FORM 10-Q
For the quarterly period ended March 31, 1998
(Mark One)
___x_____ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
________ 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: May 1, 1998: 20,250,000
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarter ended March 31, 1998
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 2
Item 2 Management's Discussion and Analysis or plan of Operation 30
Part II - Other Information
Item 1 Legal Proceeding 39
Item 2 Changes in Securities 39
Item 3 Defaults Upon Senior Securities 39
Item 4 Submission of Matters to a Vote of Security Holders 39
Item 5 Other Information 39
Item 6 Exhibits and Reports on Form 8-K 39
1
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(UNAUDITED)
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
-----------------------
Note 1997 1998
---- ---- ----
US$ US$
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents ................... 3,123,311 3,115,700
Trade accounts receivable ................... 483,229 470,531
Trade accounts receivable - related companies 7 78,327 847,438
Management fee receivable - related companies 7 -- 2,236,658
Refundable value added tax .................. 4 1,905,917 1,926,068
Advance for duty free goods ................. 247,671 --
Advance to related companies ................ 7 73,161 6,663,792
Advance to directors ........................ 5 4,095,352 986,399
Merchandise inventories - net ............... 6 16,132,184 14,751,146
Deferred income tax assets .................. 8 -- 520,763
Interest receivable - related companies ..... 7 -- 149,450
Interest receivable ......................... -- 640,050
Other current assets ........................ 693,435 1,593,859
---------- ----------
Total current assets ............ 26,832,587 33,901,854
Investments in other companies ..................... 9 246,507 141,693
Investment in marketable securities (trading) ...... 3 38,506 25,904
Property, plant and equipment - net ................ 10 4,595,339 4,584,989
Restricted fixed deposits .......................... 11 10,920,358 8,227,088
Other long-term assets ............................. 174,804 139,187
---------- ----------
TOTAL ASSETS ................................ 42,808,101 47,020,715
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
March 31,
--------------------------
Note 1997 1998
---- ---- ----
US$ US$
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft ............................................... 12 852,988 1,331,566
Bank loan .................................................... 13 3,465,537 6,072,033
Notes payable ................................................ 14 770,119 518,081
Current portion of installment purchase payable .............. 15 47,560 33,789
Current portion of long-term loan ............................ 16 9,421 7,235
Trade accounts payable - related companies ................... 7 3,849,281 115,236
Trade accounts payable ....................................... 21,666,467 10,957,012
Advance from related companies ............................... 7 290,720 129,520
Leasehold improvements payable ............................... 454,512 --
Accrued concession fee ....................................... 7 1,913,581 8,169,717
Accrued corporate income tax ................................. -- 993,099
Accrued expenses ............................................. 1,262,089 2,688,099
Other current liabilities .................................... 237,542 436,510
=========== ==========
Total current liabilities ........................ 34,819,817 31,451,897
Installment purchase payable - net .................................. 15 72,917 28,745
Long-term loan - net ................................................ 16 374,627 247,976
----------- -----------
Total liabilities ................................ 35,267,361 31,728,618
Minority interest ................................................... 1 462,538 359,620
Commitments and contingencies ....................................... 18
Shareholders' Equity ................................................ 17
Commonstock - $0.001 par value. 100,000,000 shares authorized
18,800,000 and 20,250,000 share issued and outstanding at
March 31, 1997 and 1998, respectively ........................ 18,800 20,250
Additional paid in capital ................................... 18,962,595 20,848,145
Retained earnings (Deficit) .................................. (12,353,335) (4,725,505)
Accumulated other comprehensive income ...................... 450,142 (1,210,413)
----------- -----------
Total shareholders' equity ....................... 7,078,202 14,932,477
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... 42,808,101 47,020,715
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31,
----------------------------
Note 1997 1998
---- ---- ----
US$ US$
<S> <C> <C> <C>
Sales revenue ....................................................... 27,382,190 22,545,646
Cost of sales :
Cost of merchandise sold ..................................... 7 11,657,915 8,874,237
Concession fee ............................................... 7 9,823,504 6,960,003
----------- -----------
Total cost of sales .................................... 21,481,419 15,834,240
----------- -----------
Gross profit ........................................................ 5,900,771 6,711,406
Operating expenses :
Selling expenses
Sales salaries and welfare ............................. 1,604,759 1,634,683
Rental and service fee and other expenses under
the concession agreement ......................... 7 372,652 266,450
Depreciation ........................................... 127,047 220,124
Others ................................................. 488,091 278,938
----------- -----------
Subtotal ............................................... 2,592,549 2,400,195
Administrative expenses ...................................... 660,655 950,999
----------- -----------
Total operating expenses ............................... 3,253,204 3,351,194
----------- -----------
Income from operation ............................................... 2,647,567 3,360,212
Other income:
Interest income - related company ............................ 7 -- 21,087
Interest income .............................................. 498,372 256,507
Realized gain on foreign exchange ............................ 179,469 402,559
Unrealized gain on foreign exchange .......................... -- 1,670,397
Management fee income ........................................ 7 -- 47,720
Other income ................................................. 148,727 37,769
----------- -----------
Total other revenues ................................... 826,568 2,436,039
----------- -----------
Other expenses:
Interest expenses ............................................ 63,717 348,402
Realized loss on foreign exchange ............................ 83,571 687,946
Unrealized loss on foreign exchange due to Baht devaluation .. -- --
Unrealized loss on foreign exchange .......................... -- 418,285
Loss in investment in other companies ........................ -- --
Loss in investment in marketable securities (trading) ........ -- --
----------- -----------
Total other expenses ................................... 147,288 1,454,633
----------- -----------
Net income before income tax ........................................ 3,326,847 4,341,618
Income tax .......................................................... 8 -- (1,309,308)
----------- -----------
Net income before minority interest ................................. 3,326,847 3,032,310
Minority interest ................................................... (115,585) (128,054)
----------- -----------
Net income attributed to common shares .............................. 3,211,262 2,904,256
=========== ===========
Weighted average number of common shares outstanding ................ 18,800,000 20,250,000
Basic earnings per share ............................................ 0.17 0.14
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31,
----------------------------
Note 1997 1998
---- ---- ----
US$ US$
<S> <C> <C>
Net income attributed to common shares .......................... 3,211,262 2,904,256
Other comprehensive income, before tax :
Foreign currency translation adjustments ................. (60,346) 2,263,927
Income tax expense related to items of other comprehensive income -- --
---------- ----------
Other comprehensive income, net of tax .......................... (60,346) 2,263,927
---------- ----------
Comprehensive income ............................................ 3,150,916 5,168,183
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31,
----------------------------
Note 1997 1998
---- ---- ----
US$ US$
<S> <C> <C>
Cash flows from operating activities :
Net income ................................................. 3,211,262 2,904,256
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation ......................................... 127,047 220,124
Unrealized loss on foreign exchange .................. -- 418,285
Unrealized gain on foreign exchange .................. -- (1,670,397)
Deferred tax assets .................................. -- 353,702
Minority interest - income statement impact .......... 115,585 128,054
Decrease (increase) in operating assets :
Trade accounts receivable - related companies .. (78,327) (245,323)
Trade accounts receivable ...................... (409,894) (46,974)
Refundable valued added tax .................... (983,298) (962,540)
Advance for duty free goods .................... 86,040 --
Advance for office and shop improvement ........ 512,888 --
Advance to related companies ................... 1,000 (4,347,846)
Advance to other ............................... (83,791) --
Advance to directors ........................... (2,219,188) 336,383
Inventories .................................... (9,379,469) (1,722,082)
Management fee receivable - related company .... -- (470,359)
Interest receivable ............................ -- (92,875)
Prepaid expenses ............................... (268,427) --
Other current assets ........................... 30,565 (1,133,094)
Increase (decrease) in operating liabilities :
Trade accounts payable - Related companies ..... 2,438,586 (475,622)
Trade accounts payable ......................... 12,025,692 1,138,047
Advance from related companies ................. (394,292) 129,520
Accrued corporated income tax .................. -- 993,099
Leasehold improvements payable ................. (3,040) --
Accrued concession fee ......................... 1,913,581 1,953,647
Accrued expenses ............................... 900,756 2,218,915
Other current liabilities ...................... 39,314 (42,382)
Minority interest - balance sheet impact .............. (5,012) 60,854
----------- -----------
Net cash provided (used) by operating activities 7,577,578 (354,608)
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three months ended March 31,
----------------------------
Note 1997 1998
---- ---- ----
US$ US$
<S> <C> <C>
Cash flows from investing activities :
Reduction in investment in other company .......................... 3,368 (25,920)
Reduction in investment in marketable security .................... 526 (4,739)
Purchase of fixed assets .......................................... (2,971,451) (1,402,661)
Addition in deposit with related company .......................... -- 634,961
Addition in long-term assets ...................................... (76,564) 1,522
---------- ----------
Net cash provided (used) by investing activities (3,044,121) (796,837)
---------- ----------
Cash flows from financing activities :
Proceeds (repayment) in bank overdrafts ........................... (84,816) 372,931
Proceeds (repayment) from bank loan ............................... (437,664) 1,932,106
Proceeds (repayment) from note payable ............................ (979,644) 94,774
Proceeds (repayment) from installment purchase payable ............ 1,979 15,064
Proceeds (repayment) from long-term loan .......................... 384,048 46,546
Translation adjustment ................................................... (60,346) 2,263,927
---------- ----------
Net cash provided (used) by financing activities ...... (1,176,443) 4,725,348
---------- ----------
Effect of exchange rate changes on cash .................................. -- (13,675)
Decrease (Increase) in restricted fixed deposit........................... (1,372,906) (1,761,408)
---------- ----------
Net increase in cash and cash equivalents................................. 1,984,108 1,798,820
Cash and cash equivalents - beginning of period .......................... 1,139,203 1,316,880
---------- ----------
Cash and cash equivalents - end of period ................................ 3,123,311 3,115,700
========== ==========
Supplemental cash flow information
Cash paid during the period:
Interest paid ............................................... 63,717 276,327
Income taxes paid ........................................... -- --
Non - cash transaction:
Common stock ................................................ -- --
Additional paid-in capital .................................. -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'EQUITY
THREE MONTHS ENDED MARCH 31, 1998
Accumulated
Common Stock Additional Compre- Other
------------------- Paid in hensive Retained Comprehensive
Note Shares Amount Capital Income Earnings Income Total
---- ------ ------ ---------- -------- -------- ------------ ---------
US$ US$ US$ US$ US$ US$
<S> <C> <C> <C> <C>
Balance, January 1, 1997 ....... 17(a)(b) 18,800,000 18,800 18,962,595 (15,564,597) 510,488 3,927,286
Net Income ..................... 3,211,262 3,211,262 3,211,262
Other Comprehensive income,
net of tax Foreign currency
translation adjustment ....... (60,346) (60,346) (60,346)
----------
Comprehensive Income ........... 3,150,916
---------- ------- ---------- ========== ---------- --------- ----------
Balance, March 31, 1997 ........ 18,800,000 18,000 18,962,595 (12,353,335) 450,142 7,078,202
========== ======= ========== ========== ========= ==========
Balance, January 1, 1998 ....... 20,250,000 20,250 20,848,145 (7,629,761) (3,474,340) 9,764,294
Net Income ..................... 2,904,256 2,904,256 2,904,256
Other Comprehensive income
income, net of tax foreign
currency translation
adjustment ................... 2,263,927 2,263,927 2,263,927
---------
Comprehensive Income ........... ---------- ------- ---------- ========= ---------- --------- ----------
Balance, March 31, 1998 ........ 20,250,000 20,250 20,848,145 (4,725,505) (1,210,413) 14,932,477
</TABLE>
(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 requires 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 Ameica, 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.
9
<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 are stated at the lower of cost or market.
Costs are determined on a weighted average basis.
10
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(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 March 31, 1997 and 1998 are $1 = Thai
Baht 25.97 and Baht 38.604, respectively. The average rate of exchange during
1997 and 1998 are $1 = Thai 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.
11
<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 three-months ended March
31, 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 three-months ended March 31, 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 payments. 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 maintain its cash accounts in high quality
financial institutes.
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.
12
<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.
13
<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
14
<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..................................................... 77,012 51,808
Loss on decline in market value of investment............... (38,506) (25,904)
------ ------
Net investment in mutual fund...................... 38,506 25,904
====== ======
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 totalling 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 in the first
quarter 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 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............................................. 16,132,184 15,403,928
Less : Provision for damaged stock...................... - (652,782)
---------- ----------
16,132,184 14,751,146
15
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 - RELATED PARTY TRANSACTIONS
1997 1998
---- ----
US$ US$
<S> <C> <C>
Trade account receivable - related companies
Downtown D.F.S. (Thailand) Co., Ltd........................................ 78,327 174,515
King Power International Co., Ltd. (World Trade Center) ................ - 672,923
Management fee receivable - related companies
Downtown D.F.S. (Thailand) Co., Ltd........................................ - 2,180,436
King Power International Co., Ltd. (World Trade Center) ................ - 56,222
Advances to related companies
Forty Seven Co., Ltd....................................................... - 1,509,724
King Power Duty Free (CBO) Ltd............................................. - 2,582,682
King Power International Co., Ltd. (World Trade Center) ................ - 2,144,227
Top China Group Co., Ltd................................................... - 203,347
Downtown D.F.S. (Thailand) Co., Ltd........................................ 73,161 -
Grand Enterprise and Trading Limited Partnership........................... - 94,291
King Power on Board and Sale Services Co., Ltd............................. - 129,521
Interest receivable - related companies
Forty Seven Co., Ltd....................................................... - 63,591
Downtown D.F.S. (Thailand) Co., Ltd........................................ - 85,473
King Power Development Co., Ltd............................................ - 386
Trade accounts payable - related companies
Lengle (Thailand) Co., Ltd.................................................1,372,135 -
Thai Nishigawa International Co., Ltd...................................... 39,361 24,140
King Power Duty Free (CBO) Ltd.............................................2,437,785 38,602
King Power International Co., Ltd. (World Trade Center) ................. - 52,494
Advances from related companies
Forty Seven Co., Ltd....................................................... 175,202 -
Top China Group Co., Ltd. ................................................. 115,518 -
King Power International Co., Ltd. (World Trade Center) ................ - 129,520
Management fee income
King Power International Co., Ltd. (World Trade Center) ................. - 47,720
Interest income - related companies
Forty Seven Co., Ltd....................................................... - 20,760
King Power Development Co., Ltd............................................ - 327
16
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 - RELATED PARTY TRANSACTIONS (Continued)
1997 1998
---- ----
US$ US$
Sales
Downtown D.F.S. (Thailand) Co., Ltd........................................ 78,508 -
King Power International Co., Ltd. (World Trade Center) ............. - 116,210
Purchases
Thai Nishigawa International co., Ltd...................................... 440,741 29,373
Niji (Thailand) Co., Ltd...................................................
Accrued concession fee
Airport Authority of Thailand ............................................. 956,791 6,925,571
Concession fee
Airport Authority of Thailand ............................................. 7,537,652 5,205,866
Rental, Service fee and other expenses under concession agreement
Airport Authority of Thailand ............................................. 372,652 266,450
</TABLE>
Advances to or from related companies represent advances for operating
funds. Such advances bear interest rate at the rate of 10% per annum and are due
on demand.
NOTE 8 - DEFERRED INCOME TAX ASSETS
In Thailand, business enterprises are subject to corporate income tax
on their book profits after adjustments made for tax purposes. Provisions for
bad debts or inventory obsolescence are not deductible until bad debt or
inventory obsolescence actually takes place. The Thailand corporate income tax
is levied at the flat rate of 30%. However, the net operating loss 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 :
17
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1997 1998
---- ----
US$ US$
<S> <C> <C>
Statement of income
-------------------
Current income tax ............................................. (553,791) (1,335,278)
Deferred income tax assets
- Temporary differences ..................................... 19,663 -
- Net operating loss carry-forward ......................... 4,500,201 25,970
--------- ---------
4,519,864 25,970
Less : Valuation allowance .....................................(3,966,073) -
--------- ---------
Income tax benefit.............................................. 553,791 25,970
========= =========
Net income tax benefit (corporate income tax)................... - (1,309,308)
========= =========
Balance sheet
-------------
Deferred income tax assets on January 1, ....................... - 874,465
Adjusted exchange rate to exchange rate on March 31, - 195,783
---------- ---------
- 1,070,248
========== =========
Recognition of deferred income tax assets on
- Temporary difference..................................... 19,663 -
- Net operating loss carry - forward....................... 4,500,201 25,970
- Net effect of exchange rate adjusted from average
rate to exchange rate on March 31, ................... (10,443) 4,629
Utilised deferred income tax assets on
- Net operating loss carry - forward....................... (552,512) (572,182)
- Temporary differences.................................... - (7,902)
---------- ---------
Deferred income tax assets on March 31, ....................... 3,956,909 520,763
========== =========
Net Deferred income assets on March 31 composed of
- Temporary differences.................................... 19,617 223,956
- Net operating loss carry - forward....................... 3,937,292 296,807
---------- ---------
3,956,909 520,763
Less : Valuation allowance......................................(3,956,909) -
---------- ---------
Total....................................................... - 520,763
========== =========
</TABLE>
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.
18
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1997 1998
---- ----
<S> <C> <C>
Standard income tax rate.................................... (16.60%) (30.80%)
Recognition of temporary differences........................ 0.60% -
Recognition of net operating loss carry-forward............. 135.20% 0.60%
Less : Valuation allowance..................................(119.20%) -
------- ------
Income tax benefit.......................................... 16.60% -
-------
Effective income tax rate................................... - (30.20%)
======= =======
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 three months of financial year 1997. As a result, the
standard income tax rate for 1997 was reduced from 30% to 16.60%.
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 March 31,
- Provision on damaged stock................................... - (27,289)
- Provision for devaluation of investment...................... - (5,020)
Recognition of temporary difference on
- Provision for devaluation of investment 19,617 -
Utilized of temporary difference on
- Provision for devaluation of investment...................... - (7,902)
Net temporary difference on March 31, on
- Provision on damaged stock................................... - 195,835
- Provision on devaluation of investment....................... 19,617 28,121
------ -------
Deferred income tax asset - temporary differences.................... 19,617 223,956
====== =======
</TABLE>
Also, 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:
19
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<S> <C> <C> <C>
As at March 31, 1997
--------------------
Loss/(profit) Loss used Loss available for future use
Year Subsidiaries incurred 1996 1997 at March 31, 1997
---- ------------ ------------- ---- ---- -----------------
US$ US$ US$ US$
1992 KPT 7,226 (7,226) - -
1993 KPT 6,950,262 (2,550,578) (1,048,073) 3,351,611
1994 KPT 7,155,852 - - 7,155,852
1995 KPT 2,616,846 - - 2,616,846
1996 KPT (2,557,804) - - -
KPD 793,633 - (793,633) -
1997 KPT (1,048,073) - - -
KPD (2,271,087) - - -
------------ --------- ----------
(2,557,804) (1,841,706) 13,124,309
========== ========= ==========
Deferred income tax asset
- usage of operating loss carry-forward (552,512)
==============
- net operating loss carry-forward 3,937,292
===========
As at March 31, 1998
-------------------
Loss available
Loss/(profit) Loss used for future use
Year Subsidiaries incurred 1996 1997 1998 at March 31, 1998
---- ------------ ------------- ---- ---- ---- -----------------
US$ US$ US$ US$ US$
1992 KPT 4,861 (4,861) - - -
1993 KPT 4,675,637 (1,715,846) (2,959,791) - -
1994 KPT 4,813,943 - (4,724,889) (89,054) -
1995 KPT 1,760,426 - - (842,892) 917,534
1996 KPT (1,720,707) - - - -
KPD 533,899 - - (533,899) -
1997 KPT (7,684,680) - - - -
KPD 411,257 - - (411,257) -
KPG - Thai 101,993 - - (30,170) 71,823
1998 KPT (931,946) - - - -
KPD (4,255,485) - - - -
KPG - Thai (30,170) - - - -
- - - -
--------- --------- --------- -------
(1,720,707) (7,684,680) (1,907,272) 989,357
========= ========= ========= =======
Deferred income tax asset
- usage of operating loss carry - forward (572,182)
========
- net operating loss carry-forward 296,807
=======
</TABLE>
20
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
No valuation allowance has been provided at March 31, 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>
<CAPTION>
NOTE 9 - INVESTMENTS IN OTHER COMPANIES
<S> <C> <C> <C>
1997
------------------------------------------------------------
Provision for devaluation Net investments
Cost of investment in other companies
------- ------------------------- ------------------
US$ US$ US$
International Tourism Promotion
Co., Ltd. ................................ 231,036 23,494 207,542
Top Trade Overseas Promotion
Co., Ltd. ................................. 38,506 2,623 35,883
Global Capital Group Co., Ltd. ............... 3,850 768 3,082
------- ------- -------
Total................................ 273,392 26,885 246,507
======= ======= =======
1998
------------------------------------------------------------
Provision for devaluation Net investments
Cost of investment in other companies
------- ------------------------- ------------------
US$ US$ US$
International Tourism Promotion
Co., Ltd. ............................... 155,424 15,805 139,619
Top Trade Overseas Promotion
Co., Ltd. ................................ 25,904 25,904 -
Global Capital Group Co., Ltd. .............. 2,591 517 2,074
------- ------ -------
Total............................... 183,919 42,226 141,693
======= ====== =======
</TABLE>
There were no changes related to the investment in these three entities
during the first quarter of 1998. The difference in cost value of investment in
US dollars was due to using different exchange rates from year to year.
21
<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 equivalent
to 10% of its 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 a loss of 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 equivalent
to 10% of its 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 were 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 equivalent to 1% of
its 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.
22
<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 ............................................. 203,312 136,773
Building ......................................... 198,985 133,863
Construction in process .......................... -- 60,704
Leasehold improvements ........................... 3,119,191 3,711,067
Selling office equipment and fixtures ............ 1,351,339 1,405,011
Vehicles ......................................... 262,657 373,450
---------- ----------
Total acquisition cost ...................... 5,135,484 5,820,868
Less: accumulated depreciation .................. (540,145) (1,235,879)
---------- ----------
Net book value .............................. 4,595,339 4,584,989
========== ==========
NOTE 11 - RESTRICTED FIXED DEPOSITS
The Company's Thailand-based subsidiaries made restricted fixed
deposits as a guarantee with a commercial bank for bank credit facilities of
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 Airports Authority of Thailand from which King Power Tax Free Co., Ltd.
was granted for the exclusive operating license and King Power Duty Free Co.,
Ltd. was granted 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 9.25% 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 three months ended March 31, 1997, the
average rate of MOR was 14.25% to 15.50% per annum and for the three months
ended March 31, 1998, the MOR was 18% to 21.50% per annum.
23
<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 ................... - 3,999,709
Short-term loan ................. 3,465,537 2,072,324
--------- ---------
Total ...................... 3,465,537 6,072,033
========= =========
Trust receipt incurred by King Power Duty Free Co., Ltd. (KPD) bears
interest at rates varying from 12.25% to 24% in 1998 and is guaranteed by the
aforementioned fixed deposit, KPD's land, and two directors of KPD together with
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 by ten installments of
Baht 10 million, starting from November, 1996. The short-term loan is guaranteed
by two directors of KPT together with a related company, and one million shares
of King Power Duty Free Co., Ltd.'s stock (at a par value of Baht 100 per share,
totaling Baht 100 million)
For the three month ended March 31, 1997 and 1998, the average MLRs
were 14.50% per annum and 19% per annum, respectively.
NOTE 14 - NOTES PAYABLE
At March 31, 1997 and 1998 King Power Tax Free Co., Ltd. (KPT) 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 seven vehicles of King Power Duty Free Co., Ltd.
(KPD).
For KPG - Thai, repayment periods are composed of 24 monthly
installments of Baht 18,420 per payment including interest at the rate of 10.25%
per annum.
24
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For KPD, repayment periods are composed of 36 monthly installments of
Baht 13,269 per payment including interest at the rate of 9% per annum for each
of seven vehicles, respectively.
<TABLE>
1997 1998
---- ----
US$ US$
<S> <C> <C>
Installment purchase payable .......................... 120,477 62,534
Less : Current portion of installment purchase payable (47,560) (33,789)
------ ------
Installment purchase payable - net .................... 72,917 28,745
====== ======
NOTE 16 - LONG-TERM LOAN - NET
1997 1998
---- ----
US$ US$
Long-term loan ........................................ 384,048 255,211
Less : Current portion of long-term loan .............. (9,421) (7,235)
------- -------
Long-term loan - net .................................. 374,627 247,976
======= =======
</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 schedule is composed of 76 monthly
installments of Baht 129,840 per payment (including interest), starting 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 the two
Thailand-based companies together received a total of 18,800,000 shares of
common stock of the Company (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 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 the 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.
25
<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
interest 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>
<S> <C> <C> <C>
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
----------------------------------------------------------------------------------
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 6/12/997 (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 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 escrow until May 1,
1998, subject to an additional payment by the purchasers of $4.00 per share on
all 250,000 shares issued or $1,000,000 in the event that the earnings per share
for the Company for the calendar year ended December 31, 1997 exceeded a certain
amount per share. If the earnings per share for fiscal year 1997 were below the
specified goal, then the shares under escrow were to be released to the
purchasers without further consideration. These shares have been released from
escrow without the payment of additional consideration. No underwriter or
placement agent was used. The issuance was conducted pursuant to Regulation S
promulgated under the United States Securities Act of 1933, as amended.
NOTE 18 - COMMITMENTS AND CONTINGENT LIABILITIES
In order to obtain the necessary rights to operate at the international and
domestic airports in Thailand, King Power Tax Free Co., Ltd. and King Power Duty
Free Co., Ltd. entered into various agreements with the Airports Authority of
Thailand to operate at the international and domestic airports and to rent
office space.
Both of KPD and KPT are required to pay concession fee, rental and
service fees, property tax, and other expenses under the aforementioned
agreements with the Airports Authority of Thailand. A summary of the concession
and rental fees payable for the remaining periods of the agreements are as
follows:
26
<PAGE>
(UNAUDITED)
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
King Power Tax Free Co., Ltd. King Power Duty Free Co., Ltd.
---------------------------------------- -----------------------------------------
Rental and Service Rental and Service
Year Concession fee and other expense Concession fee and other expenses
---- -------------- ------------------ -------------- ------------------
(US$ in Million) (US$ in Million)
<S> <C> <C>
1998 11.71 0.43 13.11 0.66
1999 16.42 0.61 18.14 0.88
2000 17.32 0.61 18.78 0.88
2001 18.38 0.61 19.42 0.88
2002 19.56 0.61 - -
Lease commitments
As of March 31, 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.................................................. 125,504 162,815
1999.................................................. 125,504 162,815
2000.................................................. 104,586 135,679
Letter of bank guarantee
As of March 31, 1998, King Power Tax Free Co., Ltd. and King
Power Duty Free Co., Ltd. were contingently liable for bank guarantees totalling
US$ 15.66 million issued in favour of the Excise Department and the Airports
Authority of Thailand as a performance bond.
Unused letter of credits
As of March 31, 1998, King Power Duty Free Co., Ltd. has the
unused letters of credit amounting to US$ 0.87 million.
Installment Purchase Obligation
1997 1998
---- ----
US$ US$
1997......................................................... 45,273 -
1998......................................................... 37,079 24,491
1999......................................................... 37,079 34,599
2000......................................................... 1,046 3,445
------ --------
Total ................................................ 120,477 62,534
======= ======
27
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-term Loan Installment Payments
1997 1998
---- ----
US$ US$
1997 ................................................................ 6,947 -
1998 ................................................................ 10,404 5,335
1999 ................................................................ 11,897 7,990
2000 ................................................................ 13,558 9,121
2001 ................................................................ 15,478 10,413
2002 ................................................................ 17,670 11,887
Thereafter ........................................................... 308,114 210,465
------- -------
Total ........................................................ 384,048 255,211
======= =======
NOTE 19 - SEGMENT FINANCIAL INFORMATION
For the three months ended March 31, 1997
---------------------------------------------------------------------------
Duty Free Tax Free All Adjustments
Retail Retail Other and Eliminations Consolidated
US$ US$ US$ US$ US$
Segment Information
Revenue from external customers 14,885,072 12,497,118 - - 27,382,190
Intersegment revenue - - - - -
Cost of merchandise sold 6,449,144 5,208,771 - - 11,657,915
Concession fees 4,571,705 5,251,799 - - 9,823,504
Gross profit 3,864,224 2,036,547 - - 5,900,771
Interest income 167,884 330,488 - - 498,372
Interest expenses 22,261 41,456 - - 63,717
Segment net income (loss) 2,276,347 1,050,500 3,211,261 (3,211,261) 3,326,847
Segment total assets 26,871,236 16,684,021 7,078,201 (7,825,357) 42,808,101
Expenditures for segment assets 2,975,467 19,288 - - 2,994,755
Long - Lived
Revenue Assets
---------- ------------
US$ US$
Geographical Information
Bangkok 27,253,995 5,134,774
Northern Thailand region 128,195 710
Southern Thailand region - -
---------- ---------
Total 27,382,190 5,135,484
========== =========
</TABLE>
28
<PAGE>
(UNAUDITED)
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three months ended March 31, 1998
---------------------------------------------------------------------------
Duty Free Tax Free All Adjustments
Retail Retail Other and Eliminations Consolidated
--------- -------- ----- ---------------- ------------
US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C>
Segment Information
Revenue from external customers 13,354,404 9,191,242 - - 22,545,646
Intersegment revenue 427,751 - - (427,751) -
Cost of merchandise sold 5,810,703 3,491,285 - (427,751) 8,874,237
Concession fees 3,744,949 3,215,054 - - 6,960,003
Gross profit 4,226,503 2,484,903 - - 6,711,406
Management fee income - - 267,450 (219,730) 47,720
Interest income 200,797 107,695 - (30,898) 277,594
Interest expenses 239,141 107,104 33,055 (30,898) 348,402
Segment net income (loss) 2,528,365 569,358 2,948,152 (3,013,565) 3,032,310
Segment total assets 31,301,821 18,726,166 16,991,737 (18,879,502) 48,140,222
Expenditures for segment assets 247,199 110,862 337,398 - 695,459
Long - Lived
Revenue Assets
------- ------------
US$ US$
Geographical Information
Bangkok 22,039,364 5,744,965
Northern Thailand region 127,150 44,158
Southern Thailand region 806,883 31,745
----------- ---------
Total 22,973,397 5,820,868
========== =========
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
(1) Caution Regarding Forward-Looking Information
This quarter 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
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 10.57%
for the three months ended March 31, 1998 compared to the same period in 1997.
This was caused by the adverse change in the average exchange rate between the
Baht and the US Dollar, which increased, from 25.91 in the first quarter of 1997
to 45.482 in the first quarter of 1998. Management anticipates improvement in
the exchange rate that will be reflected positively in the financial results
reported for the second quareter 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
115.0 million for the three months ended March 31, 1998 compared to Baht 62.3
million in 1997, or 84.58% increase. However when converting to US Dollar by
using average exchange rate the financial gain is merely $2.5 million in 1998
compare to $2.4 million in 1997. The increase in Baht sales is mainly due to
KPD's ability to facilitate its full operation during 1998 when compares to the
same period last year while it had just started operations.
30
<PAGE>
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 three months ended March 31, 1998, there has
been recognized an unrealized loss on foreign exchange of $0.4 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 and 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 Baht
47.247 to US Dollar 1, thus leaving a gain on the exchange rate of Baht 21.687
per US Dollar. However, when converting unrealized gain on foreign exchange from
Thai Baht to US Dollar, the average exchange rate of Baht 33.8825 was used
resulting in a recorded figure of $1.39 million, the figure that appears in the
Company's income statement as of December 31, 1997. As of March 31, 1998, the
exchange rate has dropped to Baht 38.604 per US Dollar, thus leaving a loss on
the readjusted exchange rate of Baht 8.643 per US Dollar. And by using the
average exchange rate of Baht 45.482 results in an unrealized loss of $0.4
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 three months ended March
31, 1998, this company reports net income of US$43,896; it has management fee
income of US$267,450, administrative expenses of US$224,527, interest expense of
US$17,315 and income tax benefit of US$18,288. All transactions were recorded in
Thai Baht and were converted into US Dollars using an average exchange rate of
Baht 45.4820 to US Dollar 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.
In accordance with generally accepted accounting principles, the Company has
separately presented the following items in its statement of income for the
quarterly ended March 31, 1998:
Realized gain on foreign exchange $0.4 million
Realized loss on foreign exchange $0.7 million
Unrealized gain on foreign exchange $1.7 million
Unrealized loss on foreign exchange $0.4 million
The calculation of unrealized foreign exchange gain of $1.7 million and
unrealized foreign exchange loss of $0.4 million is shown in charts labeled A
and B, respectively.
31
<PAGE>
<TABLE>
<CAPTION>
CHART A
The calculation of unrealized gain on foreign exchange of US$1,670,397 was
calculated on accumulated basis with quarterly adjustment on financial
obligations, receivables and cash on hand in foreign currency as shown below:
Accounts payable in foreign currency at March 31, 1998
- ------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
3/31/98 Baht
- ------------------------------------------------------------------------------------------------------
<S> <C>
Swiss Franc 205,565.10 25.7316 5,289,518.93
German Deutschmark 32,541.70 21.1787 689,190.90
French Franc 3,666,552.20 6.342 23,253,274.05
Hong Kong Dollar 1,539,586.81 5.054 7,781,071.74
Italian Lire 18,708,500.00 0.0218 407,845.30
British Pound Sterling 176,050.33 65.6428 11,556,436.60
Singapore Dollar 181,977.60 24.4915 4,456,904.39
US Dollar 4,555,930.95 39.0807 178,048,970.68
- ------------------------------------------------------------------------------------------------------
Total 231,483,212.59
BALANCE PER GENERAL LEDGER 276,211,053.53
Unrealized gain on accounts payable in foreign currency 44,727,840.94
Loan from bank (trust receipts) in foreign currency at March 31, 1998
- ------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
35,885.00 Baht
- ------------------------------------------------------------------------------------------------------
Australian Dollar 95,820.48 26.0953 2,500,464.17
German Deutschmark 57,761.20 21.1787 1,223,307.13
British pound sterling 77,098.20 65.6428 5,060,941.72
Hong Kong Dollar 902,656.00 5.0540 4,562,023.42
Italian Lire 617,131,915.40 0.0218 13,453,475.76
Singapore Dollar 546,377.00 24.4915 13,381,592.30
US Dollar 2,881,174.43 39.0807 112,598,313.55
Japanese Yen 54,767.12 29.6649 1,624,661.14
- ------------------------------------------------------------------------------------------------------
Total 154,404,778.18
BALANCE PER GENERAL LEDGER 186,088,693.65
Unrealized gain on Trust Receipts in foreign currency 31,683,915.47
32
<PAGE>
Unrealized loss on account receivable at March 31, 1998
- -------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
3/31/98 Baht
- -------------------------------------------------------------------------------------------------------
Swiss Franc 35,873.63 25.243 905,558.04
- -------------------------------------------------------------------------------------------------------
Total 905,558.04
BALANCE PER GENERAL LEDGER 1,157,857.28
Unrealized loss from account receivable in foreign currency (252,299.24)
Unrealized loss on Cash on hand at March 31, 1998
- -------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
3/31/98 Baht
- -------------------------------------------------------------------------------------------------------
US Dollar 54,302.09 38.541 2,092,856.85
Japanese Yen 4,448,986.00 0.291087 1,295,041.99
Taiwanese Dollar 43,550.00 1.1709 50,992.70
Hong Kong Dollar 81,170.00 4.9614 402,716.84
United Kingdom 12,822.46 64.5021 827,075.60
Australia Dollar 1,967.70 25.4398 50,057.89
Singapore Dollar 3,242.00 23.8193 77,222.17
Malaysia Ringgit 5,104.00 10.4797 53,488.39
Swiss Franc 750.00 25.243 18,932.25
French Franc 7,900.00 6.2056 49,024.24
German Deutschmark 2,330.00 20.8125 48,493.13
Korean Won 43,000.00 0.278 95,354.00
China renminbi Yuan 2,140.00 4.4602 9,544.83
-----------------
Total 5,070,800.87
- ------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 5,257,274.98
Unrealized loss on cash in hand in foreign currency (186,474.11)
Unrealized gain on accounts payable in foreign currency 44,727,840.94
Unrealized gain on Trust Receipt in foreign currency 31,683,915.47
Unrealized loss from account receivable in foreign currency (252,299.24)
Net Unrealized gain on exchange rate at March 31, 1998 75,972,963.06
US$ 1,670,397
Exchange Rate of Baht 45.482=US$1
33
<PAGE>
CHART B
The calculation of unrealized loss on foreign exchange of US$418,285 was
calculated on accumulated basis with quarterly adjustment on financial
receivable and cash on hand in foreign currency as shown below:
Accounts receivable related in foreign currency at March 31, 1998
- ------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
3/31/98 Baht
- ------------------------------------------------------------------------------------------------------
US Dollar 2,184,000.00 38.54 84,173,544.00
- ------------------------------------------------------------------------------------------------------
Total 84,173,544.00
BALANCE PER GENERAL LEDGER 102,757,200.00
Exchange loss on accounts receivable in foreign currency (18,583,656.00)
Cash on hand in foreign currency at March 31, 1998
- ------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
3/31/98 Baht
- ------------------------------------------------------------------------------------------------------
US Dollar 114,852.61 38.5410 4,426,534.44
British Pound Sterling 3,102.27 64.5021 200,102.93
German Deutschmark 3,155.00 20.8125 65,663.44
Singapore Dollar 3,371.00 23.8193 80,294.86
Malaysian Ringgit 4,096.00 10.4377 42,752.82
Hong Kong Dollar 111,950.00 4.9614 555,428.73
Japanese Yen 5,003,253.00 0.291087 1,456,381.91
Swiss Franc 150.00 25.2430 3,786.45
French Franc 1,700.00 6.2056 10,549.52
Korean Won 532,000.00 0.0278 14,789.60
Netherland Guilder 20.00 18.4557 369.11
China Renminbi Yuan 6,886.00 4.5009 30,993.20
Canadian Dollar 20.00 26.9987 539.97
Australian Dollar 1,120.90 25.4398 28,515.47
Taiwanese Dollar 30,000.00 1.1709 35,127.00
-----------------
Total 6,951,829.45
BALANCE PER GENERAL LEDGER 7,392,608.66
Unrealized loss from cash in hand in foreign currency (440,779.21)
Unrealized loss on accounts receivable in foreign currency (18,583,656.00)
Net Unrealized exchange loss (19,024,435.21)
US$418,284.93
Exchange Rate of Baht 45.482=US$1
</TABLE>
34
<PAGE>
(3) Results of operations, comparing quarterly ended March 31, 1998 and 1997
KPD began retail operations in 1997 and the increased 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
the 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 three months ended March 31, 1998 was approximately $22.5
million as compared to approximately $27.4 million for 1997. This decrease is
directly attributable to the devaluation of Baht took place during the last half
of 1997. The overall sales revenue in Thai Baht has increased over 44.52% from
Baht 709.5 million for the three months ended March 31,1997 to Baht 1,025.4
million for the same period in 1998. However, the average exchange rate of Baht
45.482 was used to convert the 1998 figure into US dollars compared to the
average exchange rate of Baht 25.91 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 March 31, 1998 and 1997
were approximately $8.9 million and $11.7 million, respectively. The factors for
this decrease is directly related to the average exchange rate that is used to
compare to the two periods partially offset by the increased sales volume. In
Baht, this cost of merchandise sold increased from Baht 302.1 million for the
three months ended March 31, 1997 to Baht 403.6 million for the same period this
year or an increase of 33.6%. 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 March 31, 1997 to the time period
ended March 31, 1998, the ratio of the Company's concession fee to sales revenue
dropped from 35.88% in 1997 to 30.86% 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 imposed on KPD was exempted by the Customs Department
starting March 19, 1998. Management anticipates that the positive effect of this
exemption will be realized in full during the second quarter of 1998 and should
continue indefinitely in the future.
Direct selling expenses, excluding depreciation and others, also reflect the
commencement of KPD's business and the increase in traffic at KPT's stores.
These expenses were approximately $2.0 million for the three months ended March
31, 1997 and approximately $1.9 million for the same period in 1998. In terms of
percentage of sales, 1997 expenses were approximately 7.22% of sales and 1998
expenses were approximately 8.43% of sales. Management has made a commitment to
improve this ratio by improving the effectiveness and efficiency of the
Company's sales force which should result from additional training and
management supervision.
35
<PAGE>
Administrative expenses for the three months ended March 31, 1998 and 1997 were
approximately $1.0 million and $0.7 million, respectively. As a percentage of
total sales, these expenses were approximately 4.22% and 2.41%, respectively.
Administrative expenses have grown due to the growth 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 March 31, 1998 was approximately $2.9
million, or $0.14 per share (basic), and approximately $3.2 million, or $0.17
per share (basic), for the three months ended March 31, 1997.
The ratio of inventory divided by revenue for the three months ended March 31,
1998 and 1997 was approximately 65.42% and 58.91%, respectively. This increase
is due to the continued expansion in the number of stores open for business and
a build up of inventory levels in anticipation of the April 30, 1998 opening of
Harrods (Knightsbridge) store. As these additional stores commence operations
and increase sales, management anticipates that this ratio will improve.
(4) Liquidity and Capital Resources
At the quarters ended March 31, 1998 and 1997, the Company had working capital
of approximately $2.5 million and $(8.0 million), respectively. The improvement
in this figure is due to the Company's ability to significantly expand
operations and to generate increased sales, thereby increasing current assets.
Management anticipates that the current positive trend will continue as sales
continue to grow and operations are stabilized.
The management has identified specific needs for capital expenditures related to
1) expanding its existing airport stores; 2) facilitating potential acquisition
of various management contracts for similar operations in Thailand and other
countries within the Asian market; and 3) facilitating either acquisition of or
management contracts with related parties controlling similar general
merchandise and duty free operations within Thailand and other Asian countries.
To fulfill these anticipated capital requirements, management is currently
interviewing various investment banking and financial institutions to facilitate
a sale of the Company's securities or to arrange for the extension of additional
credit facilities. There is no assurance that such plans can be successful or
achieved at rates and amounts that will be favorable to the Company.
36
<PAGE>
(5) Monetary Assets and Liabilities Denominated in Thai Baht
As of March 31, 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 2,794,318
Accounts Receivable
Trade 447,073
Related Parties 847,438
Refundable value-added-tax 1,926,068
Related companies 6,720,014
Directors 986,399
Inventories 14,751,146
Deferred income tax assets 520,763
Other current assets 2,383,359
Restricted deposit 8,227,088
Other non-current assets 4,891,773
TYPE OF MONETARY ASSET
Bank overdraft 1,331,566
Bank loan 2,072,324
Notes payable 518,081
Current portion of installment purchase payable 33,789
Current portion of long-term loan 7,235
Accounts Payable
Unrelated parties 4,914,342
Related parties 115,236
Other accured liabilities
Concession fees 8,169,717
Other 4,247,228
Installment purchase payable-net 28,745
Long-term loan-net 247,976
(6) Effect of Year 2000
The present computer system does not support beyond the year 2000. Due to the
expansion of the business and the necessity to operate more efficiently, the
management has decided to change the system to fully support the integration of
all systems and all subsidiaries in order to generate centralized management
report for a more effective control of the business. The system is scheduled to
be implemented in January 1999. The cost for such change is not expected to be
material.
37
<PAGE>
(7) 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.
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.
38
<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
None
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
None
39
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
KING POWER INTERNATIONAL GROUP CO., LTD.
May 14, 1998 /s/ Vichai Raksriaksorn
-----------------------
Vichai Raksriaksorn
President, Chairman of the Board and Director
May 14, 1998 /s/ Viratana Suntaranond
------------------------
Chief Financial Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted from
Balance Sheet at 3/31/98, Statement of Operations at 3/31/98.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,115,700
<SECURITIES> 25,904
<RECEIVABLES> 1,317,969
<ALLOWANCES> 0
<INVENTORY> 14,751,146
<CURRENT-ASSETS> 33,901,854
<PP&E> 5,820,868
<DEPRECIATION> 1,235,879
<TOTAL-ASSETS> 47,020,715
<CURRENT-LIABILITIES> 31,451,897
<BONDS> 0
0
0
<COMMON> 20,250
<OTHER-SE> 14,912,227
<TOTAL-LIABILITY-AND-EQUITY> 47,020,715
<SALES> 22,545,646
<TOTAL-REVENUES> 22,545,646
<CGS> 8,874,237
<TOTAL-COSTS> 15,834,240
<OTHER-EXPENSES> 3,351,194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 348,402
<INCOME-PRETAX> 4,341,618
<INCOME-TAX> 1,309,308
<INCOME-CONTINUING> 3,032,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,904,256
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
