UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1997
Commission File Number: 1-13205
KING POWER INTERNATIONAL GROUP CO., LTD.
(Exact name of registrant as specified in its charter)
NEVADA 75-2641513
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
26th & 27th Floors, Siam Tower, 989 Rama I Road,
Patumwan, Bangkok 10330 Thailand
(Address of principal executive offices)
Registrant's telephone number, including area code: 011 (662) 658-0090
Securities registered pursuant to Section 12(b) of the Act: Title of class:
Common Stock, $.001 par value per share
Name of exchange on which registered: American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
Number of shares of Common Stock of the registrant outstanding as of February
28, 1998: 20,250,000 shares.
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of $3.75 per share for the registrant's
common stock as reported by the American Stock Exchange as of March 20, 1998 was
approximately $29,152,938.
Transitional Small Business Disclosure Format (check one): Yes ____ No__X__
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Item
Number Page
- ------ ----
Part I
1. Business 3
2. Properties 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
Part II
5. Market for the Company's Common Stock and Related Stockholder Matters 10
6. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
7. Index to Financial Statements 19
8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 19
Part III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 19
10. Executive Compensation 23
11. Security Ownership of Certain Beneficial Owners and Management 24
12. Certain Relationships and Related Transactions 25
13. Exhibits and Reports on Form 8-K 27
</TABLE>
2
<PAGE>
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements and information relating
to the Company that are based on the beliefs that the Company or its management
as well as assumptions made by and information currently available to the
Company or its 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.
PART I
ITEM 1 BUSINESS
General
- -------
The global duty free business is a multi-billion dollar industry in which
luxury and brand name merchandise such as perfumes and cosmetics, liquor and
tobacco and general merchandise products are sold to travelers exempt from
import duties and taxes, within certian allowances, at their respective
destinations. Since 1993, the global duty free business grew at a compunded
annual growth rate of 5.4% in terms of revenue form US$17 billion in 1993 to
US$21 billion in 1997.
The duty free industry in Asia began to develop in 1964 when Japanese
retailers established the first duty free shops in the region. As trade among
the countries within the region increased, the Asian duty free business began to
grow. The Asian duty free industry was given additional impetus when trade
between Asian countries and the United States and European countries began to
increase. This increase in trade has lead to an increase in tourism by travelers
from the United States and Europe. In 1997 Thailand was the second most popular
travel destination in Asia, welcoming more than 7.3 million travelers into the
country. Over the last five years the number of visitors to Thailand has
increased at a compounded average growth rate of 6.1% from 5.8 million visitors
in 1993 to 7.3 million visitors in 1997. During this same period, the Thai duty
free industry has grown from a Baht 3 billion industry to a Baht 6 billion
industry.
Thailand, like all of its neighboring countries, has been affected by the
economic deterioration that has fallen over the entire Asian region in 1997. The
Asian economic crisis has caused the Thai Baht to depreciate over 70% versus the
US Dollar from July 1, 1997 when the Baht was first allowed to freely float to
the end of 1997. However, though the Thai economy declined, the Thai duty free
business grew. Revenues from the Company's duty free/tax free operations grew
56% from US$42
3
<PAGE>
million in 1996 to US$96 million in 1997. The growth in this industry was due to
the increased purchasing power of the tourists and travelers coming to Thailand,
coupled with the promotional campaign know as "Amazing Thailand 1998-1999",
sponsored by the Tourism Authority of Thailand. Additionally, the Company
expanded its retail space in order to accommodate the increased number of
travelers, as well as complimenting the Amazing Thailand campaign by opening two
new shops which sell local specialty goods at discounted prices.
King Power International Group Co., Ltd. (the "Company") is the leading
duty free operator in Thailand. The Company operates and manages 15 duty free
and 29 tax free stores, via a concession agreement with the Airport Authority of
Thailand (the "AAT"), throughout all of Thailand's major airports. At the end of
1997, the Company had approximately 38,566 square feet of retail space at the
Bangkok International Airport and approximately 42,843 square feet of retail
space overall, which represented growth in retail space from the end of 1996 of
174% and 179%, respectively,
Organization and Operations
- ---------------------------
The Company (formerly Immune America, Inc.) was incorporated under the laws
of the State of Nevada in 1985. From inception through June 12, 1997, the
Company had no significant assets, liabilities or business operations and was in
search of a suitable business acquisition or merger candidate. As such, the
Company was classified as a "development stage enterprise"
On June 12, 1997, The Company engaged in a step reverse merger transaction
with the shareholders of J.M.T. Group Company Limited and J.M.T. Duty Free
Company Limited, whereby 94% of the Company or an aggregate 18,800,000 shares of
restricted, unregistered common stock was exchanged for 99.94 % of the issued
and outstanding shares of J.M.T. Group Company Limited and 94.95% of the issued
and outstanding shares of J.M.T. Duty Free Company Limited.
The reverse merger was treated as a recapitalization of the Company.
Accordingly, the assets, liabilities and business operations of J.M.T. Group
Company Limited and J.M.T. Duty Free Company Limited are recognized at
historical cost. The combined historical financial statements of the Company,
J.M.T. Group Company Limited and J.M.T. Duty Free Company Limited become the
historical financial statements of the Company.
Concurrent with the reverse merger, the company changed its corporate name
from Immune America, Inc. to King Power International Group Co., Limited.
Subsequently, on September 9, 1997 JMT Duty Free changed its corporate name to
King Power Duty Free Company Limited and on October 10, 1997 JMT Group changes
its corporate name to King Power Tax Free Company Limited.
Since the reverse merger the Company has operated and managed both
corporations to become the leading Duty Free and Tax Free retailer in Thailand
with 44 stores and employing over 1,500 people throughout Thailand.
4
<PAGE>
The Company operates two divisions in its current operations: the Tax Free
Division and the Duty Free Division.
Tax Free Division
- -----------------
King Power Tax Free Company Limited (the "Tax Free Division") is a Thai
corporation engaged in the selling various souvenirs and consumer products to
international and local travelers, free from value added tax assessments, in the
international and domestic terminals of all of the major airports located within
Thailand.. The Tax Free Division holds the exclusive operating license granted
by the Airport Authority of Thailand (the "AAT") for all shops of this specific
nature.
Currently the Tax Free Division operates 29 stores within Thailand's major
international and domestic airports, utilizing more than 21,800 square feet of
retail space. There are 19 outlets within the Bangkok International Airport,
where 11 shops are located in the airside departure terminals selling
domestically manufactured general merchandise free of Thailand's
value-added-tax. The landside shops are established in 8 different locations in
the departure and arrival halls of both terminals, also offering general
merchandise including Thai silk, pewter, Benjarong porcelain, Thai dolls,
jewelry, watches, pens, lighters, leather goods and confectioneries, subject to
all taxes imposed by the Thai government.
There are 10 shops located in the domestic terminals of Bangkok,
International Chiang Mai and Phuket Airports, selling indigenous general
merchandise of Thailand, inclusive of all taxes, together with local
specialities.
During the 1997 fiscal year, the Tax Free Division opened an additional 4
outlets in the airside departure terminal of Bangkok International Airport, thus
providing a wider selection of tax free merchandise to the traveling public. The
new shops increased the total retail space by almost 5,000 square feet and
together with an expansion of 1141 square feet in two existing shops in the
airside departure terminal gives the Tax Free Division more than 20,000 square
feet in this airport.
The Company is proud to be an active associate in the promotional campaign
known as "Amazing Thailand" for the years 1998 and 1999. The Tax Free Division
has entered into joint operations with the AAT, the Tourism Authority of
Thailand (the "TAT"), and the Department of Industrial Promotion from the
Ministry of Industry to create two new shops dedicated to the "Amazing Thailand"
campaign.
The Duty Free Division
- ----------------------
King Power Duty Free Company Limited (the "Duty Free Division") is a Thai
corporation engaged in selling duty free merchandise to the traveling public
under the supervision of Thai Customs in duty free shops located in the
international terminals of all of Thailand's major airports. The Duty Free
Division holds the non-exclusive license from the AAT to operate all shops of
this specific nature until December 2001.
5
<PAGE>
The Duty Free Division operates 15 duty free stores, with approximately
21,000 square feet of retail space, within Thailand's major International
Airports in Bangkok, Chiang Mai, Phuket and Hat Yai. The Duty Free Division
controls and operates 50% of the total duty free retail space currently used in
these four airports. The Duty Free Division's merchandise mix consists of top
quality brands name liquor and tobacco products, luxury goods such as watches,
perfumes, cosmetics, fashion accessories, gourmet food and chocolates. In
Thailand all merchandise sold by the Duty Free Division is imported and is
subject to various import duties and governmental taxes when purchased and
consumed in the Thai domestic market. However, the Duty Free Division's goods
are sold to the traveling public free of all import duties, excise taxes and the
value-added-tax imposed by the Thai government.
The Duty Free Division started its operations on January 1, 1997.
Currently, the Duty Free Division is in the process of developing a series of
specialty stores. Harrods of Knightsbridge U.K will be the first of these and is
scheduled to be in operation at the Bangkok International Airport sometime in
the first half of 1998. Additionally, the Company is in the process of
developing specialty stores in 1998 to sell the merchandise of well know fashion
designers such as Ferragamo, Versace, Cartier, Dunhill, Etro, Fendi, Bally,
Lanvin, Givenchy and Celine.
Both the Duty Free Division's and the Tax Free Division's sales and their
overall performance and results are subject to the influence of external
factors, some of which are beyond the Company's control. These include the
distribution of airlines at particular terminals, the routes that are serviced
by those airlines, loading levels of airline passengers, and economic and other
conditions affecting the airlines serving Thailand in general. The Company
strategically manages those factors within its control in order to maximize its
performance and minimize the effects of those that it cannot control. The
Company believes that the devaluation of the Thai Baht, relative to the US
dollar, will encourage an increased level of tourists and travelers to come to
Thailand which should result in a significant positive effect on the Company's
business, as these additional sales should improve the Company's profit levels.
King Power International Group (Thailand) Co. Ltd.
King Power International Group (Thailand) Co., Ltd. is a management company
which provides a variety of management services for the Company and its
subsidiaries and for some privately owned companies located in Thailand.
Regulation
- ----------
Duty Free operations are subject to the regulated supervision of the
Customs Department of Thailand ( "Customs"). All imported merchandise is
received into the Company's bonded warehouses in Thailand where they are exempt
from all import duties, excise taxes and the value-added-tax of Thailand. Since
the merchandise is sold without duties or taxes, it must remain within a bonded
warehouse until it is requested for transfer for sale in the Duty Free stores.
6
<PAGE>
The Company has four bonded warehouses, located in Bangkok, Chiang Mai,
Phuket and Hat Yai, serving all of the Duty Free Division's shops across
Thailand. Transfer of any merchandise from the bonded warehouses must be
documented and approved by Customs before they are sold to the outbound
travelling public at the Company's various outlets. Customs makes regular checks
on the inventory in both the bonded warehouses and shop locations. Subject to
this tightly regulated control from Customs, customers are assured that all of
the merchandise sold by the Company is genuine and of the highest quality
available.
Suppliers, Distribution and Inventory Control
- ---------------------------------------------
The Company purchases both local and imported merchandise from over 550
vendors worldwide. This gives the Company the choice to selectively purchase the
highest quality products and to negotiate the lowest cost, supplying its
customers with the best possible value for their money. The Company does not
have any long-term purchase commitments.
Through the Company's historically strong relationships with many of its
suppliers, the Company has secured exclusive agreements from numerous suppliers
to be the sole agent for the sale of their products in Thailand in the duty free
shops. Furthermore, the Company receives significant sales support from these
vendors. This includes in-store displays, gift-with-purchase items, sales
incentives, advertisements, staff training, signages and sales personnel.
Merchandise is generally shipped directly from vendors to the Company's
bonded warehouses for the Duty Free Division and delivered to the Company's
warehouses at the airport or downtown in Bangkok for the Tax Free Division. The
Company's inventories are strictly controlled to comply with Custom's
regulations. Detailed records documenting the receipt, the transfers and sale of
all merchandise are kept, certifying the authenticity and quality of the
products sold by the Company.
To control inventory levels, the Company uses various automated
replenishment systems. Transfers are made to stores, subject to demand, to
assure fully stocked displays and stockrooms. The Company's computerized
inventory control system allows the Company to: (1) identify the merchandise
needed at each location, (2) promptly reorder this merchandise from the vendors,
and (3) comply with the Custom's record-keeping requirements. Through the
Company's automated system, appropriate product mixes are maintained to maximize
merchandise turnovers. The Company has rarely experienced problems with
obsolescence because most inventories turnover frequently and slow moving
products are quickly identified.
Economic Conditions and Exchange Rates
- --------------------------------------
The principal customers of the Company are the traveling public utilizing
the international and domestic airports of Bangkok, Chiang Mai, Phuket and Hat
Yai. The Company's sales volume and commercial trends closely reflect the
economic conditions of the home countries of the travelers who come to Thailand.
The Company's sales volume and profits may be adversely affected if these
7
<PAGE>
countries experience economic difficulties which might cause the number of
travelers coming to Thailand to decrease. The Company has strategically
confronted the current economic turmoil of the Asia Pacific region with decisive
actions to minimize the negative effects of that turmoil on its operations.
In 1997 the Tax Free Division was able in to maintain, and will be able to
maintain in the future, its operational trends because most of its merchandise
consists of products purchased in local currency. Furthermore, the Tax Free
Division has always been able to sell its merchandise in U.S. dollars. When the
Thai Baht was floated there was a minimal impact on this division's operations
because there was very little difference in the purchasing power of the
customers.
The Duty Free Division imports all of its products from suppliers across
the world and its purchase commitments are tied to either U.S. dollars or
currencies of the originating countries. The Company partially offset the impact
of the weak Thai Baht by adjusting, as often as daily, both the Company's
pricing policy and point of sale exchange rates to reflect the current exchange
rate of the Thai banks. By this policy, the Company tried to minimize both the
realized and unrealized loss of exchange resulting from conducting business in
foreign currencies.
Competition
- -----------
The Company foresees no competition for the Tax Free Division. During the
1997 fiscal year the Company signed the renewal with AAT of the Tax Free
Division's exclusive right to operate and sell gifts and general merchandise at
the Bangkok International Airport for a five year term extending through the
year 2003.
The Company has developed strong relationships with AAT over the years and
as a result of this relationship and the contributions which the Company has
made to increasing tourism to Thailand, the Company believes that the renewal
and extension of the Duty Free Division's exclusive license will be on terms
favorable to the Company.
In Thailand there are restrictions on parties wishing to enter into the
duty free business. An applicant must be of Thai ownership with proven
experience serving the Asia region, particularly the international passengers
and Thai nationals passing through Thailand. The applicant's management must be
comprised of Thai nationals and it must have minimum turnover in related duty
free business. Additionally, the applicant must have its own bonded warehouse
located in Thailand and should already be carrying all major international
brands in its portfolio of merchandise.
Expansion
- ---------
The Company intends to expand the existing operation through acquisitions
and the development of additional retail space. With the expansion program for
the existing Bangkok International Airport and the projected completion of the
Second Bangkok International Airport, tentatively scheduled for 2003, the
Company believes that there will be a significant number of opportunities for
additional expansion and growth of the Company's operations in the near future.
8
<PAGE>
ITEM 2 PROPERTIES
The Company's principal office is located at the 26th and 27th floors of the
Siam Tower, at 989 Rama I Road, Patumwan, Bangkok 10330 Thailand. The telephone
number is 011- (662) 658- 0090. This office which is leased from The Bangkok
Intercontinental Hotels Co., Ltd. contains 29,353 square feet of space and is
leased for three years at an annual cost of $143,013; this lease expires in
October 2000.
The Company operates 44 retail stores located in the international and domestic
airports of Thailand located at Bangkok, Chiang Mai, Phuket and Hat Yai. All of
the stores are leased from the Airport Authority of Thailand (the "AAT") under
varying lease agreements for the Company's two divisions. Under these lease
agreements, the Company is subject to a monthly rental fee for the actual
utilized space. During the 1997 fiscal year the Company paid a total of $814,628
to the AAT. The Company anticipates that the total sum due under these lease
agreements for the 1998 fiscal year will be approximately $931,000..
The Company leases five warehouses containing 30,000 square feet in Bangkok,
Chiang Mai, Phuket and Hat Yai from the AAT; four of these which contain 25,100
square feet of space are bonded warehouses for the Duty Free Division. The
Company owns and occupies 6,886 square feet of warehouse space in Bangkok,
Chiang Mai and Hat Yai which is utilized by the Tax Free Division. The Company
believes its facilities are adequate for its current operations.
All payments with regard to properties are made in Thai Baht. The Company used
the average exchange rate during 1997 of $1US = 33.8825 Thai Baht.
ITEM 3 LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation, or any
litigation which if it were decided against the Company would likely have a
result which would be materially adverse to the Company, its current or future
financial condition, or the Company's present or anticipated methods of
operation.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
<PAGE>
PART II
ITEM 5 MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock trades on the American Stock Exchange under the
ticker symbol "KPG". The approximate number of holders of record of shares of
common stock, excluding the number of beneficial owners whose securities are
held in street name was 359 a February 28, 1998. The Company believes that 624
stockholders currently own and hold the stock in street name.
The following table sets out the high and low reported sales prices for the
common stock as reported by the American Stock Exchange since it was listed on
July 30, 1997:
High Low
---- ---
First Quarter of 1998
(through March 20, 1998) $9.75 $1.19
Fourth Quarter of 1997 $13.38 $12.88
Third Quarter of 1997 $16.75 $12.88
The Company has never paid any cash dividends. Future earnings will be retained
for use in the Company's business. The Company does not intend to pay any cash
dividends on its common stock for the foreseeable future.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(1) Caution Regarding Forward-Looking Information
This annual report contains certain forward-looking statements and information
relating to the Company that are 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
10
<PAGE>
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 of 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.
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 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) incurred an economic and financial
loss as a result of the devaluation and subsequent float of the Thai Baht on the
settlement of accounts in currencies owed other than Thai Baht. To compensate
for this event, KPD intends to establish the point of sale prices of goods in US
Dollars with posted conversion table of other international currencies, which
could be updated as necessary.
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.
King Power International Group (Thailand) Company, Limited (KPIG) was
incorporated on September 11,1997 with no activities until December 31, 1997 as
a cost center for the Company and its affiliates to provide management services
for, and to disburse mainly management charges and rental expenses among, the
various subsidiaries and affiliates of the Company. In KPIG's Statement of
Earnings for the period starting September 11,1997 and ending December 31, 1997,
this company had no income; it had interest expenses of US$25,577 and
administrative expenses of US$90,628. All transactions were recorded in Thai
Baht and were converted to US Dollars using an average exchange rate of 33.8825
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.
The Company's financial statements and all accompanying discussions in this
document are presented in US Dollars
In accordance with generally accepted accounting principles, the Company has
separately presented the following items in its statement of income for the year
ended December 31, 1997:
Realized gain on foreign exchange $2.4 million
Realized loss on foreign exchange $3.3 million
Unrealized gain on foreign exchange $1.4 million
Unrealized loss on Thai Baht devaluatio $1.6 million
Unrealized loss on foreign exc $3.3 million
Unrealized gain on foreign exchange of $1.39 million was due to a US Dollar
denominated management contract in 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
11
<PAGE>
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 Thai Baht 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 $1.39 million, the
figure which appears in the Company's income statement.
The calculation of unrealized foreign exchange losses of $1.63 million and $3.31
million is detailed in the following charts.
The calculation of unrealized loss on foreign exchange due to the Thai Baht
devaluation of US$1,625,558 was calculated on a one-time basis at July 2,1997,
when the Thai government announced the "Managed Float" system to be used on Thai
Baht against other international currencies. This resulted in an immediate
unrealized loss on foreign exchange on financial obligations in international
currencies as shown below:
CALCULATION OF THE UNREALIZED LOSS ON THE THAI BAHT DEVALUATION
Accounts Payable in Foreign Currency at June 30, 1997
<TABLE>
<S> <C> <C>
CURRENCY AMOUNT EXCHANGE RATE TOTAL BAHT EXCHANGE RATE TOTAL BAHT
6/30/97 7/02/97
AUSTRALIAN 163,740.00 19.34 3,166,731.60 22.1099 3,620,275.03
DOLLAR
SWISS FRANC 1,024,436,47 17.83 18,265,702.26 20.0238 20,513,110.99
GERMAN 435,903.82 14.88125 6,486,793.72 16.8435 7,342,145.99
DEUTSCHMARK
FRENCH FRANC 2,997,354.82 4.43 13,278,281.85 4.9756 14,913,638.64
BRITISH 57,725.00 43.075 2,486,504.38 48.4575 2,797,209.19
STERLING
HONG KONG 28,669,997.33 3.34375 95,865,303.57 3.7813 108,409,860.90
DOLLAR
ITALIAN LIRE 18,708,500.00 0.0155 289,981.75 0.0174 325,527.90
US DOLLAR 7,826,397.98 25.84 202,234,123.80 28.9 226,182,901.62
JAPANESE YEN 618,590.00 0.226575 140,157.03 0.256204 158,485.23
SINGAPORE 58,464.80 18.21125 1,064,717.09 20.5398 1,200,855.30
DOLLAR
TOTAL 343,278,297.05 385,464,010.79
BALANCE PER GENERAL LEDGER * 343,260,575.17
EXCHANGE LOSS FROM BAHT DEVALUATION ON ACCOUNTS PAYABLE IN FOREIGN CURRENCY 42,203,435.62
* Detail as shown on 6/30/97 does not match figures in general ledger, however
these were adjusted at year end.
</TABLE>
12
<PAGE>
<TABLE>
Trust Receipts in Foreign Currency at June 30, 1997
<S> <C> <C>
CURRENCY AMOUNT EXCHANGE RATE TOTAL BAHT EXCHANGE RATE TOTAL BAHT
BRITISH 240,990.78 43.075 10,380,677.85 48.4575 11,677,810.72
STERLING
US DOLLAR 2,560,381.06 25.84 66,160,246.59 28.9 73,995,012.63
SINGAPORE 769,688.80 18.21125 14,016,995.16 20.5398 15,809,254.01
DOLLAR
HONG KONG 2,616,192.00 3.34375 8,747,892.00 3.7813 9,892,606.81
DOLLAR
AUSTRIAN 321,244.00 2.13 684,249.72 2.3888 767,387.67
SHILLING
GERMAN 111,856.20 14.88125 1,664,560.08 16.8435 1,884,049.90
DEUTSCHMARK
JAPANESE YEN 2,490,470.00 0.226575 564,278.24 0.2562 638,058.41
FRENCH FRANC 786,754.84 4.43 3,485,323.94 4.9756 3,914,577.38
TOTAL 105,704,223.58 118,578.757.55
BALANCE PER GENERAL LEDGER 105,704,223.58
EXCHANGE LOSS FROM BAHT DEVALUATION ON TRUST RECEIPTS IN FOREIGN CURRENCY 12,874,533.97
ADD:
EXCHANGE LOSS FROM BAHT DEVALUATION ON ACCOUNTS PAYABLE IN FOREIGN CURRENCY 42,203,435.62
TOTAL EXCHANGE LOSS FROM BAHT DEVALUATION AS OF JULY 2, 1997 55,077,969.59
CONVERSION TO US DOLLARS AT 33.8825 BAHT = ONE DOLLAR US$1,625,558.
</TABLE>
The calculation of unrealized loss on foreign exchange of US$3,313,213 was
calculated on accumulated basis with quarterly adjustments on financial
obligations in international currencies, unrealized gain on exchange on accounts
receivable in foreign currencies, and cash on hand in foreign currencies as
shown below:
CALCULATION OF UNREALIZED LOSS ON FOREIGN EXCHANGE AT 12/31/97
Accounts Payable in Foreign Currency at December 31, 1997
<TABLE>
<S> <C>
CURRENCY AMOUNT EXCHANGE RATE AT TOTAL BAHT
12/31/97
AUSTRIAN SHILLING 210,229.64 3.8126 801,521.53
SWISS FRANC 491,262.45 32.8197 8,123,086.23
GERMAN 123,496.23 26.6223 3,287,753.68
DEUTSCHMARK
FRENCH FRANC 767,301.92 7.9839 6,126,061.80
HONG KONG DOLLAR 2,233,307.85 6.1501 13,735,066.61
ITALIAN LIRE 18,708,500.00 0.0275 514,483.75
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
SINGAPORE DOLLAR 181,977.60 28.5054 5,187,344.28
US DOLLAR 5,392,235.36 47.556 256,433.144.78
TOTAL 302,208,462.66
BALANCE PER GENERAL LEDGER 288,920,521.02
EXCHANGE LOSS ON ACCOUNTS PAYABLE IN FOREIGN CURRENCY 13,287,941.64
Trust Receipts in Foreign Currency at December 31, 1997
CURRENCY AMOUNT EXCHANGE RATE 12/31/97 TOTAL BAHT
GERMAN 57,761.20 26.6223 1,537,735.99
DEUTSCHMARK
FRENCH FRANC 2,756,969.44 7.9839 22,011,368.31
BRITISH STERLING 10,400,00 79.0259 821,869.36
HONG KONG 902,656.00 6.1501 5,551,424.67
DOLLAR
ITALIAN LIRE 561,194,465,45 0.0275 15,432,847.80
US DOLLAR 1,828,462.20 47.556 86,954,348.38
SINGAPORE 497,986.80 28.5054 14,195,312.93
DOLLAR
JAPANESE YEN 5,477,907.47 0.3665 2,007,653.09
TOTAL 148,512,560.53
BALANCE PER GENERAL LEDGER 110,446,114.46
Exchange loss from trust receipts in foreign currency 38,066,446.07
ADD: Exchange loss on accounts payable in foreign currency 13,287,941.63
LESS: Exchange gain on accounts receivable in foreign currency (59,590)
LESS: Exchange gain on cash on hand in foreign currency (1,694,208)
TOTAL EXCHANGE LOSS AS OF 12/31/97 49,600,589.82
ADD: Exchange loss as of 9/30/97 117,737,328.98
LESS: Exchange loss from Baht Devaluation as of July 2, 1997 (55,077,970)
NET UNREALIZED EXCHANGE LOSS AS OF 12/31/97 112,259,949.21
CONVERSION TO US DOLLARS AT 33.8825 THAI BAHT = ONE DOLLAR US$3,313,213
</TABLE>
(3) Results of Operations, comparing fiscal years ended December 31, 1997 and
1996
KPD began retail operations in 1997 and the revenue of this subsidiary is a
direct result of the increase in tourists to Thailand as a result of the Thai
Baht devaluation. 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 1997 was approximately $96 million as compared to
approximately $42 million for 1996. This increase is directly attributable to
the factors previously discussed. Additionally, as a result of the Thai Baht
14
<PAGE>
devaluation KPD has changed its retail prices three times or approximately 54%
during 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 directly impact the Company's
operations in a positive manner during 1998 and 1999 and subsequent to this time
period.
Cost of sales for the years ended December 31, 1997 and 1996 were approximately
$38.5 million and $14.5 million, respectively. The factors for this increase
relate 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 amount. In the time period from the year ended December 31, 1996 to the
year ended December 31, 1997, the Company's concession fee as a percentage to
sales revenue dropped from approximately 47.84% in 1996 to approximately 35.77%
in 1997.
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 $4.8 million for 1996 and approximately $8.7
million in 1997. In terms of percentage of sales, 1996 expenses were
approximately 11.5% of sales and 1997 expenses were approximately 9.1% of sales.
The improvement of these expenses as a percentage of sales is attributable to
the effectiveness and efficiency of the Company's sales force through
improvements in training and management supervision.
Administrative expenses for the years ended December 31, 1997 and 1996 were
approximately $3.8 million and $0.9 million, respectively. As a percentage of
total sales, these expenses were approximately 4.0% and 2.2%, 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 year ended December 31, 1997 was approximately $7.9 million,
or $0.40 per share (basic), and approximately $1.6 million, or $0.09 per share
(basic), for the year ended December 31, 1996. However, included as a component
of net income is the cumulative effect of both realized and unrealized gains and
losses from foreign exchange caused charges to operations of approximately $4.4
million or approximately $0.22 per share (basic) for the year ended December 31,
1997.
The ratio of inventory divided by revenue for the years ended December 31, 1997
and 1996 was approximately 13.7% and 16.1%, respectively. This reduction is due
to the significant increase in sales volume during 1997 which exceeded the
inventory level as projected.
(4) Liquidity and Capital Resources
As of December 31, 1997 and 1996, the Company had negative working capital of
approximately $(0.6 million) and $(7.35 million), respectively. The principal
cause of this shortage was the extensive use of short-term bank debt to finance
the increase in inventory and capital expenditures of both KPD and KPT during
1996 and 1997 with the principal use of these resources being inventory
acquisition. Management anticipates improvement in this area as sales continue
to grow and operations mature and stabilize. Furthermore, the Company is
15
<PAGE>
negotiating with its suppliers for more favorable credit terms and with its
financial institutions to convert short-term debt to longer term instruments
concurrent with the expansion of the Company's operations. The Company achieved
positive cash flows from operations of approximately $4.4 million during the
year ended December 31, 1997 as compared to consuming approximately $(2.1
million) in operations during the year ended December 31, 1996. The Company
anticipates that the current positive trend will continue and these funds will
be available to allow for expanded inventory levels, as needed, and to reduce
the borrowings incurred for initial expansion in prior years.
The Company has identified specific needs for capital expenditures related to
(1) its existing airport stores; (2) facilitate potential acquisition of various
management contracts for similar operations in Thailand and other countries
within the Asian market, which remain under negotiation and discussion at this
time; and (3) facilitate 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, the Company 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, in amounts, or
on terms that will be favorable to the Company.
(5) Monetary Assets and Liabilities Denominated in Thai Baht
As of December 31, 1997 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 1,018,285
Accounts Receivable
Trade 404,598
Related Parties 957,061
Refundable value-added-tax 963,528
Directors 1,322,782
Inventories 13,140.356
Other current assets 2,031,855
Restricted deposit 6,465,680
Other non-current assets 4,315,060
TYPE OF MONETARY LIABILITY
Bank overdraft 958,635
Bank loan 1,693,229
Notes payable 423,307
Current portion of installment purchase payable 22,930
Current portion of long-term loan 5,719
Accounts Payable
Unrelated parties 4,469,640
Related parties 590,858
16
<PAGE>
Other accrued liabilities
Concession fees 6,216,070
Other 948,076
Installment purchase payable-net 24,540
Long-term loan-net 202,946
(6) Results of Operations, comparing fiscal years ended December 31, 1996 and
1995.
Sales revenue for 1996 was approximately $42 million, compared to approximately
$26 million for 1995. This increase is attributable to the exemption of the Thai
7% value-added-tax, which had been waived by the government in order to promote
tourism and increase spending on local merchandise in 1996, as well as the
Company's expansion in the shops area in the Bangkok domestic airport and in the
first phase of Terminal 2, a newly constructed area which is part of the
expansion of the Bangkok International Airport.
Cost of sales for the years ended December 31, 1996 and 1995 were approximately
$14.5 million and $10.7 million, respectively. This increase is directly related
to the increased volume of sales of inventory. Further, KPT's concession
agreement with the AAT requires payments based upon fixed amount and a
concession fee on Terminal 2 that is significantly less than the original
concession fee charged on Terminal 1. The Company's concession fee as a
percentage of sales revenue dropped from 58.91% in 1995 to 47.84% in 1996.
Direct selling expenses, excluding depreciation and others, increased as a
result of the significant expansion in the area occupied by the Company's
stores. These expenses were approximately $2.7 million for 1995 and
approximately $4.8 million for 1996. In terms of percentage of sales, 1995
expenses were approximately 10.3% of sales and 1996 expenses were approximately
11.5% of sales. This increase in the percentage of sales is attributable to the
under utilization of the rented space while the stores were being constructed.
Administrative expenses for the years ended December 31, 1996 and 1995 were
approximately $0.9 million and $0.2 million, respectively. As a percentage of
sales, these expenses were approximately 2.2% and 0.9%, respectively.
Administrative expenses have increased 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 year ended December 31, 1996 was approximately $1.6 million,
or $0.09 per share (basic), contrasted to a loss of approximately ($2.6
million), or a loss of ($0.86) per share (basic), for the year ended December
31, 1995. This turnaround resulted directly from the significant increase in
sales revenue achieved by the Company.
(7) Year 2000 Concerns
The Company's existing computer system does not support beyond the year 2000.
Due to the expansion of business and the need to operate more efficiently,
management has decided to change the computer system to fully support the
17
<PAGE>
integration of all systems and all subsidiaries in order to generate centralized
management reports and more effectively control all aspects of the business.
This system is scheduled to be implemented in January 1999. The cost of this
change is not expected to be material.
(8) New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has recently issued Statements
of Financial Accounting Standards ("SFASs") that may affect the Company's
financial statements as follows:
In June 1997, the FASB issued SFAS 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 disclosure 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 Nos. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, that these
standards may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by the
implementation 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.
18
<PAGE>
ITEM 7 INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of the Company (Audited)
F-1 Independent Auditors' Report
F-2 Balance Sheets as of December 31, 1997 and 1996
F-4 Statements of Income for the Years Ended December 31, 1997 and 1996
F-5 Statements of Cash Flows for the Years Ended December 31, 1997 and
1996
F-7 Statements of Changes shareholders's Equity for the Years Ended
December 31, 1997 and 1996
F-8 Notes to Financial Statements
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The accounting firm of Cheshier and Fuller, LLP, the independent
accountants for the Company, was dismissed effective December 12, 1997 as
directed by a vote of the Company's Board of Directors. During the fiscal years
ended December 31, 1995 and 1996, and the interim period subsequent to December
31, 1996, there have been no disagreements with Cheshier and Fuller, LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure or any reportable events. Cheshier and Fuller, LLP's
report on the financial statements for the fiscal year ended December 31, 1996
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
The Company engaged the accounting firm of BDO Binder (Thailand), Ltd. as
independent accountants for the Company effective as of December 12, 1997. The
engagement of BDO Binder (Thailand), Ltd. was approved by the Company's Board of
Directors. During the fiscal years ended December 31, 1995 and 1996, and the
interim period subsequent to December 31, 1996, there have been no consultations
with BDO Binder (Thailand), Ltd. on any matters of accounting principles with
respect to a specific transaction, either completed or proposed, or the type of
audit opinion that might be rendered on the Company's financial statements.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Name Age Position
- ---- --- ------------------------------------
Vichai Raksriaksorn 40 Group Chairman, Chief Executive
Officer and Director
Viratana Suntaranond 57 Group Executive Director, Chief
Financial Officer, Secretary
and Director
Antares Cheng 41 Group Managing Director and Director
Aimon Boonkhundha 41 Deputy Group Managing Director and
Director
Dharmnoon Prachuabmob 64 Director
Suwan Panyapas 54 Director
Benjamin B. Fattedad 55 Director of Development and Director
Each of these persons is also a director of King Power Duty Free Company Limited
and King Power Tax Free Company Limited.
Set forth below is a description of the backgrounds of the executive officers
and directors of the Company.
19
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Vichai Raksriaksorn
- -------------------
1997-Present Group Chairman, Chief Executive Officer and Director of King Power International Group Co., Ltd.
Managing Director of King Power Duty Free Co., Ltd.
Chairman of King Power Development Co., Ltd.
Thai National Dressage Team Manager
Privilege Committee of Thailand Equestrian Federation
1995-Present Chairman of King Power Duty Free (Macau) Co., Ltd.
Chairman of King Power Duty Free (C.B.O.) Limited, Hong Kong
1994-Present Managing Director of Top (China) Group Co., Ltd.
Chairman of King Power International Co., Ltd.
Managing Director of Forty Seven Co., Ltd.
Chairman of Beijing Great Wall (Top) Tourist Services Co., Ltd.
Chairman of V&A Holdings Co., Ltd.
Chairman of Hong Kong Kai Tak International Airport Duty Free Shop Co., Ltd.
1993-Present Chairman of King Power Tax Free Co., Ltd.
Chairman of Capitalux Co., Ltd.
1992-Present Chairman of Lengle (Thailand) Co., Ltd.
1991-Present Chairman of TAT (Phnompenh) Duty Free Co., Ltd.
1989-Present Managing Director of Downtown D.F.S. (Thailand) Co., Ltd.
1989-1991 Managing Director of Europa Prince Downtown Shop, Hong Kong
1989-1990 General Manager/ Duty Free Division of Tourism Authority of Thailand
1984-Present Director of Thai Nishigawa International Co., Ltd.
1980-Present Managing Director of Sriaksorn (1980) Co., Ltd.
Viratana Suntaranond
- --------------------
1997-Present Group Executive Director, Chief Financial Officer, Secretary and Director of King Power
International Group Co., Ltd.
Executive Director and Managing Director of King Power Duty Free Co., Ltd.
1994-Present Director of Big Hand Co., Ltd.
1993-Present Managing Director of King Power Tax Free Co., Ltd.
1992-Present President of U.M.P. Commercial Co., Ltd.
1989-1990 Managing Director of Airport Duty Free Co., Ltd., Bangkok, Chieng Mai, Phuket, Hat Yai
International Airport
1987-1990 Managing Director of D&TFS Co., Ltd. (Bangkok International Airport General Merchandise &
Gifts)
Managing Director of Ratana Phan Co., Ltd. (Bangkok International & Domestic Airport Car Park
Business)
1985-Present President of Niji (Thailand) Co., Ltd., (manufacturer of writing instruments)
1984-Present Managing Director of Thai-Tai International Trading Co., Ltd.
1984-1986 Owner & Director of Ratana Pat Company (Bangkok International Airport Merchandise & Gifts)
1973-1983 Owner & Director of P.C. Thai Silk Shop and V.R. Shop (Bangkok International & Domestic Airport
General Merchandise & Gifts)
1972-1968 Brand Manager (Marketing) of Kimberly-Clark and A. Wander Product, Diethelm Co., Ltd.
Antares Cheng
- -------------
1997-Present Group Managing Director and Director of King Power International
Group Co., Ltd.
1995-Present Managing Director of Hong Kong Kai Tak International Airport
Duty Free Shop Co., Ltd.
General Manager of King Power Duty Free (Macau) Co., Ltd.
20
<PAGE>
1994-Present Director of China Ferry Terminal GM Shop
1993-Present Managing Director of Top Group (Thailand) Co., Ltd.
1992-Present Managing Director of King Power Group
Deputy Managing Director of Downtown DFS (Thailand) Co., Ltd.
1990-Present Director of TAT Phnom Penh Duty Free Co., Ltd., Cambodia
Shareholder, Director and General Manager of Europa Prince
Department Store
1989-Present Managing Director of Railway Duty Free, Hong Kong
1989-1990 Director of Europa Prince Department Store, Hong Kong
1987-1988 Deputy General Manager in the Hong Kong Airport Duty Free Shop.
1986-Present Managing Director of Group Central Buying Office
1979-1989 Overall in charge of China Duty Free Shops
1978-1982 Manager in charge of a Tourist Department Store in Merchandising Department.
1976-1978 Manager of an International Professional Firm of Accountants.
Aimon Boonkhundha
- -----------------
1997-Present Deputy Group Managing Director and Director of King Power International Group Co., Ltd.
1996-Present Executive Director of King Power Duty Free Co., Ltd.
1994-Present Executive Director of Beijing Great Wall (Top Tourist Service Co., Ltd.)
1993-Present Director of King Power Tax Free Co., Ltd.
Executive Director of TAT Phnom Penh Co., Ltd.
1989-1990 Managing Director of Tourism Authority of Thailand (TAT) Duty
Free Co., Ltd.
1989-Present Managing Director of Thai Nishigawa International Co., Ltd.
1983-1989 Director of Thai Nishikawa International Co., Ltd.
Suwan Panyapas
- --------------
1997-Present Director of King Power International Group Co., Ltd.
1991-Present Advisor to TAT Duty Free Co., Ltd.
1989-Present Advisor & Shareholder of Downtown DFS (Thailand) Co., Ltd.
1989-1991 Managing Director of TAT Duty Free Co., Ltd.
1988-1989 General Manager of TAT Duty Free Co., Ltd.
1986 Senior Chief Judge of Thonburi Civil Court.
Acting in the position of Court of Appeal Judge.
Assistant to Court of Appeal Judge.
1983 Secretary to Court of Appeal.
1981 Chief Judge of Udon Thanee District Court.
1980 Acting in the position of Civil Court Judge.
1978 Chief Judge attached to the Ministry of Justice.
Acting in the position of Chief Judge of Pathumthanee Court.
Acting in the position of Secretary to Supreme Court Judge.
Acting in the position of Juvenile Court Judge.
1976 Provincial Judge of Pathumthanee Court.
1972 Provincial Judge of Ubon Rachathanee Court.
Special Positions held include:
o Member of Committee Training Successful Candidates appointed to Juvenile
Court.
o Member of Sub-Committee on the Development of Judicial and Ministerial
System.
o Member of Committee/Secretary on Selection Test for Judicial Officer for a
position of Judge Trainee in 1983- 1984.
21
<PAGE>
o Committee Member for organizing events on legal matters, Public Relations
Division and Ministry of Justice.
Dharmnoon Prachuabmoh
- ---------------------
1987-Present Director of King Power International Group Co., Ltd.
Life Member, Pacific Asia Travel Association (PATA)
1995-1996 Member of Thai Parliament, House of Representatives
Advisor to Deputy Minister, Ministry of Communications and Transport
Vice Chairman, Tourism Committee
1988-1995 President of Thailand Incentive and Convention Association (TICA)
1988-1989 President of Pacific Asia Travel Association
1987-1988 Member of National Legislative Council
President of East Asia Travel Association (EATA)
Vice President of Pacific Asia Travel Association
Secretary of Ad hoc Committee on Tourism and Sports
1986-1994 Governor of the Tourism Authority of Thailand (TAT)
1986-1991 Senator of Thai National Assembly
Secretary of Ad hoc Committee on Tourism Promotion of the Senate
Member of Committee on Education and Culture
1986-1988 Board of Directors of Pacific Asia Travel Association
1985-1986 Chairman of International Congress and Convention Association
(ICCA-Thailand National Committee)
1983-1985 Chairman of International Congress and Convention Association
(ICCA-Asia Pacific Chapter)
1979-1986 Deputy Governor Tourism Authority of Thailand (TAT)
1974-1976 Deputy Director General, Tourism Organization of Thailand (TOT)
Benjamin B. Fattedad
- ---------------------
1997-Present Group Director of Development and Director of King Power International Group Co., Ltd.
Director of Hong Kong Kai Tak International Airport Duty Free Shop Co., Ltd.
Director of King Power Alpha Limited
1995-1997 Advisor of Hong Kong Kai Tak International Airport Duty Free Shop Co., Ltd.
1993-Present Advisor of Top (China) Group Co., Ltd.
1990-Present Director of Grosse Hong Kong Ltd.
1989-1990 Shareholder of Europa Prince Department Store, Hong Kong
1989-1995 Consultant of TAT Duty Free Co., Ltd., Thailand
Managing Director of Deveg Ltd.
1980-1994 Consultant, Singapore Crocodilarium & Tourist oriented department Store, Singapore
1972-1994 Consultant of Kaiyo Reptile Pte, Ltd., Singapore
1967-1989 Director of Deveg Ltd.
1962-Present Director, Reliance Trading Co., Ltd.
</TABLE>
All directors of the Company hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified. Vichai
Raksriaksorn and Aimon Boonkhundha are husband and wife. None of the other
directors or executive officers are related. Executive officers are elected by
the Company's Board of Directors to hold office until their respective
successors are elected and qualified.
The Company's bylaws provide that directors may be paid their expenses, if any.
Directors are not paid an annual retainer and in 1997 were paid $6,800 each to
attend meetings of the Board of Directors or of its committees. All directors
attended 100% of the Board meetings held in 1997.
22
<PAGE>
Committees of the Board of Directors
The Board of Directors has two committees: the Audit Committee and Compensation
Committee. The Audit Committee is composed of Vichai Raksriaksorn, Suwan
Panyapas and Dharmnoon Prachuabmob and Mr. Raksriaksorn is Chairman. The Audit
Committee is responsible for recommending the annual appointment of the
Company's auditors, with whom the Audit Committee will review the scope of audit
and non-audit assignments and related fees, accounting principals used by the
Company in financial reporting, internal auditing procedures and the adequacy of
the Company's internal control procedures. The Compensation Committee is
composed of Vichai Raksriaksorn, Viratana Suntaranond, and Antares Cheng and Mr.
Raksriaksorn is Chairman. The Compensation Committee is responsible for
reviewing and making recommendations to the Board of Directors concerning all
forms of compensation paid to the Company's executive officers.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely on the review of Forms 3,4 and 5 and amendments thereto provided to
the Company pursuant to Rule 16a- 3(e), no individuals have failed to file on a
timely basis the reports required to be filed under that rule or as required by
Section 16(a) of the 1934 Act during the period from the date that the Company's
Common Stock was registered under Section 12 of the Securities Exchange Act of
1934, as amended, to December 31, 1997 except that the following individuals
failed to file a Form 3 report with the Securities and Exchange Commission until
March 19, 1998: Vichai Raksriaksorn, Viratana Suntaranond, Aimon Boonkhundha,
Antares Cheng, Benjamin B. Fattedad, Suwan Panyapas, and Dharmnoon Prachuabmoh.
ITEM 10 EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information about
the cash and non-cash compensation paid by the Company to its four most highly
compensated Executive Officers for the fiscal years ended December 31, 1995,
1996 and 1997. None of the Company's other executive officers and directors
received cash or non-cash compensation in excess of $100,000 for any of these
fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C> <C>
Annual Compensation Long Term Compensation
----------------------------- -----------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Year Salary Bonus Other Restricted Option/ LTIP All Other
& Title Annual Stock SARs(#) Payouts Compensat
Compensation Awards ion
Vichai 1997 480,000 - 6,800 - - - -
Raksriaksorn 1996 220,000 - - - - - -
Group Chairman 1995 220,000 - - - - - -
& CEO
23
<PAGE>
Viratana 1997 250,000 - 6,800 - - - -
Suntaranond 1996 120,000 - - - - - -
Executive 1995 120,000 - - - - - -
Director & CFO
Antares Cheng 1997 200,000 - 6,800 - - - -
Group 1996 100,000 - - - - - -
Managing 1995 100,000 - - - - - -
Director
Aimon 1997 140,000 - 6,800 - - - -
Boonkhundha 1996 - - - - - - -
Deputy Group 1995 - - - - - - -
Managing
Director
</TABLE>
The Company has no employment contracts with any of its executive officers or
directors.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of March 15, 1998 with
regard to the beneficial ownership of Common Stock (i) by each person known to
the Company to be a beneficial owner of 5% or more of its outstanding Common
Stock, (ii) by the officers, directors and key employees of the Company
individually and (iii) by the officers and director as a group.
<TABLE>
<S> <C>
(1) (2) (3)
Name and Address Number of Shares Beneficially Owned Percent
- ------------------------ ----------------------------------- -------
Vichai Raksriaksorn (1) 5,248,000 (1) 25.92%
Viratana Suntaranond (2) 3,000,000 (2) 14.81%
Aimon Boonkhandha (3) 3,000,000 (3) 14.81%
Antares Cheng 100,000 *
Benjamin B. Fattedad 90,000 *
Suwan Panyapas -0- *
Dharmnoon Prechuabmoh -0- *
Niphon Raksriaksorn (4) 1,037,883 (4) 5.13%
TOTAL: 8 persons 12,475,883 (1)(2)(3)(4) 61.61%
</TABLE>
* less than 1 %
(1) This excludes 3,000,000 shares owned by his wife, Aimon Boonkhundha, as her
separate property. Mr. Raksriaksorn disclaims all beneficial interest in those
shares, as well as any right to vote or control the disposition of those shares.
24
<PAGE>
(2) This excludes 1,000,000 shares owned by his wife, Umaratana Suntaranond, as
her separate property, as well as 150,000 shares in the aggregate owned by his
three children. Mr. Suntaranond disclaims all beneficial interest in those
shares, as well as any right to vote or control the disposition of those shares.
(3) This excludes 5,248,000 shares owned by her husband, Vichai Raksriaksorn, as
his separate property, as well as 5,000 shares owned by her mother, Auemporn
Boonkhant. Ms. Boonkhundha disclaims all beneficial interest in those shares, as
well as any right to vote or control the disposition of those shares.
(4) This excludes 5,248,000 shares owned by his uncle, Vichai Raksriaksorn. Mr.
Niphon Raksriaksorn disclaims all beneficial interest in those shares, as well
as any right to vote or control the disposition of those shares.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following companies, which are owned or controlled by one or more of the
directors of the Company, had transactions with the Company during the 1997
fiscal year and are likely to have similar transactions with the Company in the
future. All transactions were on terms and conditions and at prices
substantially similar to those which these companies would have negotiated with
unrelated third parties for the same goods and services.
Thai Nishigawa International Co., Ltd.
Mr. Vichai Raksriaksorn and Ms. Aimon Boonhkundha are Director and Managing
Director, respectively, and owners of this company, which sells local and
imported merchandise of various categories, such as Thai silk, costume jewelry
and leather goods, to King Power Tax Free Co., Ltd. The related transaction
amount for 1997 was $278,056.
Lengle (Thailand) Co., Ltd.
Mr. Vichai Raksriaksorn is the Chairman and Mr. Suwan Panyapas is a Director of
this company. Along with Mr. Viratana Suntaranond, Mr. Antares Cheng and Ms.
Aimon Boonhkundha, they are stockholders of this company which acts as a Central
Buying Office of local merchandise which is sold to King Power Tax Free Co.,
Ltd. The related transaction amount for 1997 was $721,673.
Thai Sky Travel & Intertrade Co., Ltd.
Messrs. Vichai Raksriaksorn, Viratana Suntaranond, Antares Cheng and Dharmnoon
Prachuabmoh are the directors and owners of this company which sells most of the
travel services which are used by the Company's management. The related
transaction amount for 1997 was $125,892.
25
<PAGE>
King Power Duty Free (C.B.O.) Limited, Hong Kong
Mr. Vichai Raksriaksorn is the Chairman and Mr. Antares Cheng is the Managing
Director and they are owners of this company which sells a substantial amount of
imported merchandise to the Company. The related transaction amount for 1997 was
$8,935,924.
Niji (Thailand) Co., Ltd.
Mr. Viratana Suntaranond is the President and owner of this company which sells
all of the shopping bags which the Company uses. The related transaction amount
for 1997 was $119,006.
Airport Authority of Thailand (AAT)
AAT is a governmental agency and it owns five percent of the stock of King Power
Duty Free Co., Ltd. In its capacity as a governmental agency and following the
rules and procedures established by the government of Thailand, it has granted
the concessions and leases under which both King Power Duty Free Co., Ltd. and
King Power Tax Free Co., Ltd. operate. (See BUSINESS, Organization and
Operations, above.) AAT received all of the rent payments ($814,629 during the
1997 fiscal year) which are paid for the 44 retail stores located in the
international and domestic airports in Thailand which are operated by the
Company, as well as the Company's bonded warehouses. (See PROPERTIES, above.)
26
<PAGE>
PART IV
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
Documents filed as a part of this report
(A) Exhibits:
3.1 Charter of the Company(2)
3.2 By-Laws of the Company(2)
4.1 All loan agreements with lenders(2)
4.2 Copies of all promissory notes, debentures or similar evidences of
indebtedness(2)
10.1 Significant contracts(2)
21.1 List of all Subsidiaries (1)
27.1 Financial Data Schedule (1)
Notes:
(1) Filed herewith
(2) To be filed by amendment
(B) Reports on Form 8-K
The Company filed the following reports with the SEC on Form 8-K:
(a) August 18, 1997, reporting the completion of the sale of 250,000
shares of common stock in a private placement.
(b) December 12, 1997, reporting a change in Company's independent
accountants, with BDO Binder (Thailand) Ltd. replacing Cheshier and
Fuller, LLP.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 30th day of
March,1998.
KING POWER INTERNATIONAL GROUP CO., LTD.
By: /s/ Vichai Raksriaksorn
------------------------
Vichai Raksriaksorn
Group Chairman, Chief Executive Officer and Director
By: /s/ Viratana Suntaranond
-------------------------
Viratana Suntaranond, Group Executive Director,
Chief Financial Officer, Secretary, Director and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Vichai Raksriaksorn Group Chairman, Chief Executive March 30, 1998
------------------- Officer and Director
Vichai Raksriaksorn
/s/ Viratana Suntaranond Group Executive Director, Chief March 30, 1998
-------------------- Financial Officer, Secretary and Director
Viratana Suntaranond
/s/ Antares Cheng
-------------------- Group Managing Director March 30, 1998
Antares Cheng and Director
28
<PAGE>
/s/ Aimon Boonkhundha Deputy Group Managing March 30, 1998
--------------------- Director and Director
Aimon Boonkhundha
/s/ Director March , 1998
---------------------
Dharmnoon Prachuabmoh
/s/ Suwan Panyapas Director March 30 , 1998
---------------------
Suwan Panyapas
/s/ Group Director of Operations March , 1998
-------------------- and Director
Benjamin B. Fattedad
29
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors and Shareholders of
King Power International Group Co., Ltd.
We have audited the accompanying consolidated balance sheets of King Power
International Group Co., Ltd. (the "Company") as of December 31, 1996 and 1997
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, financial position of King Power International
Group Co., Ltd. as of December 31, 1996 and 1997 and the results of its
operations, the changes in its shareholders' equity and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America applied on a consistent basis.
/s/ BDO Binder (Thailand) Ltd.
- -------------------------------
BDO Binder (Thailand) Ltd.
BANGKOK
February 27, 1998
F-1
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
Note 1996 1997
US$ US$
ASSETS
Current Assets
Cash and cash equivalents 1,139,203 1,316,880
Trade accounts receivable 73,335 429,104
Trade accounts receivable - related companies 7 -- 602,115
Management fee receivable - related company 7 -- 2,174,893
Refundable value added tax 4 922,619 963,528
Advance for duty free goods 333,711 --
Advance for office and shop improvement 512,888 --
Advance to related companies 7 74,161 2,315,946
Advance to directors 5 1,876,164 1,322,782
Merchandise inventories - net 6 6,752,715 13,140,356
Deferred income tax assets 8 -- 874,465
Interest receivable - related companies 7 -- 101,811
Interest receivable -- 594,814
Other current assets 371,782 460,765
---------- ----------
Total current assets 12,056,578 24,297,459
Investments in other companies 9 249,875 115,773
Investment in marketable securities (trading) 3 39,032 21,165
Property, plant and equipment - net 10 1,750,935 3,402,452
Restricted fixed deposits 11 9,547,452 6,465,680
Deposit with related company 7, 12 -- 634,961
Other long-term assets 98,240 140,709
TOTAL ASSETS 23,742,112 35,078,199
========== ==========
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 31,
--------------------
Note 1996 1997
US$ US$
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft 13 937,804 958,635
Bank loan 14 3,903,201 4,836,552
Notes payable 15 1,749,763 423,307
Current portion of installment purchase
payable 16 63,488 22,930
Current portion of long-term loan 17 -- 5,719
Trade accounts payable - related companies 7 1,410,695 590,858
Trade accounts payable 9,640,775 10,913,560
Advance from related companies 7 685,012 --
Leasehold improvements payable 457,552 --
Accrued concession fee -- 6,216,070
Accrued expenses 361,333 469,184
Other current liabilities 198,229 478,892
---------- ----------
Total current liabilities 19,407,852 24,915,707
Installment purchase payable - net 16 55,010 24,540
Long-term loan-net 17 -- 202,946
---------- ----------
Total liabilities 19,462,862 25,143,193
Minority interest 1 351,964 170,712
Commitments and contingencies 19
Shareholders' Equity 18
Common stock - $0.001 par value.100,000,000
shares authorized 18,800,000 and 20,250,000
share issued and outstanding at December 31,
1996 and 1997,respectively 18,800 20,250
Additional paid in capital 18,962,595 20,848,145
Retained earnings (Deficit) (15,564,597) (7,629,761)
Translation adjustments 510,488 (3,474,340)
---------- -----------
Total shareholders' equity 3,927,286 9,764,294
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 23,742,112 35,078,199
=========== ==========
0 0
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
---------------------------
Note 1996 1997
US$ US$
Sales revenue 41,869,197 95,996,663
Cost of sales :
Cost of merchandise sold 7 14,453,584 38,504,886
Concession fee 20,032,406 34,337,536
---------- ----------
Total cost of sales 34,485,990 72,842,422
---------- ----------
Gross profit 7,383,207 23,154,241
Operating expenses :
Selling expenses
Sales salaries and welfare 4,275,589 7,247,795
Rental and service fee and other expenses
under the concession agreement 540,354 1,443,408
Depreciation 180,831 779,002
Others 369,559 1,362,045
---------- ----------
Subtotal 5,366,333 10,832,250
Administrative expenses 906,746 3,789,022
---------- ----------
Total operating expenses 6,273,079 14,621,272
---------- ----------
Income from operation 1,110,128 8,532,969
Other income:
Interest income - related company 7 -- 141,969
Interest income 592,317 1,684,794
Realized gain on foreign exchange 464,743 2,434,005
Unrealized gain on foreign exchange -- 1,385,203
Management fee income 7 -- 1,647,548
Other income 5,177 305,788
---------- ----------
Total other revenues 1,062,237 7,599,307
---------- ----------
Other expenses:
Interest expenses 539,337 1,226,176
Realized loss on foreign exchange -- 3,252,492
Unrealized loss on foreign exchange
due to Baht devaluation -- 1,625,558
Unrealized loss on foreign exchange -- 3,313,213
Loss in investment in other companies 2,993 27,503
Loss in investment in marketable
securities (trading) 26,764 --
---------- ----------
Total other expenses 569,094 9,444,942
---------- ----------
Net income before income tax 1,603,271 6,687,334
Income tax benefit 8 -- 1,219,387
---------- ----------
Net income before minority interest 1,603,271 7,906,721
Loss shared by minority interest 39,517 28,115
---------- ----------
========== ==========
Net income attributed to common shares 1,642,788 7,934,836
========== ==========
Weighted average number of common shares
outstanding 18,800,000 19,779,011
Basic earnings per share 0.09 0.40
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
--------------------------
Note 1996 1997
US$ US$
Cash flows from operating activities :
Net income 1,642,788 7,934,836
Adjustments to reconcile net income to
net cash provided (used) by operating
activities
Depreciation 180,831 779,002
Unrealized loss on foreign exchange -- 4,938,771
Unrealized gain on foreign exchange -- (1,385,203)
Provision for damage stock -- 743,747
Provision for devaluation in investment
in other company 2,993 27,503
Provision for devaluation in investment
in marketable securities 26,764 --
Deferred tax assets -- (874,465)
Minority interest-income statement impact (39,517) (28,115)
Decrease (increase) in operating assets :
Trade accounts receivable - related
companies -- (602,115)
Trade accounts receivable (73,335) (354,010)
Refundable valued added tax (922,619) (40,909)
Advance for duty free goods (333,711) 333,711
Advance for office and shop
improvement (512,888) 512,888
Advance to related companies (74,161) (2,241,785)
Advance directors (1,876,164) 553,382
Inventories (6,115,974) (5,803,278)
Management fee receivable-related company -- (789,690)
Interest receivable -- (696,625)
Other current assets (371,782) (88,983)
Increase (decrease) in operating liabilities:
Trade accounts payable-Related companies 216,810 (889,937)
Trade accounts payable 6,742,039 (2,969,378)
Advance from related companies 685,012 (685,012)
Leasehold improvements payable 457,552 (457,552)
Advance from director (2,432,067) --
Accrued concession fee -- 6,216,070
Accrued expenses 361,333 107,851
Other current liabilities (49,652) 280,663
Minority interest-balance sheet impact 394,615 (153,137)
--------- ---------
Net cash provided (used) by operating
activities (2,091,133) 4,368,230
--------- ---------
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year ended December 31,
------------------------
Note 1996 1997
US$ US$
Cash flows from investing activities :
Reduction in investment in other
company 4,292 106,599
Reduction in investment in marketable
security 897 17,867
Purchase of fixed assets (1,476,670) (2,430,519)
Addition in deposit with related
company - (634,961)
Addition in long-term
assets (38,573) (42,469)
--------- ---------
Net cash provided (used) by
investing activities (1,510,054) (2,983,483)
--------- ---------
Cash flows from financing activities :
Proceeds (repayment) in bank
overdrafts 575,267 20,831
Proceeds (repayment) from bank
loan 3,903,201 (1,072,033)
Proceeds (repayment) from note
payable 1,749,763 (1,326,456)
Proceeds (repayment) from installment
purchase payable 118,498 (71,028)
Proceeds from long-term
loan - 208,665
Capital injection in KPD 7,360,455 -
Net proceeds from Regulation S
issuance 18 (d) - 1,887,000
Translation adjustment 125,384 (3,984,828)
---------- ---------
Net cash provided (used) by
financing activities 13,832,568 (4,337,849)
---------- ---------
Effect of exchange rate changes on cash - 49,007
Decrease (Increase) in restricted fixed
deposit (9,547,452) 3,081,772
---------- ---------
Net increase in cash and cash equivalents 683,929 177,677
Cash and cash equivalents-beginning of
years 455,274 1,139,203
---------- ---------
Cash and cash equivalents-end of years 1,139,203 1,316,880
========== =========
Supplemental cash flow information
Cash paid during the period:
Interest paid 539,337 588,403
Income taxes paid - -
Non-cash transaction:
Common stock - 1,200
Additional paid-in capital - (1,200)
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND 1997
<S> <C> <C> <C> <C>
Common Stock
---------------------------- Additional Retained Translation
Note Shares Amount Paid in Earnings Adjustments Total
Capital
----------- ------------ --------- ----------- ----------- ----------- ----------
US$ US$ US$ US$ US$
Balance, January 1, 1996 18 (a) (b) 18,800,000 18,800 11,602,130 (17,207,385) 385,104 (5,201,351)
Initial investment in King Power
Duty Free at 2/26/96 -- -- 7,360,465 -- -- 7,360,465
Net income (loss) -- -- -- 1,642,788 -- 1,642,788
Translation adjustments -- -- -- -- 125,384 125,384
----------- --------- ----------- ----------- --------- ----------
Balance, December 31, 1996 18,800,000 18,800 18,962,595 (15,564,597) 510,488 3,927,286
Recapitalization at June 12, 1997 18 (c) 1,200,000 1,200 (1,200) -- -- --
Regulation S issuance at
August 19, 1997 18 (d) 250,000 250 1,886,750 -- -- 1,887,000
Net income (loss) -- -- -- 7,934,836 -- 7,934,836
Translation adjustments -- -- -- -- (3,984,828) (3,984,828)
=========== ======== ========== ========== ========= ==========
Balance, December 31, 1997 20,250,000 20,250 20,848,145 (7,629,761) (3,474,340) 9,764,294
=========== ======== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO 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.
F-8
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO 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 first-in and first-out basis.
F-9
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO 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 each year 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
year. Translation adjustments arising from the use of different exchange rates
from period to period are included in the cumulative translation adjustment
account in shareholders' equity. Gains and losses resulting from foreign
currency transactions are included in operations.
On July 2, 1997, Thailand government announced the change of foreign
currency conversion to a "Managed Float" system resulting in the requirement for
business enterprises to adjust the value of assets and liabilities denominated
in foreign currencies accordingly thereafter. Consequently, the loss of
US$1,625,558 arising from the change of foreign currency conversion under the
"Managed Float" system was presented in the consolidated statement of income.
The exchange rates as of December 31, 1996 and 1997 are $1 = Thai Baht
25.62 and Baht 47.247, respectively. The average rate of exchange during 1996
and 1997 are $1 = Thai Baht 25.4075 and Baht 33.8825, 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.
F-10
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
F-11
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO 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.
F-12
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO 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 Not Yet Adopted
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. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
Reclassification of Accounts
Certain accounts in the 1996 financial statements were reclassified to
conform with the 1997 financial statement presentation
F-13
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 - INVESTMENT IN MARKETABLE SECURITIES (TRADING )
1996 1997
---- ----
US$ US$
At Cost........................................................ 78,064 42,330
Loss on decline in market value of investment..................(39,032) (21,165)
Net investment in mutual fund......................... 39,032 21,165
====== ======
On May 23, 1995, King Power Tax Free Co., Ltd. (KPT) acquired 200,000
investment units of Bangkok Metropolitan Fund, equivalent to 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 was no disposal of investment in 1997. The reduction 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
Advance to directors bears an interest rate ranging from 14.5% to 17.5% per
annum and is due on demand.
NOTE 6 - MERCHANDISE INVENTORIES
Merchandise inventories are summarized as follows :
1996 1997
---- ----
US$ US$
Merchandise 6,752,715 13,673,723
Less : Provision for damaged stock - (533,367)
---------------------
6,752,715 13,140,356
========= ==========
F-14
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 - RELATED PARTY TRANSACTIONS
<S> <C>
1996 1997
---- ----
US$ US$
Trade account receivable - related companies
Downtown D.F.S. (Thailand) Co., Ltd. -- 164,104
King Power International Co., Ltd. (World Trade Center) -- 438,011
Management fee receivable - related company
Downtown D.F.S. (Thailand) Co., Ltd. -- 2,174,893
Advance to related companies
47 Co., Ltd. -- 345,382
King Power Duty Free (CBO) Ltd. -- 9,226
King Power International Co., Ltd. (World Trade Center) -- 1,961,338
Downtown D.F.S. (Thailand) Co., Ltd. 74,161 --
Interest receivable - related companies
47 Co., Ltd. -- 31,974
Downtown D.F.S. (Thailand) Co., Ltd. -- 69,837
Deposit with related company
Downtown D.F.S. (Thailand) Co., Ltd. -- 634,961
Trade accounts payable - related company
Lengle (Thailand) Co., Ltd. 1,284,554 310,774
King Power Duty Free (CBO) Ltd. 126,141 280,084
Advance from related companies
Lengle (Thailand) Co., Ltd. 390,320 --
47 Co., Ltd. 177,596 --
Top China Group Co., Ltd. 117,096 --
Management fee income
Downtown D.F.S. (Thailand) Co., Ltd. -- 1,647,548
Interest income - related companies
47 Co., Ltd. -- 44,586
Downtown D.F.S. (Thailand) Co., Ltd. -- 97,383
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 - RELATED PARTY TRANSACTIONS
<S> <C>
1996 1997
---- ----
US$ US$
Trade account receivable - related companies
Downtown D.F.S. (Thailand) Co., Ltd. -- 164,104
King Power International Co., Ltd. (World Trade Center) -- 438,011
Management fee receivable - related company
Downtown D.F.S. (Thailand) Co., Ltd. -- 2,174,893
Advance to related companies
47 Co., Ltd. -- 345,382
King Power Duty Free (CBO) Ltd. -- 9,226
King Power International Co., Ltd. (World Trade Center) -- 1,961,338
Downtown D.F.S. (Thailand) Co., Ltd. 74,161 --
Interest receivable - related companies
47 Co., Ltd. -- 31,974
Downtown D.F.S. (Thailand) Co., Ltd. -- 69,837
Deposit with related company
Downtown D.F.S. (Thailand) Co., Ltd. -- 634,961
Trade accounts payable - related company
Lengle (Thailand) Co., Ltd. 1,284,554 310,774
King Power Duty Free (CBO) Ltd. 126,141 280,084
Advance from related companies
Lengle (Thailand) Co., Ltd. 390,320 --
47 Co., Ltd. 177,596 --
Top China Group Co., Ltd. 117,096 --
Management fee income
Downtown D.F.S. (Thailand) Co., Ltd. -- 1,647,548
Interest income - related companies
47 Co., Ltd. -- 44,586
Downtown D.F.S. (Thailand) Co., Ltd. -- 97,383
Sales
Downtown D.F.S. (Thailand) Co., Ltd. -- 266,862
King Power international Co., Ltd. (World trade Center) -- 986,528
</TABLE>
F-15
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continues)
NOTE 7 - RELATED PARTY TRANSACTIONS (Continued)
1996 1997
---- ----
Purchasing
Lengle (Thailand) Co., Ltd. 528,559 721,673
King power Duty Free (CBO) Ltd. 127,196 7,882,021
Thai Nishigawa International Co., Ltd. 112,190 278,056
Thai Sky Travel & Intertrade Co., Ltd. - 125,892
Niji (Thailand) Co., Ltd. - 119,006
Trade accounts payable
Thai Nishigawa International Co., Ltd. 45,157 32,077
Thai Sky Travel & Intertrade Co., Ltd. - 1,870
Niji (Thailand) Co., Ltd. - 19,901
Accrued concession fee
Airport Authority of Thailand - 6,216,070
Concession fee
Airport Authority of Thailand 20,032,406 34,337,536
Rental, Service fee and other expenses under concession
agreement
Airport Authority of Thailand 540,354 1,443,408
Advance to / from related companies represents advance for operation fund.
Such advances are interest free in 1996 and bear interest rate ranging from
14.5% to 17.5% per annum in 1997 and are due on demand.
F-16
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO 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 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 :
<TABLE>
<S> <C> <C>
1996 1997
---- ----
US$ US$
Statement of income
Current income tax 784,329 2,626,660
Usage of operating loss carry-forward (784,329) (2,626,660)
Deferred income tax asset
- Temporary difference 20,052 264,166
- Net operating loss carry-forward 4,589,205 955,221
---------- ----------
4,609,257 1,219,387
Less : Valuation allowance (4,609,257) --
---------- ----------
-- 1,219,387
========== ==========
Balance sheet
Deferred income tax asset -- 874,465
========== ==========
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.
1996 1997
---- ----
Standard income tax rate 30.00% 30.00%
Usage of operating loss carry-forward (30.00%) (30.00%)
Usage of temporary difference (1.25%) (3.95%)
Recognition of net operating loss carry-forward (286.24%) (14.28%)
Less : Valuation allowance 287.49% --
------- ------
Effective income tax rate -- (18.23%)
======= ======
</TABLE>
F-17
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO 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 the net
deferred tax assets and liabilities and their approximate tax effects are as
follows :
1996 1997
---- ----
US$ US$
Provision on damaged stock - 223,124
Provision for devaluation of investment 20,052 41,042
------ -------
Deferred income tax asset - temporary differences 20,052 264,166
====== =======
Also, the net operating losses carry-forward amounts give rise to the
deferred income tax assets and their approximate effects are as follows :
As at December 31, 1996
<TABLE>
<S> <C>
Loss/(profit) Loss used Loss available for future use
Year Subsidiaries incurred 1996 at December 31, 1996
---- ------------ ------------------ ---- ---------------------
US$ US$ US$
1992 KPT 7,386 (7,386) -
1993 KPT 7,104,134 (2,607,045) 4,497,089
1994 KPT 7,314,276 - 7,314,276
1995 KPT 2,674,781 - 2,674,781
1996 KPT (2,614,431) - -
KPD 811,203 - 811,203
------------ ------------ ------------
15,297,349 (2,614,431) 15,297,349
============ =========== ==========
Deferred income tax asset
- usage of operating loss carry-forward (784,329)
=============
- net operating loss carry-forward 4,589,205
===========
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 1997
<S> <C> <C>
Loss/(profit) Loss used Loss available for future use
Year Subsidiaries incurred 1996 1997 at December 31, 1997
---- ------------ ------------- ---- ---- --------------------
US$ US$ US$ US$
1992 KPT 5,538 (5,538) - -
1993 KPT 5,327,184 (1,954,948) (3,372,236) -
1994 KPT 5,484,763 - (5,383,298) 101,465
1995 KPT 2,005,740 - - 2,005,740
1996 KPT (1,960,486) - - -
KPD 608,298 - - 608,298
1997 KPT (8,755,534) - - -
KPD 468,566 - - 468,566
------------ ----------- ------------ ----------
3,184,069 (1,960,486) (8,755,534) 3,184,069
============ =========== =========== =========
Deferred income tax asset
- usage of operating loss carry-forward (2,626,660)
===========
- net operating loss carry-forward 955,221
===========
No valuation allowance has been provided at December 31, 1997 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 1996 to 1997 was due to using different exchange rates from year to year.
NOTE 9 - INVESTMENTS IN OTHER COMPANIES
<C> <C>
1996
------------------------------------------------------------
Provision for devaluation Net investments
Cost of investment in other companies
--------- ------------------------- ------------------
US$ US$ US$
International Tourism Promotion
Co., Ltd. 234,192 23,814 210,378
Top Trade Overseas Promotion
Co., Ltd. 39,032 2,659 36,373
Global Capital Group Co., Ltd. 3,903 779 3,124
--------- -------- --------
Total 277,127 27,252 249,875
========= ======== =======
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<S> <C> <C>
1997
Provision for devaluation Net investments
Cost of investment in other companies
US$ US$ US$
International Tourism Promotion
Co., Ltd. 126,992 12,914 114,078
Top Trade Overseas Promotion
Co., Ltd. 21,165 21,165 -
Global Capital Group Co., Ltd. 2,117 422 1,695
--------- ------- -------
Total 150,274 34,501 115,773
========= ======= =======
</TABLE>
There was no disposal of investment in 1997 for these three entities. The
reduction in cost value of investment in US dollars was due to using different
exchange rates from year to year.
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. As for the year ended December 31,
1997, no additional provision for devaluation of investment was made as there
was no 1997 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. However, the
additional loss has been set up covering full amount of total investment in
1997.
F-20
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. As for the year ended December 31, 1996 and 1997, no
additional provision for devaluation of investment was made as there was no 1996
and 1997 financial statements available.
NOTE 10 - PROPERTY, PLANT AND EQUIPMENT - NET
1996 1997
---- ----
US$ US$
Land -- 111,753
Building -- 109,375
Construction in process -- 354,486
Leasehold improvements 1,097,040 2,334,382
Selling office equipment and fixtures 851,627 983,794
Vehicles 221,308 294,023
---------- ----------
Total acquisition cost 2,169,975 4,187,813
Less: accumulated depreciation (419,040) (785,361)
---------- ----------
Net book value 1,750,935 3,402,452
========== ==========
NOTE 11 - RESTRICTED FIXED DEPOSITS
The Company's Thailand-based subsidiaries made restricted fixed deposits as
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 with which King Power Tax Free Co., Ltd. was granted for
the exclusive operating license and King Power Duty Free Co., Ltd. were 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 11.25%
per annum.
F-21
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12 - DEPOSIT WITH A RELATED COMPANY
King Power Duty Free Co., Ltd. (KPD) made a deposit in 1997 with a related
company namely Downtown D.F.S (Thailand) Co., Ltd. (DDC) for using credit
facilities of Baht 100 million from a financial institute which is guaranteed by
DDC.
NOTE 13 - BANK OVERDRAFT
The Company obtained from a commercial bank an overdraft facility of Baht
25 million which bears interest at the Bank's MOR plus 1% per annum, and is
guaranteed by a director of the Company and the pledged fixed deposit. For the
year ended December 31, 1996, the average rate of MOR (Minimum Overdraft Rate)
was 14.25% per annum and for the year ended December 31, 1997, the MOR was
varying from 15.5% to 24% per annum.
NOTE 14 - BANK LOAN
1996 1997
---- ----
US$ US$
Trust receipt -- 3,143,323
Short-term loan 3,903,201 1,693,229
--------- ---------
3,903,201 4,836,552
--------- ---------
Trust receipt incurred by King Power Duty Free Co., Ltd. (KPD) bears
interest at the rates varying from 12.50% to 19.50% 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 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 year ended December 31, 1996 and 1997, the average rate of MLR
(Minimum Loan Rate), were 14.25% per annum and 17% per annum, respectively.
F-22
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15 - NOTES PAYABLE
At December 31, 1996 and 1997 King Power Tax Free Co., Ltd. (KPT) issued a
30-day promissory note payable to a local commercial bank, which bears interest
at rates varying from 13% to 14.25% per annum and 14% to 22% per annum,
respectively.
NOTE 16 - INSTALLMENT PURCHASE PAYABLE - NET
Installment purchase payable incurred from the purchase of vehicles of King
Power Duty Free Co., Ltd. (KPD). Repayment periods are composed of 36 monthly
installments of Baht 11,285 per payment including interest at the rate of 9% per
annum for each seven vehicles, respectively.
1996 1997
US$ US$
Installment purchase payable 118,498 47,470
Less : Current portion of installment purchase payable (63,488) (22,930)
-------- --------
Installment purchase payable - net 55,010 24,540
======== ========
NOTE 17 - LONG-TERM LOAN - NET
1996 1997
US$ US$
Long-term loan - 208,665
Less : Current portion of long-term loan - (5,719)
- -------
Long-term loan - net - 202,946
======== =======
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 from
March 4, 1997. The long-term loan is collateralized by KPD's properties and
guaranteed by a director of KPD.
F-23
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18 - SHAREHOLDERS' EQUITY
(a) Per the reverse acquisition agreement, the two Thailand-based companies
together shall receive a total of 18,800,000 shares of common stock of Immune
America, Inc. which represented 94% of 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 as the agreement stipulates that the new
management shall have financial statements as of December 31, 1997 prepared in
accordance with U.S. GAAP by a clearly defined date or have reached certain
criteria of financial performance measurement. If the new management fails to
satisfy either one condition, the 752,000 shares shall be released to a
financial consulting company which was a signing party of the reverse
acquisition agreement.
(c) Per the reverse acquisition agreement, the other 4% of 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 6/12/97 (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 for 125,000 shares per entity at US$ 8 per share
with net proceeds of US$1,887,000. Both entities are located in Taipei, Taiwan,
Republic of China. Among the newly issued shares, 125,000 shares were placed in
escrow until May 1, 1998, subject to an additional payment of $4.00 per share on
the total of 250,000 shares issued or $1,000,000, in the event that the earnings
per share for the Company are higher than a certain amount per share for the
calendar year ended December 31, 1997. If the earnings per share are below the
certain amount per share, then the shares under escrow are to be released to the
purchasers without further consideration. No underwriter or placement agent was
used. The issuance was conducted pursuant to Regulation S promulgated under the
United States Securities Act of 1933, as amended.
F-24
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 19 - COMMITMENTS AND CONTINGENT LIABILITIES
In order to obtain the necessary rights to operate at the international and
domestic airports in Thailand, King Power Tax Free Co., Ltd. and King Power Duty
Free Co., Ltd. entered into various agreements with the Airports Authority of
Thailand to operate at the international and domestic airports and to rent
office space.
Both of KPD and KPT are required to pay concession fee, rental and service
fees, property tax, and other expenses under the aforementioned agreements with
the Airports Authority of Thailand. A summary of the concession and rental fees
payable for the remaining periods of the agreements are as follows:
<TABLE>
<S> <C> <C> <C>
King Power Tax Free Co., Ltd. King Power Duty Free Co., Ltd.
---------------------------------------- -----------------------------------------
Rental and Service Rental and Service
Year Concession fee and other expense Concession fee and other expenses
---- -------------- ------------------ -------------- ------------------
(US$ in Million) (US$ in Million)
1998 12.75 0.47 14.29 0.72
1999 13.42 0.50 14.82 0.72
2000 14.15 0.50 15.34 0.72
2001 15.02 0.50 15.87 0.72
2002 15.98 0.50 - -
Lease commitments
As of December 31, 1997, 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:
Year ended December 31, Rental Charges Service Fee
----------------------- -------------- -----------
US$ US$
1998 102,545 133,031
1999 102,545 133,031
2000 85,454 110,859
</TABLE>
F-25
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Letter of bank guarantee
As of December 31, 1996 and 1997, King Power Tax Free Co., Ltd. and King
Power Duty Free Co., Ltd. were contingently liable for bank guarantees totalling
US$ 23.25 million and US$ 12.14 million, respectively, issued in favor of the
Excise Department and the Airports Authority of Thailand as a performance bond.
Unused letter of credits
As of December 31, 1996 and 1997, King Power Tax Free Co., Ltd. and
King Power Duty Free Co., Ltd. has the unused letters of credit amounting
to US$ 2.73 million and US$ 0 million , respectively.
Installment Purchase Obligation
1996 1997
---- ----
US$ US$
1997 63,488 -
1998 30,148 22,930
1999 24,862 22,930
2000 - 1,610
------- -------
Total 118,498 47,470
======= =======
Long-term Loan Installment Payments
1996 1997
---- ----
US$ US$
1997 - -
1998 - 5,719
1999 - 6,528
2000 - 7,453
2001 - 8,508
2002 - 9,712
Thereafter - 170,745
------- -------
Total - 208,665
======= =======
F-26
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 20 - SEGMENT FINANCIAL INFORMATION
<S> <C> <C> <C>
For the year ended December 31, 1996
-----------------------------------------------------------------------
Duty Free Tax Free All
Retail Retail Other Totals
--------- ----------- --------- ------------
US$ US$ US$ US$
Segment Information
Revenue from external customers - 41,869,197 - 41,869,197
Intersegment revenue - - - -
Cost of merchandise sold - 14,446,951 - 14,446,951
Concession fees - 20,032,406 - 20,032,406
Gross profit - 7,389,840 - 7,389,840
Interest income 155,763 436,554 - 592,317
Interest expenses 27,006 512,331 - 539,337
Segment net income (loss) (811,203) 2,414,474 - 1,603,271
Segment total assets 14,390,877 9,351,235 - 23,742,112
Expenditures for segment assets 1,167,524 303,555 - 1,471,079
Long - Lived
Revenue Assets
US$ US$
------------ ------------
Geographical Information
Bangkok 41,869,197 2,162,737
Southern Thailand region - 7,238
------------ ----------
Total 41,869,197 2,169,975
========== =========
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<S> <C> <C> <C>
For the year ended December 31, 1997
-------------------------------------------------------------------------
Duty Free Tax Free All
Retail Retail Other Totals
----------- ----------- --------- -----------
US$ US$ US$ US$
Segment Information
Revenue from external customers 59,629,341 36,367,322 - 95,996,663
Intersegment revenue - - - -
Cost of merchandise sold 25,582,550 12,922,336 - 38,504,886
Concession fees 17,790,212 16,547,324 - 34,337,536
Gross profit 16,256,579 6,897,662 - 23,154,241
Management fee - 1,647,548 - 1,647,548
Interest income 975,259 851,504 - 1,826,763
Interest expenses 643,095 583,081 - 1,226,176
Segment net income (loss) 1,700,926 6,992,615 (786,820) 7,906,721
Segment total assets 20,170,515 12,512,018 2,395,666 35,078,199
Expenditures for segment assets 1,404,623 295,899 317,316 2,017,838
Long - Lived
Revenue Assets
---------- ------------
US$ US$
Geographical Information
Bangkok 93,605,830 4,129,640
Northern Thailand region 456,568 33,987
Southern Thailand region 1,934,265 24,186
----------- ---------
Total 95,996,663 4,187,813
========== =========
</TABLE>
F-28
<PAGE>
Exhibit 21.1
KING POWER INTERNATIONAL GROUP CO., LTD.
SIGNIFICANT SUBSIDIARIES AND
JURISDICTIONS OF INCORPORATION
Name Jurisdiction of Incorporation Percentage Owned
King Power Tax Free
Company Limited Thailand 99.94%
King Power Duty Free
Company Limited Thailand 94.95%
King Power International
Co., Ltd. Thailand 99.93%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted from Balance
Sheet at 12/31/97, Statement of Operations at 12/31/97.
</LEGEND>
<CIK> 0000787690
<NAME> King Power International Group Co., LTD.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,316,880
<SECURITIES> 0
<RECEIVABLES> 3,206,112
<ALLOWANCES> 0
<INVENTORY> 13,140,356
<CURRENT-ASSETS> 24,297,459
<PP&E> 4,187,813
<DEPRECIATION> (785,361)
<TOTAL-ASSETS> 35,078,199
<CURRENT-LIABILITIES> 24,915,707
<BONDS> 0
0
0
<COMMON> 20,250
<OTHER-SE> 9,744,044
<TOTAL-LIABILITY-AND-EQUITY> 35,078,199
<SALES> 95,996,663
<TOTAL-REVENUES> 95,996,663
<CGS> 38,504,886
<TOTAL-COSTS> 72,842,422
<OTHER-EXPENSES> 22,840,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,226,176
<INCOME-PRETAX> 6,687,334
<INCOME-TAX> (1,219,387)
<INCOME-CONTINUING> 7,934,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,934,836
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
