; it has management fee
income of US$799,551; administrative expenses of US$666,158; other income of
US$1,232; interest expense of US$23,696; and income tax benefit of US$(4,051).
All transactions were recorded in Thai Baht and were converted into US Dollars
using an average exchange rate of 40.413 to 1.
The overall effect of the Thai Baht devaluation was an increase in the
attractiveness of Thailand as a tourist destination. This increase in tourists
had a direct impact on increasing the Company's sales in the post-devaluation
time period.
Due to the economic crisis in Thailand and elsewhere in the Region that effects
the currency fluctuation, to account for such impact, the Company has separately
presented the following items in its statement of income for the quarter ended
June 30, 1998:
Realized gain on foreign exchange $0.6 million
Realized loss on foreign exchange $0.7 million
Unrealized gain on foreign exchange $0.7 million
Unrealized loss on foreign exchange $0.3 million
The calculation of unrealized foreign exchange gain of $0.7 million and
unrealized foreign exchange loss of $0.3 million is shown in charts labeled A
and B, respectively.
37
<PAGE>
<TABLE>
<CAPTION>
CHART A
The calculation of unrealized gain on foreign exchange of US$ = 688,923.57 was
calculated on accumulated basis with quarterly adjustment on financial
obligations, receivable and cash on hand in foreign currency as shown below:
Account payable in foreign currency as of 06/30/98
- -----------------------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
6/30/98
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Swiss Franc 580,213.15 28.0718 16,287,627.50
German Deutschmark 32,541.70 23.6188 768,595.90
French Franc 2,413,050.88 7.0588 17,033,243.55
Hong Kong Dollar 3,395,950.76 5.5123 18,719,499.37
Italian Lira 18,708,500.00 0.0244 456,487.40
British Pound Sterling 226,746.33 71.1488 16,132,729.28
Singapore Dollar 181,977.60 25.1415 4,575,189.83
US Dollar 3,170,428.30 42.5897 135,027,590.17
--------------
Total 209,000,963.02
- -----------------------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 223,969,688.45
--------------
Unrealized gain on accounts payable in foreign currency 14,968,725.43
Loan from bank(Trust receipt) in foreign currency as of 06/30/98
- -----------------------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
6/30/98
- -----------------------------------------------------------------------------------------------------------------------
Australian Dollar 95,820.48 26.2646 2,516,686.58
German Deutschmark 218,969.51 23.6188 5,171,797.06
British Pound Sterling 288,437.84 71.1488 20,522,006.19
Hong Kong Dollar 1,330,885.01 5.5123 7,336,237.44
Italian Lira 676,537,915.40 0.0244 16,507,525.14
Singapore Dollar 499,738.20 25.1415 12,564,167.96
US Dollar 3,010,349.58 42.5897 128,209,885.51
Austrian Schilling 298,371.78 3.3734 1,006,527.36
Japanese Yen 29,138.42 30.3889 885,484.53
--------------
Total 194,720,317.77
- -----------------------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 205,358,786.59
--------------
Unrealized gain on Trust Receipt in foreign currency 10,638,468.82
--------------
Unrealized gain on account receivable as at 06/30/98
- -----------------------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
6/30/98 Baht
- -----------------------------------------------------------------------------------------------------------------------
Swiss Franc 37,039.66 27.6003 1,022,305.73
Total 1,022,305.73
- -----------------------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 751,811.47
------------
Unrealized gain from account receivable in foreign currency 270,494.26
------------
38
<PAGE>
Unrealized gain on Cash on hand as at 06/30/98
- -----------------------------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
- -----------------------------------------------------------------------------------------------------------------------------
6/30/98 Baht
US Dollar 108,648.02 42.1879 4,583,631.80
British Pound Sterling 14,140.20 70.1536 991,985.93
German Deutschmark 240.61 23.2645 5,597.67
Singapore Dollar 8,642.39 24.5239 211,945.11
Malaysian Ringgit 7,836.72 10.0068 78,420.49
Hong Kong Dollar 84,099.60 5.4274 456,442.17
Japanese Yen 11,477,049.70 0.298743 3,428,688.26
China Renminbi Yuan 255.70 4.9080 1,254.98
Korean Won 1,000.00 0.0304 30.40
Australian Dollar 218.14 25.5916 5,582.55
Taiwanese Dollar 22,597.05 1.2170 27,500.61
-------------
total 9,791,079.97
- -----------------------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 7,827,300.13
-------------
Unrealized gain on cash in hand in foreign currency 1,963,779.84
Unrealized gain on accounts payable in foreign currency 14,968,725.43
Unrealized gain on Trust Receipt in foreign currency 10,638,468.82
Unrealized gain from account receivable in foreign currency 270,494.15
Net Unrealized gain on exchange rate as at 6/30/98 27,841,468.24
-------------
US$ = 688,923.57 (US$ = 40.413)
39
<PAGE>
CHART B
The calculation of unrealized loss on foreign exchange of US$ = 279,111 was
calculated on accumulated basis with quarterly adjustment on financial
receivable and cash on hand in foreign currency as shown below:
Account receivable related in foreign currency as of 06/30/98
- -------------------------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
6/30/98
- -------------------------------------------------------------------------------------------------------------------------
US Dollar 2,184,000.00 42.1878 92,138,155.20
-------------
Total 92,138,155.20
- -------------------------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 102,757,200.00
--------------
Unrealized loss on accounts receivable in foreign currency (10,619,044.80)
--------------
Account payable in foreign currency as of 06/30/98
- --------------------------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
6/30/98
- --------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar 1,048,512.91 5.5123 5,779,717.71
- --------------------------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 5,389,447.74
------------
Unrealized loss on accounts payable in foreign currency (390,269.97)
CASH ON HAND IN FOREIGN CURRENCY AS OF 06/30/98
- ---------------------------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
6/30/98
- ---------------------------------------------------------------------------------------------------------------------------
US Dollar 129,322.76 42.1879 5,455,855.67
British Pound Sterling 2,120.84 70.1536 148,784.56
German Deutschmark 2,040.00 23.2645 47,459.58
Singapore Dollar 2,766.00 24.5239 67,833.11
Malaysian Ringgit 1,465.00 10.0068 14,659.96
Hong Kong Dollar 27,290.00 5.4274 148,113.75
Japanese Yen 9,213,238.00 0.298743 2,752,390.36
Swiss Franc 250.00 27.6003 6,900.08
French Franc 4,950.00 6.9286 34,296.57
Korean Won 368,000.00 0.0304 11,187.20
Netherland Guilder 25.00 20.6280 515.70
China Renminbi Yuan 10,747.00 4.9080 52,746.28
Australian Dollar 8,053.51 25.5916 206,102.21
Taiwanese Dollar 38,900.00 1.2170 47,341.30
- -------------------------------------------------------------------------------------------------------------------------
Total 8,994,186.31
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 6/30/98 9,264,584.40
------------
Unrealized loss from cash in hand in foreign currency (270,398.09)
Unrealized loss on accounts receivable in foreign currency (10,619,044.80)
Unrealized loss on accounts payable in foreign currency (390,269.97)
Net Unrealized exchange loss as of 6/30/98 (11,279,712.86)
-------------
US$= (279,111.00) (US$1 = Baht 40.413)
</TABLE>
40
<PAGE>
3) Results of operations, comparing six months ended June 30, 1998 and 1997
KPD began retail operations in 1997 and the revenue of this subsidiary is a
direct result of the increase in the number of tourists coming to Thailand as a
result of the Thai Baht devaluation and its fully functional retail stores.
Further growth was experienced in general merchandise sales at the KPT stores in
Thailand airports, due to an increase in tourism traffic. Management anticipates
that Thailand will continue to be an attractive tourist destination during
future periods and will expand as a focal point for air travel throughout Asia.
Sales revenue for the six months ended June 30, 1998 was approximately $43.7
million as compared to approximately $55.9 million for 1997. This decrease is
directly attributable to the devaluation of Baht that took place during the last
half of 1997. The overall sales revenue in Thai Baht increased 23.16% from Baht
1,448.5 million for the six months ended June 30,1997 to Baht 1,784.0 million
for the same period in 1998. However, the average exchange rate of Baht 40.413
to 1 was used to convert the 1998 figure into US Dollars, compared to the
average exchange rate of 25.9 for 1997. Further, commencing in the last half of
1997, the Thai Government began the "Amazing Thailand" marketing campaign for
the 1998-1999 time period to coincide with various events occurring in Thailand
or other countries located near Thailand. This marketing campaign is
international in scope and directly targeted to attract additional new and
repeat visitors to Thailand. The Company expects that this promotional campaign
will continue to directly impact the Company's operations in a positive manner
during and subsequent to this time period.
The cost of merchandise sold for the six months ended June 30, 1998 and 1997 was
approximately $17.8 million and $23.7 million, respectively. The principal
factor causing this decrease is directly related to the average exchange rate
that is used to compare the two periods, partially offset by the increased sales
volume. In Baht, the cost of merchandise sold increased from Baht 613.7 million
for the six months ended June 30, 1997 to Baht 738.1 million for the same period
this year or an increase of 20.3%. This increase is due to the expansion of the
KPD subsidiary and a larger number of customers at the KPT stores for consumer
goods. In addition, KPT's concession agreement to maintain its locations within
the Thai airports requires payments based upon fixed amounts. Due to the higher
sales volume, comparing the time period ended June 30, 1997 to the time period
ended June 30, 1998, the ratio of Company's concession fee to sales revenue
dropped from approximately 36.03% in 1997 to approximately 30.32% in 1998. The
reasons for this decrease are an increase in sales volume together with the fact
that starting March 19, 1998 the Thai Customs Department removed the additional
customs duty of 15% on gross sales, which it had previously imposed on KPD. KPD
expects this favorable treatment to continue indefinitely. Management
anticipates that the positive effect of this change in the customs duty will be
realized more completely during the remainder of 1998 when the usual high season
for tourists occurs and sales increase substantially.
Direct selling expenses also reflect the commencement of KPD's business and the
increase in traffic at KPT's stores. These expenses were approximately $4.6
million for the six months ended June 30, 1997 and approximately $4.8 million
for the same period in 1998. In terms of percentage of sales, 1997 expenses were
approximately 8.27% of sales and 1998 expenses were approximately 10.94% of
sales. Management has made a commitment to improve this ratio by improving the
effectiveness and efficiency of the Company's sales force that should result
from additional training and management supervision.
Administrative expenses for the six months ended June 30, 1998 and 1997 were
approximately $2.1 million and $1.9 million, respectively. As a percentage of
total sales, these expenses were approximately 4.92% and 3.38%, respectively.
Administrative expenses have grown due to the increase in the Company's
business. Management has designated these expenses for constant monitoring in
order to control their levels in relation to the Company's size, sales volume
and operational necessity.
Net income for the six months ended June 30, 1998 was approximately $3.5
million, or $0.17 per share (basic), and approximately $5.4 million, or $0.29
per share (basic), for the six months ended June 30, 1997. The decrease is
mainly caused by the effect of the Baht devaluation, as mentioned previously,
and by the fact that KPG has started to pay corporate income tax because the
41
<PAGE>
Company has depleted income tax loss carryforwards that sheltered income
previously. Management anticipates that with a substantial increase in the
number of tourists coming to Thailand, particularly as a result of the upcoming
major sport event - the Asian Games to be held in Bangkok during the month of
December 1998 - the Company's results during the remaining quarters of 1998
should improve dramatically.
The ratio of inventory divided by revenue for the six months ended June 30, 1998
and 1997 was approximately 28.42% and 40.93%, respectively. This significant
decrease is a result of commencement of operation by the Company's new stores,
including Harrods (Knightsbridge), that has begun to utilize the inventory
build-up which occurred during previous periods.
(4) Results of operations, comparing three months ended June 30, 1998 and 1997
Sales revenue for the three months ended June 30, 1998 was approximately $21.2
million as compared to approximately $28.5 million for 1997. This decrease is
directly attributable to the devaluation of Baht that took place during the last
half of 1997. The overall sales revenue in Thai Baht increased 15.7% from Baht
740.7 million for the three months ended June 30,1997 to Baht 856.8 million for
the same period in 1998. However, the average exchange rate of Baht 40.413 to 1
was used to convert the 1998 figure into US Dollars, compared to the average
exchange rate of 25.9 for 1997. Further, commencing in the last half of 1997,
the Thai Government began the "Amazing Thailand" marketing campaign for the
1998-1999 time period to coincide with various events occurring in Thailand or
other countries located near Thailand. This marketing campaign is international
in scope and directly targeted to attract additional new and repeat visitors to
Thailand. The Company expects that this promotional campaign will continue to
directly impact the Company's operations in a positive manner during and
subsequent to this time period.
The cost of merchandise sold for the three months ended June 30, 1998 and 1997
was approximately $8.9 million and $12.0 million, respectively. The principal
factor causing this decrease is directly related to the average exchange rate
that is used to compare the two periods, partially offset by the increased sales
volume. In Baht, the cost of merchandise sold increased from Baht 313.4 million
for the three months ended June 30, 1997 to Baht 363.7 million for the same
period this year or an increase of 16.0%. This increase is due to the expansion
of the KPD subsidiary and a larger number of customers at the KPT stores for
consumer goods. In addition, KPT's concession agreement to maintain its
locations within the Thai airports requires payments based upon fixed amounts.
Due to the higher sales volume, comparing the time period ended June 30, 1997 to
the time period for the three months ended June 30, 1998, the ratio of Company's
concession fee to sales revenue dropped from approximately 36.1% in 1997 to
approximately 29.9% in 1998. The reasons for this decrease are an increase in
sales volume together with the fact that the additional custom duty of 15% on
gross sales previously imposed on KPD was exempted by the Customs Department
starting March 19, 1998 and continuing indefinitely.
Direct selling expenses were approximately $2.6 million for the three months
ended June 30, 1997 and approximately $2.9 million for the same period in 1998.
In terms of percentage of sales, 1997 expenses were approximately 9.1% of sales
and 1998 expenses were approximately 13.7% of sales. Direct selling expenses
have grown due to the increase in the Company's business even when comparing the
seasonally lowest sales period of the year, the second quarter. However, because
of the upcoming high or peak season that usually occurs during the third and
fourth quarters of the year, management anticipates that these expenses as a
percentage of sales will be improved. Furthermore, management has made a
commitment to improve this ratio by improving the effectiveness and efficiency
of the Company's sales force that should result from additional training and
management supervision.
Administrative expenses for the three months ended June 30, 1998 and 1997 were
approximately $1.2 million and $1.2 million, respectively. As a percentage of
total sales, these expenses were approximately 5.69% and 4.21%, respectively.
Administrative expenses have grown due to the increase in the Company's
business. Management has designated these expenses for constant monitoring in
order to control their levels in relation to the Company's size, sales volume
and operational necessity.
Net income for the three months ended June 30, 1998 was approximately $0.5
million, or $0.03 per share (basic), and approximately $2.2 million, or $0.11
42
<PAGE>
per share (basic), for the three months ended June 30, 1997. The decrease is
mainly caused by the effect of the Baht devaluation, as mentioned previously,
and by the fact that the Company has begun to pay the corporate income tax. In
addition, the Company has substantially expanded both the number of its
personnel and the amount of retail space that it uses while second quarter sales
are typically the lowest quarter in the year. Management anticipates that with a
substantial increase in number of tourists coming to Thailand, particularly as a
result of the upcoming major sport event - the Asian Games to be held in Bangkok
during the month of December, 1998 - the Company's results during the remaining
quarters of 1998 should improve dramatically.
(5) Liquidity and Capital Resources
For the quarters ended June 30, 1998 and 1997, the Company had working capital
of approximately $2.0 million and $(7.8 million), respectively. The improvement
in this figure is due to the fact that its receivables in most categories have
grown in parallel to the increase in sales. The Company's expanded operations
and increased sales caused this increase in working capital. Recently, the
economic crisis in Asia forced the Thai banks (which are the main sources of
credit for the Company) to either reduce or not increase the trading credit
lines which they make available to borrowers like the Company. Thus, the Company
has been forced to use only internally generated funds for its expansion
activities. The Company's positive cash flow for the first six months of 1998
was approximately $0.8 million as compared to $1.2 million during the same
period of 1997.
The Company anticipates that the Thai Government will continue to strictly
follow the conditions imposed by the International Monetary Fund in exchange for
its bail-out package of US$17 billion and awaits information regarding the Thai
government's announcement on August 15, 1998 of its complete package of
financial reforms for Thai banks. Management hopes that these programs will soon
permit the Thai banks to again increase their loans to businesses like the
Company. It is especially important for the Company to have additional credit
facilities during the upcoming high season so that it can increase its inventory
levels and have adequate supplies of merchandise for its customers to purchase.
The Company's management is engaged in corporate restructuring process in order
to ultimately enhance profitability of the Company by investing in profitable
companies that operate in the same or related fields, downsizing and eventually
closing down operations that do not generate satisfactory results, and
incorporating new projects which have great potential into the Company or its
subsidiaries. The Company is currently negotiating to acquire a 30-year
concession to permit it to operate souvenir shops, food courts, and recreational
facilities in the Bangkok Zoo and a 4-year concession from Thai Airways
International to operate the in-flight duty-free business serving all of that
airline's customers. To assist in reaching its goals, management is currently
interviewing various financial advisors to facilitate such tasks and provide
appropriate recommendations.
43
<PAGE>
(6) Monetary Assets and Liabilities Denominated in Thai Baht
As of June 30, 1998 the amount of monetary assets and liabilities which are
denominated in Thai Baht are as follows:
TYPE OF MONETARY ASSET US DOLLARS
Cash and equivalents 2,909,976
Accounts Receivable
Trade 450,015
Related Parties 1,015,610
Refundable value-added-tax 2,274,181
Related companies 7,642,159
Directors 1,568,989
Inventories 12,421,293
Deferred income tax assets 465,542
Other current assets 1,255,588
Restricted deposit 6,987,726
Other non-current assets 5,588,323
TYPE OF MONETARY LIABILITY
Bank overdraft 1,704,458
Bank loan 1,890,672
Notes payable 472,668
Current portion of installment purchase payable 32,961
Current portion of long-term loan 6,822
Accounts Payable
Unrelated parties 4,960,622
Related parties 485,199
Other accrued liabilities
Concession fees 10,390,621
Other 2,989,834
Installment purchase payable - net 18,521
Long-term loan - net 225,163
(7) Year 2000 Issues
The Company's present computer system does not support beyond the year 2000. Due
to the expansion of the business and the necessity to operate more efficiently,
management has decided to change the system to fully support the integration of
all systems and all subsidiaries in order to generate centralized management
reports for more effective control of the business. The system is scheduled to
be implemented during the second quarter of 1999. It is estimated that the cost
of this new computer system will be approximately US$750,000.
44
<PAGE>
(8) New Accounting Pronouncements
The Financial Accounting Standards Board has recently issued Statements of
Financial Accounting Standards that may affect the Company's financial
statements as follows:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of a company about which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. Because of the recent issuance of the standards, management has
been unable to fully evaluate the impact, if any, that standards may have on
future financial statement disclosures. However, the Company does not anticipate
a material impact from this change in presentation of its consolidated financial
statements upon adoption of these standards.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other postretirement benefits and requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis. SFAS No. 132 is effective
for years beginning after December 15, 1997 and requires comparative information
for earlier years to be restated, unless such information is not readily
available. Management believes the adoption of this statement will have no
material impact on the Company's financial statements.
45
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The following are the results of the balloting at the Registrant's Annual
Meeting of Stockholders held on May 29, 1998:
NO. OF SHARES
--------------------------------------
ELECTION OF DIRECTORS FOR AGAINST
--- -------
Vichai Raksriaksorn 17,226,795 226
Viratana Suntaranond 17,226,837 184
Antares Cheng 17,226,837 184
Aimon Boonkhundha 17,226,837 184
Benjamin B. Fattedad 17,226,837 184
Suwan Panyapas 17,223,837 3,184
Dharmnoon Prachuabmoh 17,223,837 3,184
NO. OF SHARES
--------------------------------------
FOR AGAINST
--- -------
RATIFICATION OF APPOINTMENT 17,215,898 534
OF BDO BINDER (THAILAND) LTD.
AS THE REGISTRANT'S
INDEPENDENT AUDITORS
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
46
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned who are duly
authorized.
KING POWER INTERNATIONAL GROUP CO., LTD.
By: /s/ Vichai Raksriaksorn
-------------------------
Vichai Raksriaksorn, President and Chief Executive Officer
By: /s/ Viratana Suntaranond
---------------------------
Viratana Suntaranond, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the
consolidated financial statements presented in the Company's Form
10-QSB for the period ended June 30, 1998
</LEGEND>
<CIK> 0000787690
<NAME> King Power International Group, Ltd.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 3362656
<SECURITIES> 25904
<RECEIVABLES> 1489786
<ALLOWANCES> 0
<INVENTORY> 12421293
<CURRENT-ASSETS> 34635165
<PP&E> 5838367
<DEPRECIATION> 1369765
<TOTAL-ASSETS> 47211214
<CURRENT-LIABILITIES> 32643857
<BONDS> 0
0
0
<COMMON> 20250
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<TOTAL-LIABILITY-AND-EQUITY> 47211214
<SALES> 43700435
<TOTAL-REVENUES> 46101236
<CGS> 31073257
<TOTAL-COSTS> 8119602
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 679075
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3453617
<EPS-PRIMARY> 0.17
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</TABLE>
