UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A2
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(Mark One)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
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ACT OF 1934
For the transition period from _____ to _____
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Commission File Number: 1-13205
KING POWER INTERNATIONAL GROUP CO., LTD.
(Exact name of small business issuer as specified in its charter)
Nevada 75-2641513.
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(State of incorporation) (IRS Employer ID Number)
26th & 27th Floor Siam Tower, 989 Rama I Road, Patumwan, Bangkok 10330 Thailand
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(Address of principal executive offices)
011 (662) 658-0090
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(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: Noverber 1, 1998: 20,250,000
Transitional Small Business Disclosure Format (check one): YES NO X
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<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-QSB for the Quarter ended September 30, 1997
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 14
Part II - Other Information
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
<PAGE>
Part 1 - Item 1
Financial Statements
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30,
ASSETS
1997 1996
$ (restated) $
---------- ----------
CURRENT ASSETS
Cash and cash equivalents 1,220,448 682,916
Accounts receivable
Trade 663,755 57,897
Refundable value added tax 1,403,977 339,068
Related parties 3,649,133 767,113
Directors 4,060,190 1,742,327
Inventories and purchase deposits 20,410,291 1,586,951
Prepaid expenses and other 1,281,773 293,055
---------- ----------
Total current assets 32,689,567 5,469,327
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Leasehold improvements 2,458,954 521,635
Equipment and fixtures 1,159,220 576,308
Building and land 286,056 -
Vehicles 380,355 119,607
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4,284,585 1,396,228
Less accumulated depreciation (813,038) (360,918)
---------- ----------
Net property, plant and equipment 3,471,547 1,035,310
---------- ----------
OTHER ASSETS
Restricted deposit 8,319,314 7,594,355
Other 1,112,463 343,043
---------- ----------
Total other assets 9,431,777 7,937,398
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TOTAL ASSETS 45,592,891 14,442,035
========== ==========
- Continued -
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
<PAGE>
<TABLE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS - CONTINUED
September 30,
LIABILITY AND SHAREHOLDERS' EQUITY
1997 1996
$ (restated) $
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Cash overdraft 1,081,426 675,428
Short-term note payable to bank 3,188,256 3,933,910
Bank loan 6,181,146 786,782
Current maturities of long-term debt 7,158 178,678
Current maturities of hire-purchase payable 29,663 26,554
Accounts payable - trade
Unrelated parties 22,250,634 3,841,340
Related parties 470,637 1,252,823
Advances from related parties 1,310,407 -
Other accrued liabilities
Concession fees 1,565,910 1,744,556
Other 1,499,740 220,503
------------ ------------
Total current liabilities 37,584,977 12,660,574
LONG-TERM LIABILITIES
Long-term debt, net of current maturities 263,352 -
Hire-purchase payable 41,633 44,257
------------ ------------
Total liabilities 37,889,962 12,704,831
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 279,699 382,083
------------ ------------
SHAREHOLDERS' EQUITY
Common stock - $0.001 par value.
100,000,000 shares authorized.
20,250,000 and 19,075,000 shares issued
and outstanding, respectively 20,250 19,075
Additional paid-in capital 20,848,145 19,263,086
Translation adjustment (876,637) -
Accumulated deficit (12,568,528) (17,921,040)
------------ ------------
7,423,230 1,361,121
Treasury stock - at cost (33,334 shares) - (6,000)
------------ ------------
Total shareholders' equity 7,423,230 1,355,121
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 45,592,891 14,442,035
============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
</TABLE>
<PAGE>
<TABLE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine and Three months ended September 30, 1997 and 1996
Nine months Nine months Three months Three months
ended ended ended ended
Sept.30, 1997 Sept.30, 1996 Sept.30, 1997 Sept.30, 1996
$ (restated) $ $ (restated) $
------------ ------------ ------------ ------------
<S> <C> <C> <C>
<C>
REVENUES
Net merchandise sales 66,637,398 28,499,141 10,713,133 10,922,391
Gain on foreign exchange 567,486 379,728 (106,970) 125,495
------------ ------------ ------------ ------------
Total revenues 67,204,804 28,878,869 10,606,163 11,047,886
------------ ------------ ------------ ------------
COST OF SALES
Product costs 26,967,490 10,189,117 3,271,997 3,557,984
Concession fees 24,186,095 15,660,171 4,038,198 4,340,119
------------ ------------ ------------ ------------
Total cost of sales 51,153,585 25,849,288 7,310,195 7,898,103
------------ ------------ ------------ ------------
GROSS PROFIT 16,051,219 3,029,581 3,295,968 3,149,783
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling expenses
Salaries and related costs 4,823,201 2,790,168 1,176,918 949,533
Other selling expenses 2,154,119 683,609 194,336 302,309
Depreciation 552,723 119,324 90,467 47,989
General and administrative expenses 2,244,562 347,057 352,815 147,111
Interest expense 754,260 386,972 311,485 383,148
------------ ------------ ------------ ------------
Total operating expenses 10,528,875 4,327,130 2,126,021 1,830,090
------------ ------------ ------------ ------------
INCOME (LOSS )
FROM OPERATIONS 5,522,344 (1,297,549) 1,169,947 1,319,693
============ ============ ============ ============
- Continued -
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
</TABLE>
<PAGE>
<TABLE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
Nine and Three months ended September 30, 1997 and 1996
Nine months Nine months Three months Three months
ended ended ended ended
Sept.30, 1997 Sept.30, 1996 Sept.30, 1997 Sept.30, 1996
$ (restated) $ $ (restated) $
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME (LOSS)
FROM OPERATIONS 5,522,344 (1,297,549) 1,169,947 1,319,693
OTHER INCOME (EXPENSES)
Interest income 1,018,562 378,588 (113,956) 367,568
Other 247,961 4,134 67,217 4,134
Realized loss on foreign exchange (953,520) - (953,520) -
Unrealized loss on foreign exchange
from Baht devaluation (1,509,940) - (1,509,940) -
Unrealized loss on foreign exchange (1,294,434) - (1,294,434) -
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES AND MINORITY
INTEREST 3,030,973 (914,827) (2,634,686) 1,691,395
PROVISION FOR
INCOME TAXES - - - -
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
MINORITY INTEREST 3,030,973 (914,827) (2,634,686) 1,691,395
MINORITY INTEREST (34,904) 8,388 205,809 (11,321)
------------ ------------ ------------ ------------
NET INCOME (LOSS) 2,996,069 (906,439) (2,428,877) 1,680,074
============ ============ ============ ============
Earnings (loss) per share of
common stock outstanding 0.15 (0.05) (0.12) 0.09
============ ============ ============ ============
Weighted-average number
of shares outstanding 19,620,290 19,366,515 19,620,290 19,654,514
============ ============ ============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
</TABLE>
<PAGE>
<TABLE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1997 and 1996
1997 1996
$ (restated) $
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 2,996,069 (906,439)
Adjustments to reconcile net income to net cash
provided by operating activities
Minority interest 34,904 (8,388)
Depreciation and amortization 552,723 119,324
Unrealized loss on foreign exchange 1,294,434
Unrealized loss on foreign exchange from Baht devaluation 1,509,940
(Increase) decrease in
Accounts receivable - trade (590,420) (57,897)
Refundable value added taxes (481,358) (339,068)
Inventory (13,657,576) (950,462)
Prepaid expenses and other assets (63,392) (293,055)
Increase (decrease)
Trade accounts payable 9,805,485 1,446,334
Other accrued liabilities 2,048,536 1,663,920
------------ ------------
Net cash provided by operating activities 3,449,345 674,269
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash advanced to related parties (3,362,796) (767,112)
Cash advanced to directors (2,184,026) (4,173,429)
Cash invested in other companies 86,246 (697,609)
Cash paid for property, plant and equipment (2,273,335) (48,871)
------------ ------------
Net cash used in investing activities (7,733,911) (5,687,021)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction of cash overdraft 143,622 313,035
Net change in short term note payable 1,438,493 3,933,910
Net change in bank loan 2,277,945 -
Principal advanced on long-term debt (811,562) 786,782
Cash advances repaid to related parties (526,839) -
Principal advanced on long-term debt 270,510 178,679
Net change in hire-purchase agreement (47,202) 70,810
Net change in other long-term liabilities - 53,358
Net proceeds from Regulation S issuance 1,887,000 -
Minority interest-balance sheet impact (107,169) 7,241,298
Increase in translation adjustment (1,387,125) -
------------ ------------
Net cash provided by financing activities 3,137,673 12,577,872
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS (1,146,893) 7,565,120
Decrease (Increase) in restricted deposits 1,228,138 (7,337,297)
Cash and cash equivalents at beginning of period 1,139,203 455,093
------------ ------------
Cash and cash equivalents at end of period 1,220,448 682,916
============ ============
- Continued -
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
</TABLE>
<PAGE>
<TABLE>
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Nine months ended September 30, 1997 and 1996
1997 1996
$ (restated) $
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
INTEREST AND INCOME TAXES PAID
Interest paid during the period 754,260 436,962
============ ============
Income taxes paid (refunded) - -
============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
</TABLE>
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Notes to Financial Statements
Note 1 - Basis of Presentation
King Power International Group Co., Ltd. (formerly Immune America, Inc.)
(KPG) is incorporated under the laws of the State of Nevada. From inception
through June 12, 1997, KPG 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, KPG 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 (Thai corporations) whereby 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 June 12, 1997 reverse merger was treated as a recapitalization of
KPG. 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 KPG, J.M.T. Group Company Limited and J.M.T. Duty Free Company
Limited become the historical financial statements of King Power
International Group Company Limited.
Concurrent with the reverse merger, KPG changed its corporate name from
Immune America, Inc. to King Power International Group Company Limited.
J.M.T. Group Company Limited (JMT Group) is a Thai 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. JMT Group holds the exclusive operating license granted by the
Airports Authority of Thailand for all shops of this specific nature.
J. M. T. Duty Free Company Limited (JMT Duty Free) is a Thai corporation engaged
in selling duty free merchandise to the traveling public under the supervision
of Thai customs in various shops located in the international terminals of the
various airports located within Thailand. JMT Duty Free holds a non-exclusive
license to operate duty free shops from the Airports Authority of Thailand for
all shops of this specific nature.
JMT Group and JMT Duty Free operate in a home currency of the Thai Baht. All
figures in the accompanying financial statements have been converted to US
Dollars using the following conversion rates as provided to the Company by the
Bank of Thailand:
June 30, 1996 25.37 Baht per $1
September 30,1996 25.42 Baht per $1
June 30, 1997 25.80 Baht per $1
September 30, 1997 36.52 Baht per $1
JMT Group and JMT Duty Free use the US Dollar as their base product pricing
method, thereby allowing for periodic currency fluctuation through conversion at
the point of sale. Majority of the sales made and collected are in Thai Baht.
Accordingly, the Company is at risk for currency translation between the point
of sale and conversion of non-Thai Baht proceeds into local currency.
Additionally, the Company pays for local goods and services in local currency
and is not subject to currency conversion risk; however, all international
purchases are also tied to US Dollar valuation and the Company is at foreign
currency conversion risk at the time of payment. The gain or loss from foreign
currency translations in the normal operations of JMT Group and JMT Duty Free is
presented as a component of net revenues as, in management's opinion, this is an
integral component of the Company's operations.
In converting the Company's operating subsidiaries' financial statements from
local currency to US Dollars, changes caused by fluctuation in currency
translation rates are presented separately as a component of other income
(expense) for financial statement purposes.
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Notes to Financial Statements
Note 1 - Basis of Presentation - Continued
These financial statements reflect the books and records of King Power
International Group Company Limited, J.M.T. Group Company Limited, and J.M.T.
Duty Free Company Limited for the periods ended September 30, 1997 and 1996,
respectively, as if the businesses had been combined as of the beginning of the
first period presented. All significant inter-company transactions have been
eliminated in combination. The consolidated entities are collectively referred
to as Company.
During interim periods, the Company follows the accounting policies set forth in
the individual audited financial statements of J.M.T. Group Company Limited and
J. M.T. Duty Free Company Limited in the Current Report Pursuant to Section 13
or 15(d) of The Securities Exchange Act of 1934 on Form 8-K/A filed with the
Securities and Exchange Commission. The September 30, 1997 financial information
was extracted from the combined unaudited financial statements from the
respective entities, but does not include all disclosures required by generally
accepted accounting principles. Users of financial information provided for
interim periods should refer to the annual financial information and footnotes
contained in the Current Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934 on Form 8-K/A when reviewing the interim
financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending December 31, 1997.
The preparation of financial statements in conformity with 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 the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company has a concentration of revenue sources related to 1) passenger and
visitor populations within the domestic and international terminals of the
various airports located within Thailand and 2) the respective licenses to
operate the Company's various stores within these airports as granted by the
Airports Authority of Thailand. An interruption of either of these components
could have a significant financial impact on the operations of the Company.
Management does not anticipate any interruption of either of these items in the
foreseeable future.
Note 2 - Summary of Significant Accounting Policies
1. Cash and cash equivalents
The Company considers all cash on hand and in banks, including accounts in book
overdraft positions, certificates of deposit and other highly-liquid investments
with maturities of three months or less, when purchased, to be cash and cash
equivalents.
Cash overdraft positions may occur from time to time due to the timing of making
bank deposits and releasing checks, in accordance with the Company's cash
management policies.
The US dollar is the Company's functional currency as determined under statement
of Financial Accounting Standards No. 52 "Foreign Currency Transaction" (SFAS
52). Whereas, the Thai baht is the functional currency of the subsidiaries in
Thailand.
Foreign currency transactions are recorded at the average rate of exchange in
effect at the transaction date. Monetary assets and liabilities denominated in
foreign currencies are translated at the exchange rate in effect on the
financial statement date. Exchange differences are recognized in the
accompanying consolidated statements of operations.
The exchange differences resulting from the severe depreciation of a Thai Baht
currency on July 2, 1997, against which there is not practical means of hedging
and that affects the liabilities which cannot be settled and which arise
directly on the recent acquisition of an asset invoiced in a foreign currency,
are included in the carrying amount of the related assets, provided that the
adjusted carrying amount does not exceed the lower of the replacement cost and
the amount recoverable from the sale or use of the asset.
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Notes to Financial Statements - Continued
Note 2 - Summary of Significant Accounting Policies - Continued
2. Accounts and advances receivable
In the normal course of business, payment for goods sold in the Company's stores
are made in either local or foreign currencies or through internationally issued
bank or credit cards. Bank or credit card charges are pre-approved by the
issuing entity prior to the completion of a sales transaction and are normally
paid in local currency within three to fourteen days from the date of
presentation by the Company to the issuing entity. Approximately 40.0% of the
Company's sales, as of September 30, 1997, are made via bank or credit cards.
Because of the potential credit risk involved, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts which will
eventually become uncollectible. In the event of complete non-performance, the
maximum exposure to the Company is the recorded amount of trade accounts
receivable shown on the balance sheet at the date of non-performance.
3. Inventory
Inventory consists of goods purchased for resale and prepayment deposits made to
secure certain international products purchased for resale through the Company's
duty free stores. These items are carried at the lower of cost or market using
the weighted-average cost method.
4. Property, plant and equipment
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets using the
straight-line method.
Gains and losses from disposition of property and equipment are recognized as
incurred and are included in operations.
5. Income taxes
The Company utilizes the asset and liability method of accounting for income
taxes. At September 30, 1997 and 1996 respectively, where material, deferred tax
asset or liability accounts have been provided for temporary differences between
financial reporting methods and statutory tax reporting methods. The Company
files separate US tax returns for KPG and separate Thailand tax returns for JMT
Group and JMT Duty Free in accordance with local laws and customs.
Due to the change in control related to the June 12, 1997 step reverse merger,
KPG has no US net operating loss tax carry forwards available for future
periods.
6. Earnings (loss) per share
Income (loss) per common share is computed by dividing the net income (loss) by
the weighted-average number of shares outstanding during the period.
7. Accounting principles adopted during the current year
During the first quarter of 1997, effective at the beginning of the quarter, the
Company adopted Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". In
accordance with the Standard, the Company adopted the policy of evaluating all
qualifying assets as of the end of each reporting quarter. No adjustments for
impairment were charged to operations during the first, the second, and the
third quarter of 1997.
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Notes to Financial Statements - Continued
Note 3 - Refundable Value Added Taxes
Refundable Value Added Tax represents the excess of input tax (charged by
suppliers of goods and services to the Company) over the output tax (charged by
the Company to purchasers of goods and services). Per Thailand law, the value
added tax is approximately 10% (7% for the period as from January 1, 1997 to
August 15, 1997) on the value added at each stage of production, distribution or
sales to the point of ultimate consumption.
Note 4 - Restricted deposit
The restricted deposit represents amounts placed on deposit to secure the
issuance of letters of guaranty required under the respective licenses issued by
the Airports Authority of Thailand whereby JMT Group and JMT Duty Free were
granted exclusive and non-exclusive licenses, respectively, to sell various
products within the various airports in Thailand.
Note 5 - Common stock transactions
During the second quarter of 1997, KPG affected an approximate one for fifty
reverse stock split. All share and per share amounts presented herein account
for this action as of the first day of the first period presented. Further, the
18,800,000 shares issued to effect the recapitalization, as discussed below, are
also presented as issued and outstanding as of the first day of the first period
presented.
On May 5, 1997, KPG, under a Form S-8, Registration Statement Under The
Securities Act of 1933, issued approximately 924,684 newly issued shares and
33,334 shares held in treasury to a party in conjunction with the
recapitalization and reactivating costs necessary to complete the then-proposed
step reverse merger transaction. This transaction was recorded at the `fair
value' of the stock of approximately $0.08 per share (which approximates the
closing price of the stock on the NASDAQ Electronic Bulletin Board) at the date
of the transaction. The difference between this amount and the cash proceeds
received by KPG is reflected in the accompanying statement of operations as
compensation expense on common stock issued at less than `fair value' for
recapitalization and reorganization expenses.
On June 12, 1997, KPG exchanged 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. This step reverse merger was treated
as a recapitalization of KPG. 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 KPG, J.M.T. Group Company Limited and J.M.T. Duty Free Company Limited
become the historical financial statements of King Power International Group
Company Limited.
The remaining 5.0% of issued and outstanding stock of J.M.T. Duty Free Company
Limited which was not acquired by KPG is presented in the accompanying financial
statements as Minority Interest.
On August 18, 1997, the Company sold 250,000 newly issued shares of common stock
to Tower Hill Group Limited (125,000 shares) and Wonfield Investments Limited
(125,000 shares), with both entities located in Taipei, Taiwan, Republic of
China at a price of $8.00 per share. The total consideration received for such
shares was $2,000,000. Of the newly issued share, 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 at least $1.01 per share for the calendar year
ending December 31, 1997. If the earnings per share are below $1.01 per share,
then the escrow shares are to be released to the purchasers without further
consideration. No underwriter or placement agent was used. The sale was
conducted pursuant to Regulation S promulgated under the United States
Securities Act of 1933, as amended. Accordingly, the shares were sold to Non-US
persons and entities in transactions outside the United States.
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Notes to Financial Statements - Continued
Note 6 - Income Taxes
As discussed in Note 2-5, KPG, JMT Group and JMT Duty Free file separate income
tax returns in either the United States, in the case of KPG, or Thailand, in the
cases of JMT Group and JMT Duty Free. JMT Group has a net operating loss carry
forward which may be utilized to offset future Thailand income taxes. As of
September 30, 1997, this net loss carry forward was approximately 321.15 million
Baht of approximately $ 7.34 million in equivalent US Dollars.
The deferred tax asset related to the net operating loss of JMT Group has been
fully reserved as of September 30, 1997 due to the uncertainty of ultimate
realization of the benefits of the net operating loss carry forward.
Due to the availability of the JMT Group net operating loss and the respective
operations of KPG and JMT Duty Free, no provision for income taxes has been
provided for the periods reflected in the accompanying financial statements.
Note 7 - Contingencies and Extraordinary item - unrealized loss on currency
exchange rate
On July 2, 1997, the Thailand government announced the change to a "Managed
Float" system of currency conversion for the Thai Baht. This action caused a
change in the US Dollar equivalent from approximately 25 Baht per US Dollar to
approximately 28.90 Baht per US Dollar. Had this change been effect on September
30, 1997, the change would have created a charge to operations of approximately
51.80 million Baht or approximately 1.51 million US Dollars (approximately
$(0.08) per share).
Note 8 - The change in the subsidiary companies' names
On September and 30 September 9, 1997, respectively, the subsidiary companies,
"J.M.T. Group Company Limited" and J.M.T. Duty Free Company Limited changed
their names to "King Power Tax Free Company Limited" and "King Power Duty Free
Company Limited", respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(1) Effect on the Change in Foreign Currency Exchange System
On the 2nd July, 1997, the Thai government announced the change of foreign
currency conversion to a "Managed Float" system. The two subsidiary companies,
KPG Duty Free Company Limited (J.M.T. Duty Free Co., Ltd.) and KPG Tax Free
Company Limited (J.M.T. Group Co., Ltd.) suffered the loss on exchange rate from
the debt settlement after the devaluation date. In order to cope with and
compensate for this loss situation, the management of those companies decides to
include the effect of Baht devaluation in setting retail prices and to change
the retail pricing policy of King Power Duty Free Company Limited to set all the
retail prices as US Dollar instead of as Thai Baht.
The result of Thai Baht devaluation will attract and promote tourism in
Thailand, and should increase the sales volume of both companies in Thailand.
The unrealized loss on foreign exchange of US $ 2.80 million was separately
presented in the statement of income for the fair determination of net realized
income for the quarter ended September 30, 1997.
(2) Results of Operations
King Power Duty Free (JMT Duty Free) began operations during the second quarter
of 1996. The results for the nine months ended September 30, 1997 show a
continuing maturation and growth in the duty free section of the Company's
stores in the various Thailand airports. Further growth is being experienced in
general merchandise sales through the King Power Tax Free (JMT Group) stores in
the same airports as a result of increased tourism and connecting passenger
traffic through these facilities. Management anticipates that Thailand will
continue to be a significant destination and transfer point for air travel
throughout Asia.
2.1 Sales revenue
For the nine months ended September 30, 1997, the Company realized merchandise
sales revenues of approximately $66.64 million as compared to approximately
$28.50 million for the same period in 1996. This growth relates to the trends
and business maturation discussed above. The separate 1997 third quarter results
show merchandise sales of approximately $10.71 million as compared to
approximately 10.92 million for the same period in 1996. This decrease is
directly attributable to the devaluation of Baht that took place during the
third quarter of 1997. However, the opening of King Power Duty Free stores, an
increae in number of tourists coming to Thailand due to the depreciation of a
Thai Baht and due to the strong promotion of "Amazing Thailand Year 1998-1999"
in the world-wide public media, should help to minimize the impact of the
devaluation.
2.2 Cost of sales
Cost of sales for the nine months ended September 30, 1997 and 1996,
respectively, was approximately $26.97 million and $10.19 million with gross
margins of approximately 23.24% and 10.63%. The gross margin in 1997 materially
increased from that in 1996 because King Power Tax Free is required to pay
concession fee at the fixed rate as defined in the concession agreement.
Therefore, a significant increase in sales volume reduced the ratio of the
concession fee to the revenue from 54.95% in 1996 to 36.30% in 1997.
Cost of sales for the three months ended September 30, 1997 and 1996,
respectively, were approximately $3.27 million and $.356 million, with gross
margins of approximately 31.76% and 28.85%. This increase is directly
attributable to the adjustment of the selling prices of goods after the Baht
devaluation at the average rate of 30% above the selling prices during the
second quarter 1997.
<PAGE>
2.3 Direct selling expenses
Direct selling expenses, excluding depreciation and realized loss on foreign
exchange, reflect the maturation of the Company's business as they have improved
from approximately US$ 3.47 million (12.18% of merchandise sales of $28.50
million) for the nine months ended September 30, 1996 to approximately US$ 6.05
million (9.08% of merchandise sales of $66.64 million) for the nine months ended
September 30, 1997. This improvement is mainly due to the increase in the
effectiveness and the efficiency of the sales team by the continuously intensive
training. Consequently, for the three month ended September 30, 1996 and 1997,
respectively, the direct selling expense increased from US$ 1.25 million to US
$ 1.43 million with the increase in cost percentage to sales revenue of 11.45%
to 13.31% respectively, due to the effect of the Baht devaluation.
2.4 General and administrative expenses
General and administrative expenses for the nine months ended September 30, 1997
and 1996 is $ 12.24 million (3.37% of total revenues) and $0.34 million (1.19%
of total revenues) respectively, and for the three months ended September 30,
1997 and 1996 is $0.35 million (3.29% of total revenues) and $ 0.15 million
(1.28% of total revenues) respectively. General and administrative expenses have
significantly fluctuated in relationship to the overall growth of the Company's
operations and inventory positions. These items have been designated by
management for constant and consistent review of these items to control
unnecessary expenditures.
2.5 Overall net income
Overall net income for the nine months ended September 30, 1997 was
approximately of US$ 3.00 million ($0.15 per share) compared to a loss of
approximately US$ (0.91 million) ( $(0.05) per share )for the same period in
1996. Net loss for the three months ended September 30, 1997 was approximately
of $ (2.43 million) as compared to net income of approximately $1.69 million for
the same period in 1996. The ability to generate the sales income and the strict
control over the cost and expenses major contributors to this improvement in the
net income. However, the unrealized loss on foreign exchange from Baht
devaluation of $ 1.51 million, the unrealized loss from the converting foreign
currency for financial reporting purposed of $1.29 million, and unrealized loss
on foreign exchange from the conversion of the foreign debt at the quarter ended
date of $ 1.29 million, will reflect a major reduction in overall net income of
the three-months and nine-months ended September 30, 1997.
2.6 Inventory Ratio
The ratio of inventory divided by revenue for the three months ended September
30, 1997 and 1996 was approximately 191% and 14% respectively. The inventory
ratio at September 30, 1997 was significantly increased from that at September
30, 1996 because King Power Duty Free and King Power Tax Free were constructing
four new selling outlets and were expanding the space of the existing selling
outlets and storage warehouses at the airports in order that those companies can
be in the best position to serve the increased demand for goods from the number
of tourists during the Christmas and New Years holidays, and during the Amazing
Thailand Year 1998-1999. Those companies had to keep high levels of inventory in
order to meet the anticipated increase in demand by customers for their goods.
(2) Liquidity
As of September 30, 1997, and 1996, the Company has negative working capital
amounting to US$ (4.9 million) and US $ (7.1 million) respectively. The
principal cause of this deficit is the existence of short-term bank debt used to
finance inventory and operations. Management anticipates improvement in this
area as sales continue to grow and operational needs stabilize. The Company
reported cash used in operations of approximately $(2.73) million during the
nine months of 1997 as compared to cash used in operations of approximately
$(6.66 million) during the same period of 1996.
<PAGE>
(2) Liquidity - Continued
The Company has identified specific needs for capital expenditures related to
its various airport stores and to facilitate the acquisition of various
management contracts, which remain under negotiation at this time, with various
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 interviewing various investment banking
institutions to facilitate the sale of securities by the Company. Additional
liquidity requirements mandated by future business expansions or acquisitions,
if any, cannot be specifically identified at this time because no definitive
plans have been formulated by management yet.
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings - None
Item 2 - Changes in Securities - None
Item 3 - Defaults on Senior Securities - None
Item 4 - Submission of Matters to a Vote of Security Holders - none
Item 5 - Other Information
5.1 Monetary Assets and Liabilities Denominated in Thai Baht
As of September 30, 1997, the amount of monetary assets and liabilities which is
denominated in Thai Baht are as follows:
US Dollar
Monetary Assets
Cash and equivalents 909,567
Accounts Receivable
Trade 611,619
Refundable value added tax 1,403,977
Related parties 3,042,443
Other unrelated entities 451,151
Directors 4,060,190
Other current assets 1,888,441
Restricted deposit 8,319,314
Other non-current assets 909,802
Monetary Liabilities
Cash overdraft 1,081,426
Short-term note payable to bank 3,188,256
Bank loan 2,190,581
Current maturities of long-term debt 7,158
Current maturities of hire-purchase payable 29,663
Accounts payable
Unrelated parties 11,789,066
Related parties 165,809
Advance form related parties 82,140
Other accrued liabilities
Concession fees 1,565,910
Other 1,498,481
Long-term loan from affiliated company 1,180,352
Other liabilities 354,159
Item 6 - Exhibits and Reports on Form 8-K - None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KING POWER INTERNATIONAL GROUP CO., LTD.
November 16, 1998 /s/ Vichai Raksriaksorn
- ------------------- -----------------------------
Vichai Raksriaksorn
President, Chairman of the Board and Director
November 16, 1998 /s/ Viratana Suntaranond
- ------------------- ------------------------------
Viratana Suntaranond
Chief Financial Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This legend contains Summary Financial Information extracted from Balance
Sheet at 9/30/97, Statement of Operations at 9/30/97.
</LEGEND>
<CIK> 0000787690
<NAME> King Power International Group Co., Ltd.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,220,448
<SECURITIES> 0
<RECEIVABLES> 4,312,908
<ALLOWANCES> 0
<INVENTORY> 20,410,291
<CURRENT-ASSETS> 32,689,567
<PP&E> 3,471,547
<DEPRECIATION> 552,723
<TOTAL-ASSETS> 45,592,891
<CURRENT-LIABILITIES> 37,584,977
<BONDS> 0
0
0
<COMMON> 20,250
<OTHER-SE> 7,402,980
<TOTAL-LIABILITY-AND-EQUITY> 45,592,891
<SALES> 66,637,398
<TOTAL-REVENUES> 67,903,921
<CGS> 26,967,490
<TOTAL-COSTS> 51,153,585
<OTHER-EXPENSES> 13,532,509
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 754,260
<INCOME-PRETAX> 3,030,973
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,030,973
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,996,069
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
