FORM 10-Q
For the quarterly period ended March 31, 1999
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE
SECURITIES EXCHANGE ACT 0F 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to ______
- --------------------------------------------------------------------------------
Commission File Number: 1-13205
KING POWER INTERNATIONAL GROUP CO., LTD.
(Exact name of registrant as specified in its charter)
Nevada 75-2641513
(State of incorporation) (IRS Employer ID number)
26th-27th Floor, Siam Tower, 989 Rama 1 Road, Patumwan, Bangkok 10330 Thailand
(Address of principal executive offices)
011 (662) 658-0090
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the proceeding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: April 30, 1999: 20,250,000
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarter ended March 31, 1999
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 24
Part II - Other Information
Item 1 Legal Proceedings 31
Item 2 Changes in Securities 31
Item 3 Defaults Upon Senior Securities 31
Item 4 Submission of Matters to a Vote of Securities Holders 31
Item 5 Other Information 31
Item 6 Exhibits and Reports on Form 8-K 31
2
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Note March 31, December 31,
--------------------------
ASSETS 1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,883,260 $ 1,371,739
Trade accounts receivable 267,968 334,015
Refundable value added tax 4 2,236,279 2,238,862
Receivables from and
advances to Affiliates, net of allowances for doubtful
accounts of $15.087 million and $15.745 million at
March 31,1999, and December 31, 1998,
respectively - net 11 13,197,000 11,911,642
Merchandise inventories - net 12,970,769 14,910,164
Restricted fixed deposits 3 6,526,882 5,254,485
Deferred income tax assets 10 4,040,847 4,464,606
Interest receivable 190,157 128,103
Other current assets 734,924 757,497
----------- -----------
Total current assets 42,048,086 41,371,113
Investment in other companies 145,336 149,110
Investment in marketable securities (trading) 9,034 9,268
Property, plant and equipment - net 5 5,763,102 6,173,610
Other long - term assets 221,547 373,028
----------- -----------
TOTAL ASSETS $48,187,105 $48,076,129
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
March 31, December 31,
----------------------------
Note 1999 1998
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and loans from banks 6 $ 14,200,349 $ 10,185,747
Current portion of long - term loan 8 40,108 1,346,820
Trade accounts payable 11 8,804,524 11,398,114
Advances from directors 589,396 --
Accrued concession fee 7 10,896,379 10,797,835
Accrued corporate income tax 2,305,615 3,223,829
Other current liabilities 860,912 1,626,065
------------ ------------
Total current liabilities 37,697,283 38,578,410
Long - term loan - net 8 272,574 288,137
Other liabilities 8 17,789 114,790
------------ ------------
Total liabilities 37,987,646 38,981,337
------------ ------------
Minority interest 382,693 343,473
Shareholders' equity
Common stock $0.001 par value
100,000,000 shares authorized
20,250,000 shares issued and outstanding 20,250 20,250
Additional paid in capital 20,848,145 20,848,145
Retained earnings (Deficit) (10,694,239) (11,916,895)
Translation adjustments (357,390) (200,181)
------------ ------------
Total shareholders' equity 9,816,766 8,751,319
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 48,187,105 $ 48,076,129
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31,
----------------------------
Note 1999 1998
---- ----
<S> <C> <C>
Sales revenue $ 23,809,660 $ 22,545,646
Cost of sales :
Cost of merchandise sold 11,196,780 8,874,237
Concession fees 7 6,468,115 6,960,003
------------ ------------
Total cost of sales 17,664,895 15,834,240
------------ ------------
Gross profit 6,144,765 6,711,406
Operating expenses :
Selling expenses
Sales salaries and welfare 2,077,116 1,634,683
Rental and service fee and other expenses under the
Concession fees 536,080 266,450
Depreciation 359,395 220,124
Others 380,269 278,938
------------ ------------
Subtotal 3,352,860 2,400,195
Administrative expenses 1,374,422 950,999
------------ ------------
Total operating expenses 4,727,282 3,351,194
------------ ------------
Income from operations 1,417,483 3,360,212
Other income :
Interest income - related company 312,520 21,087
Interest income 99,837 256,507
Realized gain on foreign exchange 174,144 402,559
Unrealized gain on foreign exchange 244,874 1,670,397
Management fee income -- 47,720
Other income 375,148 37,769
------------ ------------
Total other revenues 1,206,523 2,436,039
------------ ------------
Other expenses :
Interest expenses 375,248 348,402
Realized loss on foreign exchange 303,788 687,946
Unrealized loss on foreign exchange 56,259 418,285
------------ ------------
Total other expenses 735,295 1,454,633
------------ ------------
Net income before income tax 1,888,711 4,341,618
Income tax 10 (618,687) (1,309,308)
------------ ------------
Net income before minority interest 1,270,024 3,032,310
Minority interest (47,366) (128,054)
------------ ------------
Net income attributed to common shares 1,222,658 2,904,256
============ ============
Weighted average number of common shares outstanding 20,250,000 20,250,000
Basic earning per share $ 0.06 $ 0.14
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31,
----------------------------
Note 1999 1998
---- ----
<S> <C> <C>
Net income attribute to common shares $ 1,222,658 $ 2,904,256
Other comprehensive income, before tax :
Foreign currency translation adjustments (157,209) 2,263,927
Income tax expense related to items of other comprehensive -- --
Income
----------- -----------
Other comprehensive income, net of tax (157,209) 2,263,927
-----------
=========== ===========
Comprehensive income $ 1,065,449 $ 5,168,183
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31,
----------------------------
Note 1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income $ 1,222,658 $ 2,904,256
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation 359,395 220,124
Unrealized loss on foreign exchange 56,259 418,285
Unrealized gain on foreign exchange (244,874) (1,670,397)
Deferred tax assets 423,759 353,702
Minority interest - income statements impact 47,366 128,054
Decrease (increase) in operating assets :
Trade accounts receivable , interest receivable and advances
to affiliates and directors (1,285,358) (4,727,145)
Trade accounts receivable 68,854 (46,974)
Refundable valued added tax 2,583 (962,540)
Inventories 1,939,395 (1,722,082)
Interest receivable (62,054) (92,875)
Other current assets 22,573 (1,133,094)
Increase (decrease) in operating liabilities :
Trade accounts payable - related companies -- (475,622)
Trade accounts payable (2,408,256) 1,138,047
Advance from directors 589,396 129,520
Accrued concession fee 98,544 1,953,647
Accrued corporate income tax (918,214) --
Accrued expenses -- 2,218,915
Other current liabilities (765,153) 950,717
Other liabilities (97,003) --
Minority interest - income sheet impact -- 60,854
----------- -----------
Net cash provided (used) by operating activities $ (950,130) $ (354,608)
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements
7
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three months ended March 31,
----------------------------
Note 1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES :
Reduction in investment in other company $ 3,774 $ (25,920)
Reduction in investment in marketable securities 234 (4,739)
Purchase of fixed assets 51,113 (1,402,661)
Addition in deposit with related company -- 634,961
Addition in long-term assets 151,482 1,522
----------- -----------
Net cash provided (used) by investing activities 206,603 (796,837)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds (repayment) in bank overdrafts 4,014,602 372,931
Proceeds (repayment) from bank loan (54,591) 1,932,106
Proceeds (repayment) from note payable -- 94,774
Proceeds (repayment) from restricted fixed assets (1,272,397) (1,761,408)
Proceeds (repayment) from installment purchase payable -- 15,064
Proceeds (repayment) from long-term loan (1,322,275) 46,546
Translation adjustment (165,355) 2,263,927
----------- -----------
Net cash provided (used) by investing activities 1,199,984 2,963,940
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 55,064 (13,675)
----------- -----------
Net increase in cash and cash equivalents 511,521 1,798,820
Cash and cash equivalents - beginning of period 1,371,739 1,316,880
----------- -----------
Cash and cash equivalents - end of period 1,883,260 3,115,700
=========== ===========
Supplement cash flow information Cash paid during the period :
Interest paid 81,789 276,327
Income taxes paid -- --
Non - cash transaction : -- --
Common stock -- --
Additional paid - in capital $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements
8
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOULDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
Accumulated
Additional Other
Common Stock Paid in Comprehensive Retained Comprehensive
Note Shares Amount Capital Income Earnings Income Total
==== ====== ====== ========== ============= ====== ============ =======
<S> <C> <C> <C> <C> <C> <C> <C>
US$ US$ US$ US$ US$ US$
Balance January 1, 1998 20,250,000 20,250 20,848,145 (7,629,761) (3,474,340) 9,764,294
Net Income 2,904,256 2,904,256 2,904,256
Other Comprehensive income, net of tax
Foreign currency translation adjustment 2,263,927 2,263,927 2,263,927
---------
Comprehensive Income - - - 5,168,183 - - -
---------- ------ ---------- ========= ----------- ----------- ----------
Balance, March 31, 1998 20,250,000 20,250 20,848,145 (4,725,505) (1,210,413) 14,932,477
========== ====== ========== =========== =========== ==========
Balance January 1, 1999 20,250,000 20,250 20,848,145 (11,916,897) (200,181) 8,751,317
Net Income 1,222,658 1,222,658 1,222,658
Other comprehensive income, net of tax
Foreign currency translation adjustment (157,209) (157,209) (157,209)
---------
Comprehensive Income - - - 1,065,449 - - -
---------- ------ ---------- ========= ------------ --------- ---------
Balance, March 31, 1999 20,250,000 20,250 20,848,145 (10,694,239) (357,390) 9,816,766
========== ====== ========== ============ ========= =========
</TABLE>
9
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. BASIS OF PRESENTATION
King Power International Group Co., Ltd. (formerly Immune America,
Inc.) (herein the "Company") was incorporated under the laws of the State of
Nevada on July 30, 1985.
On June 12, 1997, the Company exchanged 18,800,000 shares of its common
stock for 99.94% of the 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].
This exchange of the Company's common stock to the former KPT and KPD
shareholders resulted in those former shareholders obtaining a majority voting
interest in the Company. Generally accepted accounting principles require that
the company whose stockholders retain the majority interest in a combined
business be treated as the acquirer for accounting purpose. Consequently, this
transaction has been accounted for as a "reverse acquisition" for financial
reporting purposes and KPT and KPD are deemed to have acquired 94% of equity
interest in the Company as of the date of acquisition. The relevant acquisition
process utilizes the capital structure of Immune America, Inc., and the assets
and liabilities of KPT and KPD are recorded at historical cost.
KPT and KPD are the operating entities for financial reporting
purposes, 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.
KPD 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.
KPT is a Thailand-based corporation engaged in selling various
souvenirs and consumer products in the international and domestic terminal 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 the 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 share. On the same date, KPT acquired 5,093 shares of
common stock in KPG Thai, equivalent to 50.93% of the registered capital.
Ultimately, the Company owns 99.93% of equity interest in KPG Thai.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements,
which include the accounts of the Company and its subsidiaries, are prepared in
accordance with accounting principles generally accepted in the United States of
America. All significant intercompany accounts and transactions have been
eliminated in consolidation. Investment in other companies under 20% of interest
was accounted for using the cost method. 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 Inventories - Merchandise inventories are stated at the
lower of cost or market. Cost is determined on a weighted average basis.
Allowance for Doubtful Accounts - The allowance for doubtful accounts
of the Company is provided at the estimated collection losses on receivables,
based on the Company's collection experience together with a review of the
financial position of each debtor.
10
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Currency Translation and Transactions - The financial position
and results of operations of the Company's foreign subsidiaries are determined
using the local currency as the functional currency. Assets and liabilities of
these subsidiaries are translated at the prevailing exchange rates in effect at
each year end. Contributed capital accounts are translated using the historical
rate of exchange when capital was 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.
Gains or losses on exchange are recognized as income or expenses in the
year.
Differences between the forward rate and the spot rate in forward
exchange contracts are amortized as revenue and expense over the period of the
contract.
The exchange rates as of March 31, 1999, and December 31, 1998, are $
1= Thai Baht 37.639 and Baht 36.688, respectively. The average rates of exchange
for the three months ended March 31,1999,and 1998, are $1= Thai Baht 37.310 and
Baht 45.482, respectively.
Property, Plant and Equipment - Property, plant and equipment are
stated at cost.
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of the assets as follows:
Building 20 Years
Leasehold improvements Term of lease
Selling office equipment and fixtures 5 Years
Vehicles 5 Years
Maintenance, repairs and minor renewals are charged directly to
expenses as incurred. Store Pre-Opening Costs - Store pre - opening
costs are expensed as incurred.
Use of Estimates - 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
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition - The Company recognizes revenue from sales of
merchandise at the point of sale. Concession Fees - According to the concession
agreement with Airports Authority of Thailand, KPT is required to pay concession
fees, rental and services fees, and other related expenses at the fixed charges
per month as defined in the agreement. According to the concession agreement,
the Airports Authority of Thailand, KPD is required to pay concession fees at
the fixed percentage of sales but at least equal to the fixed charges as defined
in the agreement, and pay rental and service fee and other related expenses.
Concentrations of Credit Risk - The Company's retail businesses are
cash flow businesses. Most sales take place with cash receipts or credit card
payments. The company maintains its cash accounts with various financial
institutions. See Note 9 with respect to loans and advances to directors and
affiliated companies.
11
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, under Statement of Financial Accounting Standards No. 109.
The Company does not provide for United States income taxes on
unremitted earnings of its Thailand-based subsidiaries since the Company's
intention is to reinvest these earnings in their operations.
Earnings Per Share - Basic earnings per share has been computed based
on the average number of common shares outstanding for the period. There
are no potential diluted securities outstanding.
Reclassification- certain 1998, amounts have been reclassified to
confirm with the 1999, presentation.
New Accounting Standards Not Yet Adopted-Accounting for Derivative
Instruments and hedging Activities - Statement of Financial Accounting Standards
No. 133 is effective for fiscal years beginning after June 15, 1999. This
Statement requires that certain derivative instruments be recognized in balance
sheets at fair value and for changes in fair value to be recognized in
operations. Additional guidance is also provided to determine when hedge
accounting treatment is appropriate whereby hedging gains and losses are offset
by losses and gains related directly to the hedged item. The Company believes
that adoption will not have a significant impact on financial condition or
operating results.
12
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. RESTRICTED FIXED DEPOSITS
1999 1998
---- ----
Restricted fixed deposits $ 6,526,882 $ 5,254,485
Interest rates 6.25%-15.00% 6.00%-15.00%
As at March 31, 1999, and December 31, 1998, the restricted fixed
deposits with maturities from six to twelve months are pledged as a collateral
to a commercial bank for bank credit facilities of subsidiaries. As these are
current obligations of the Company, the deposits are shown as current assets.
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 10% starting at August 16, 1997 . The
Minister of Finance, however, declared a new value added tax at the rate 7%
commencing at April 1, 1999, in order to stimulate the domestic economy.
5. PROPERTY, PLANT AND EQUIPMENT - NET
1999 1998
---- ----
Land $ 698,260 $ 716,393
Building 137,304 140,870
Leasehold improvements 4,500,916 4,556,110
Sales office equipment and fixtures 2,182,003 2,160,045
Vehicles 637,455 654,010
---------- -----------
Total cost 8,155,938 8,227,428
Less Accumulated depreciation (2,392,836) (2,053,818)
- ---- ----------- -----------
Net book value $ 5,763,102 $ 6,173,610
=========== ===========
6. BANK OVERDRAFT AND LOANS FROM BANKS
1999 1998
---- ----
Bank overdraft $ 1,515,858 $ 516,589
Trust receipts 11,526,836 9,669,158
Promissory note 1,157,655 --
----------- -----------
$14,200,349 $10,185,747
=========== ===========
13
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at March 31, 1999, and December 31, 1998, the Company has an
overdraft facility with a commercial bank in Thailand totaling Baht 20.74
million ( $ 570,000) , carrying interest rates at MOR (Minimum Overdraft Rate),
plus 1% per annum. For the three months ended March 31, 1999, the average rate
of MOR was 10.00% - 12.00% per annum and for the year ended December 31 ,1998,
the average rate of MOR was 15.00% - 21.75% per annum. Available lines of credit
for the bank overdrafts are guaranteed by certain directors and pledge of fixed
deposits. (Note 3)
As at March 31, 1999, and December 31, 1998, trust receipts incurred by
KPD bear interest at rates varying from 7.88%-12.06% and 7.14%-17.50% per
annum, respectively, and are guaranteed by fixed deposits, KPD's land, and two
directors of KPD together with a related company. Trust receipts are as follows
as of March 31, 1999:
<TABLE>
Currencies Amount Interest rate(%)
<S> <C> <C> <C> <C>
Foreign currency borrowing by subsidiaries in Thailand
- -under forward contract USD 5,810,566 $ 5,810,566 9.28-12.06
CHF 274,541 274,541 9.28-12.06
DEM 83,354 83,354 9.28-12.06
- -without forward contract AUD 83,285 52,886 9.28-12.06
BAHT 839,340 22,301 10.00-12.00
DEM 273,902 151,157 10.07
FRF 1,517,581 249,840 9.28-12.06
GBP 10,817 17,549 10.54
HKD 7,912,939 1,027,918 9.27-12.06
ITL 347,220,960 193,739 9.27-12.06
SGD 301,773 176,021 9.28-12.06
ATS 580,474 45,566 9.28-12.06
CHF 227,330 153,674 7.88-8.23
USD 3,254,316 3,267,724 9.28-12.06
-----------
$11,526,836
===========
As of March 19, 1999,KPD issued a 30-day promissory note payable to a
local commercial bank, which bears interest at rates varying from 9.75%-10.50%
per annum. The note was paid on April 19, 1999.
7. CONCESSION FEES
Accrued concession fees consist of the following:
1999 1998
---- ----
- The Customs Department of Thailand $ 2,409,602 $ 2,881,077
- The Airports Authority of Thailand 8,132,457 7,916,758
----------- -----------
10,542,059 10,797,835
Accrued penalty on delay payment 354,320 0
----------- -----------
$10,896,379 $10,797,835
=========== ===========
Three months ended March 31,
1999 1998
---- ----
Concession fee expense $ 6,468,115 $ 6,960,003
=========== ===========
</TABLE>
In order to obtain the necessary rights to operate at the international
and domestic airports in Thailand, the Company has entered into various
agreements with the Airports Authority of Thailand and the Customs Department of
Thailand which including the right to rent office space.
Both KPD and KPT are required to pay concession fees, rental and
service fees, property tax, and other expenses and to pledge cash or obtain a
letter of bank guarantee of a local commercial bank as collateral under the
aforementioned agreements with the Airports Authority of Thailand and pay
concession fees under the aforementioned agreements with the Customs Department
of Thailand.
14
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at March 31, 1999, both KPD and KPT were charged penalty due to late
payment on concession fee to the Customs Department and the Airports Authority
of Thailand amounting to $ 260,079.22 and $ 94,240.78 , respectively.
<TABLE>
A summary of the concession and rental fees payable and collateral for
the remaining period of the agreement are as follows:
KPT KPD
- -------------------------------------------------------- ----------------------------------------------
Airport Rental, Service Collateral Airport and Rental,Service Collateral
Concession fee & other Customs & other
expense Concession fee expense
"000 "000
<S> <C> <C> <C> <C> <C> <C>
Year
1999 $ 11809 $ 668 $ 6988 $ 9401 $ 916 $ 4690
2000 11606 668 6988 9736 916 4858
2001 12157 668 6988 10071 916 5025
2002 12886 668 6988 0 0 0
2003 3268 668 6988 0 0 0
Effective March 19, 1998, the Customs Department of Thailand agreed to
waive the concession fees which KPD is required to pay for the duration of KPD's
concession through 2001, thus reducing the total amount required. Amounts
expensed by KPD under The Customs Department of Thailand concession were $
9,024,251 for 1997 and $ 1,988,951 from January 1 to March 19, 1998.
Additionally, the Customs Department approved on November 6, 1998, an extension
of the repayment of concession fee for December, 1997, and January, 1998,
amounting to $ 1,716,107 as installment payments, carrying interest rate of 1%
per month and due in October 1999.
8. LONG-TERM LIABILITIES 1999 1998
---- ----
Long-term loans $ 258,100 $ 1,575,401
Installment purchase payable 54,582 59,556
--------- ------------
312,682 1,634,957
Less Current portion of long-term debt (40,108) (1,346,820)
----- --------- ------------
Long-term liabilities 272,574 288,137
Other liabilities 17,789 114,790
--------- ------------
$ 290,363 $ 402,927
========= ============
</TABLE>
As at March 31,1999, and December 31,1998, long-term loans consist of
loans from banks and financial institution, carrying interest rate of 17.25% -
21.50% per annum. The long-term loans are secured by the Company's land and
building and guaranteed by a director of the Company . ( See Notes 5 )
Loans are due as follows:
1999 1998
---------- ----------
Installment Purchase Obligation
1999 33,156 38,340
2000 9,382 8,859
2001 6,569 6,740
2002 5,475 5,617
---------- ----------
Total 54,582 59,556
========== ==========
Long-term Loan Installment Payments
1999 5,484 1,346,820
Thereafter 252,616 228,581
---------- ----------
Total 258,100 1,575,401
=========== ==========
15
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SHAREHOLDER'S EQUITY
(a) Per the reverse acquisition agreement, the two Thailand-based companies
together received 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 the reverse acquisition agreement, 752,000 shares out of the total
18,800,000 shares were put in escrow subject to certain requirements
including that the Company shall have financial statements prepared in
accordance with U.S. GAAP and shall have reached certain criteria of
financial performance as of December 31, 1997. If, as of December 31, 1997,
the Company failed to satisfy any of these conditions the 752,000 shares
were to be released to a financial consultant which was also a party to the
reverse requisition agreement. During the first quarter of 1998, these
shares were released from escrow and issued to the financial consultant.
(c) Per the reverse acquisition agreement, the other 4% of equity interests
were represented by 1,200,000 shares of common stock as of June 12, 1997,
when the reverse acquisition was effective. These 1,200,000 shares of
common stock were represented by the following components.
<TABLE>
Common Stock Additional Retained Treasury Total
Shares Amount paid-in earnings stock
capital
-------- -------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance at
12/31/96 275,316 $ 275 $ 151,186 $ (143,833) $ (6,000) $ 1,628
Form S-8 issuance at
5/8/97 924,684 925 69,717 - - 70,642
Reissuing of treasury stock - - - - 6,000 6,000
Net loss at 6/12/97 - - - (78,270) - (78,270)
Total shareholders' equity
At June 12,1997 1,200,000 $ 1,200 $ 220,903 $ (222,103) $ - $ -
========= ======== ========= =========== ======= ===========
</TABLE>
(d) On August 18,1997, The Company issued 250,000 shares of its common stock to
two foreign entities, 125000 shares each, at a price of $8.00 per shares
with net of proceeds of $ 1,887,000. Both entities are located in Taipei,
Taiwan, Republic of China. One half of these shares 125,000 were placed in
escrow until May 1, 1998, subject to an additional payment by the purchaser
of $ 4.00 per share on all 250,000 shares issued or $ 1,000,000 in the
event that the earnings per share for the Company for the calendar year
ended December 31, 1997, exceeded a certain amount per share. If the
earnings per share for fiscal year 1997 were below the specified goal, then
the shares under escrow were to be released to the purchasers without
further consideration. These shares have been released from escrow without
further consideration. No underwriter or placement agent was used. The
issuance was conducted pursuant to Regulations promulgated under the United
State Securities Act of 1933, as amended.
10. INCOME TAX
The provision for income taxes consist of the following:
1999 1998
---- ----
Current (Payable) $ $
United States - -
Foreign (524,807) (1,335,278)
----------- ------------
(524,807) (1,335,278)
----------- ------------
Deferred Liability
United States - -
Foreign (93,880) 25,970
----------- ------------
(93,880) 25,970
----------- ------------
Total income tax expense $(618,687) $(1,309,308)
=========== ============
16
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pre-tax income for foreign companies for the quarter ended March 31,
1999, was $2,062,290. Current taxes payable are included in other current
liabilities.
The components of deferred tax assets and liabilities were:
1999 1998
---- ----
Reserves $ 4,673,478 $ 4,945,942
Temporary difference - -
Net operating loss carry forward 118,549 333,572
----------- -----------
4,792,027 5,279,514
Translation adjustment - -
Less Valuation allowance (751,180) (814,908)
- ----
----------- -----------
Deferred tax assets $ 4,040,847 $ 4,464,606
=========== ===========
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.
1999 1998
---- ----
Standard income tax rate 30.00% (30.80%)
Recognition of temporary differences 2.75 -
Recognition of net operating loss carry-forward - 0.60%
Less : Valuation allowance - -
Income tax benefit - -
------- --------
=======
Effective income tax rate 32.75% (30.20%)
======= ========
As at March 31, 1999 and December 31,1998, U.S. Parent Company has
deferred tax assets relating to net operating loss carry forwards for income tax
purpose of $ 118,549 and $ 333,572, respectively, that expire in years 1999 to
2000. No valuation allowance on the foreign loss carry forwards has been
provided at December 31, 1998, as the Company has determined that it is more
likely not to realize these deferred income tax assets.
17
<PAGE>
<TABLE>
<CAPTION>
11. RELATED PARTIES AND DIRECTORS TRANSATIONS
The Company has business transactions with and has advanced funds to related
companies and directors.These transactions are with companies that have joint
directors and/or shareholders with the Company. Balance at March 31,1999,and
December 31,1998,with related companies and directors are as follows (in'000)
As at March 31, 1999
Accounts Loans and receivables to related Management Accounts Other
receivable companies and Directors fee receivables payable payable
-----------------------------------------------------------------------------------------
Loans Interest and Total
other receivables
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter 1999
KING Power International Co.,Ltd. 1,675 6,348 179 194 8,396 51 -
Forty Seven Co.,Ltd. - 4,371 453 - 4,824 - -
Downtown D.F.S. (Thailand) Co.,Ltd. 179 2,588 417 2,452 5,636 - -
King Power Duty Free (CBO) Ltd. - 1,431 164 - 1,595 - -
Top China Group Co.,Ltd. - 1,269 103 - 1,372 - -
Lengle (Thailand) Co.,Ltd. - 2,112 20 - 2,132 - -
Grand Enterprise and Tranding Parnership - 1,244 81 - 1,325 - -
King Power On Board and Sale Sale Service
Co.,Ltd. - 395 32 - 427 - -
Infotel Communication (Thailand) Co., Ltd. - 685 56 - 741 - -
King Power Development Co., Ltd. - - - - - - -
King Power Alpha on Board and Sale Service
Co., Ltd. - 2 - - 2 - -
Thai Nishigawa Internation Co., Ltd. - - - - - - -
Niji (Thailand) Co., Ltd. - - - - - - -
Airports Authority of Thailand. - - - - - 2,921
King Power Developement Co.,Ltd 3 - 3
-----------------------------------------------------------------------------------------
1,854 20,445 1,508 2,646 26,453 51 2,921
Directors - to/(from) - 1,605 226 - 1,831 - 589
-----------------------------------------------------------------------------------------
1,854 22,050 1,734 2,646 28,284 51 3,510
Less Allowance for doubtful account : - - - -
- ----
Related companies (1,827) (7,954) (841) (2,646) (13,268) - -
Directors - (1,605) (214) - (1,819) - -
-----------------------------------------------------------------------------------------
(1,827) (9,559) (1,055) (2,646) (15,087) - -
-----------------------------------------------------------------------------------------
Total 27 12,491 679 - 13,197 51 3,510
=========================================================================================
18
<PAGE>
As at March 31, 1999
Accounts Loans and receivables to related Management Accounts Other
receivable companies and Directors fee receivables payable payable
-----------------------------------------------------------------------------------------
Loans Interest and Total
other receivables
<S> <C> <C> <C> <C> <C> <C> <C>
Fourth Quarter, 1998
King Power International Co., Ltd. 1,690 1,052 156 199 3,097 - -
Forty Seven Co., Ltd. - 6,022 354 - 6,376 - -
Downtown D.F.S. (Thailand) Co., Ltd. 184 2,070 377 2,515 5,146 - -
King Power Duty Free (CBO) Ltd. - 1,429 128 - 1,557 88 50
Top China Group Co., Ltd.: - 1,302 70 - 1,372 - -
Lengle (Thailand) Co., Ltd. - 299 18 - 317 - -
Grand Enterprise and Trading Partnership - 1,177 47 - 1,224 - -
King Power on Board and Sale Service
Co., Ltd. - 372 25 - 397 98 -
Infotel Communication (Thailand) Co., Ltd. - 553 44 - 597 - -
King Power Development Co., Ltd. - 121 3 - 124 - -
King Power Alpha on Board and Sale Service
Co., Ltd. - 2 - - 2 55 -
Thai Nishigawa Internation Co., Ltd. - - - - - 66 -
Airports Authority of Thailand. - - - - - - -
----------------------------------------------------------------------------------------
1,874 14,399 1,222 2,714 20,209 307 50
Directors - 7,228 220 - 7,448 - -
----------------------------------------------------------------------------------------
1,874 21,627 1,442 2,714 27,657 307 50
Less Allowance for doubtful account :
Related companies (1,874) (8,110) (913) (2,714) (13,611) - -
Directors - (2,134) - - (2,134) - -
----------------------------------------------------------------------------------------
Total (1,874) (10,244) (913) (2,714) 15,745 - -
----------------------------------------------------------------------------------------
- 11,383 529 - 11,912 307 50
========================================================================================
</TABLE>
Additionally, the Airports Authority of Thailand owns 5% of KPD common shares.
As at March 31, 1999 and December 31, 1998 there are accrued concession fees
amounting to $ 8,132,457 and $ 7,916,758 , respectively. (see Note 7)
19
<PAGE>
An allowance for doubtful accounts of $ 15,087,261 has been provided
for certain amounts due from related companies and directors based on liquidity
restraints of such parties.
As at March 31,1999 and December 31, 1998, the Company charged interest
for loans to/from related companies at 10.00%, 14.50% - 17.50% per annum and
charged interest for loans to/from directors at 6.50% - 10.00% and 14.50% -
17.50% per annum, respectively. Such loans have no formal contracts or
collateral and are due on demand.
The Company had operating transactions with related parties and
directors as follows (in'000):
Related Companies
For the three months ended March 31,
1999 1998
---- ----
Sales 757 116
Interest income 366 239
Management fee income - 2,118
Purchase 74 48
Directors
For the three month ended March 31,
1999 1998
---- ----
Interest income 16 93
12. COMMITMENTS AND CONTINGENT LIABILITIES
Lease commitments
As of December 31, 1998, KPG Thai has a leasing commitment for office
space under a non-cancelable operating lease agreement in excess of one year.
As of January 1, 1999, KPG Thai transfered the rights of the lease agreement
aforementioned to KPT, KPD and KING POWER INTERNATIONAL CO., LTD. The
obligations of the various consolidated companies under these lease agreements
are set forth as follows:
-KPT has made lease agreement with SIAM TOWER to lease 26th floor
stating from January 1, 1999 to October 31, 2000.
-KPD has made lease agreement with SIAM TOWER to lease 27th floor
starting from January 1,1999 to October 31,2000.
As of March 31, 1999 and December 31, 1998 KPT and KPD were
contingently liable for bank guarantees totaling $12.26 million and $ 13.46
million, respectively, issued in favor of the Excise Department and the Airport
Authority of Thailand as a performance bond. Unused letters of credit
As of March 31,1999 and December 1998, KPT and KPD have the unused
letters of credit amounting to $ 2.25 million and $ 6.46 million, respectively.
13. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for March 31, 1999,
and December 31, 1998, are disclosed in accordance with Statement of Financial
Accounting Standard No.131 ("SFAS 131"). Information by legal entities is the
reportable segment under SFAS 131 because each entity is reported separately for
management (in'000).
20
<PAGE>
<TABLE>
For the three months ended March 31, 1999
Duty Free Tax Free All Other Adjustments Consolidated
Retail Retail And Elimination
------------ ------------- ---------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
Segment Information US$ US$ US$ US$ US$
- -------------------
- - Revenue from external 16,368 7,441 - - 23,809
customers
- - Intersegment revenue - 1,126 - - -
- - Cost of merchandise sold 7,852 3,345 - - 11,197
- - Concession fees 3,455 3,013 - - 6,468
- - Gross profit 5,061 2,209 - (1,126) 6,144
- - Management fee income - - - - -
- - Interest Income 406 59 24 (77) 413
- - Interest expense 371 4 77 (77) 375
- - Segment net income (loss) 933 510 1,128 (1,348) 1,223
- - Segment total assets 42,165 14,859 13,258 (22,084) 48,198
- - Expenditures for segment
assets 64 68 6 - 138
</TABLE>
21
<PAGE>
<TABLE>
For the three months ended March 31,1998
Duty Free Tax Free All Other Adjustments Consolidated
Retail Retail And Elimination
------------ ------------- ---------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Segment Information US$ US$ US$ US$ US$
- -------------------
- - Revenue from external 13,354 9,191 - - 22,546
customers
- - Intersegment revenue 428 - - (428) -
- - Cost of merchandise sold 5,811 3,491 - (428) 8,874
- - Concession fees 3,745 3,215 - - 6,960
- - Gross profit 4,227 2,485 - - 6,711
- - Management fee income - - 267 (220) 48
- - Interest Income 201 108 - (31) 278
- - Interest expense 239 107 33 (31) 348
- - Segment net income (loss) 2,528 569 2,948 (3,014) 3,032
- - Segment total assets 31,302 18,726 16,992 (18,880) 48,140
- - Expenditures for segment
assets 247 111 337 - 695
</TABLE>
22
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
(1) Caution Regarding Forward-Looking Information
This report contains certain forward-looking statements and information relating
to the Company that is based on the beliefs of the Company or management as well
as assumptions made by and information currently available to the Company or
management. When used in this document, the words "anticipate", "believe",
"estimate", "expect", and "intend" and similar expressions, as they relate to
the Company or its management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company regarding
future events and are subject to certain risks, uncertainties and assumptions,
including the risks and uncertainties noted. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. In each instance, forward-looking
information should be considered in light of the accompanying meaningful
cautionary statements herein.
(2) Effects on the Change in Foreign Currency Exchange System
On July 2, 1997, the Thai Government announced that the Thai Baht would
thereafter be converted to a "Managed Float" system for the relationship of the
Baht to other international currencies. This change had an immediate impact on
the Company's operations and the results of its operations.
The Company's subsidiaries conduct their business with selling and purchase
prices based on Thai Baht, US Dollars, and other currencies. Sales are made both
in Thai Baht and other currencies, but eventually will be converted into Thai
Baht. Accordingly, the Company bears foreign currency transaction risks between
the date of purchase of goods for resale and the ultimate payment of the goods
in the appropriate negotiated currency.
The overall effect of the Thai Baht devaluation was an increase in the
attractiveness of Thailand as a tourist destination. This increase in tourists
had a direct impact on increasing the Company's sales in the post-devaluation
time period.
In accordance with generally accepted accounting principles, the Company has
separately presented the following items in its statement of income for the
quarterly ended March 31, 1999:
Realized gain on foreign exchange $0.2 million
Realized loss on foreign exchange $0.3 million
Unrealized gain on foreign exchange $0.2 million
Unrealized loss on foreign exchange $0.1 million
The calculation of unrealized foreign exchange gain of $0.2 million and
unrealized foreign exchange loss of $0.1 million is shown in charts labeled A
and B, respectively.
23
<PAGE>
<TABLE>
<CAPTION>
CHART A
The calculation of Unrealized gain on foreign exchange of US$ = 244,874 was
calculated on accumulated basis with quarterly adjustment as shown below:
Accounts payable in foreign currency as of 3/31/99
- --------------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
3/31/99
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
British Pound Sterling 23,705 61.0621 1,447,477
France Franc 1,137,682 6.1961 7,049,193
German Deutschmark 32,542 20.7703 675,901
Hong Kong Dollar 2,487,047 4.8891 12,159,423
Italian Lire 174,487,131 0.0210 3,664,230
Japanese Yen 490 31.5023 15,436
Singapore Dollar 4,505 21.9529 98,908
Swiss Franc 142,929 25.442 3,636,389
US Dollar 2,555,205 37.7915 96,565,035
- --------------------------------------------------------------------------------------------------------------
Total 125,311,993
- --------------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 132,228,878
Unrealized gain on accounts payable in foreign currency
--------------------
6,916,885
--------------------
Account Receivable in Foreign Currency as of 3/31/99
- --------------------------------- ----------------------------------------------------------------------------
Currency Amount Exchange rate Total
3/31/99
- --------------------------------------------------------------------------------------------------------------
British Pound Sterling 7,080 60.3739 427,454
Swiss Franc 36,418 25.1250 914,990
- --------------------------------------------------------------------------------------------------------------
Total 1,342,445
- --------------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 1,237,720
--------------------
Unrealized gain on account receivable in foreign currency 104,725
--------------------
</TABLE>
24
<PAGE>
<TABLE>
Unrealized gain on cash on hand as at 3/31/99
- --------------------------------------------------------------------------------------------------------
Currency Amount Exchange rate Total
3/31/99
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar 7,781 23.4536 182,497
British Pound Sterling 60,110 60.3739 3,629,046
Canadian Dollar - - -
China Renminbi Yuan 23,966 4.3986 105,417
French Franc 10,000 6.1079 61,079
German Deutschmark 14,215 20.4850 291,194
Hong Kong Dollar 278,438 4.8328 1,345,633
Japanese Yen 12,380,957 0.310407 3,843,136
Korean Won 2,024,000 0.0308 62,339
Malaysia Ringgit 692 9.7520 6,748
Netherland Guilder - - -
Singapore Dollar 5,227 21.5700 112,746
Swiss Franc 690 25.1250 17,336
Taiwanese dollar 94,200 1.1307 106,512
US Dollar 114,185 37.5541 4,288,114
- --------------------------------------------------------------------------------------------------------
Total 14,051,799
- --------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 13,142,958
Unrealized gain on cash in hand in foreign currency 908,841
Add: Unrealized gain on accounts receivable in foreign currency 104,725
Unrealized gain on accounts payable in foreign currency 6,916,885
--------------
Sub-total in Baht 7,930,451
--------------
(US$1 = 37.3134 Baht) US$ = 212,536
--------------
Unrealized gain advanced from companies as at 3/31/99
- ---------------------------------------------------------------------------------------------------------
Currency Amount Exchange rate Total
3/31/99 US Dollar
- ---------------------------------------------------------------------------------------------------------
BAHT CURRENCY 42,331,961 37.7915 1,120,145
- ---------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 1,150,213
---------------
Unrealized gain on advanced from companies 30,068
---------------
Unrealized gain on interest payable as at 3/31/99
- ---------------------------------------------------------------------------------------------------------
Currency Amount Exchange rate Total
3/31/99 US Dollar
- ---------------------------------------------------------------------------------------------------------
BAHT CURRENCY 4,456,405 37.7915 117,921
- ---------------------------------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 120,190
---------------
Unrealized gain on interest payable 2,269
Add: Unrealized gain on advance from companies 30,068
Sub-total in US Dollar 32,338
Add: Sub-total in Baht 212,536
---------------
Net unrealized gain on exchange rate as at 3/31/99 244,874
</TABLE>
25
<PAGE>
<TABLE>
CHART B
The calculation of Unrealized loss on foreign exchange of US$ = 54,592 was
calculated on accumulated basis with quarterly adjustment as shown below:
Unrealized loss on loan from bank as at 3/31/99
- --------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
3/31/99 Baht
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar 83,285 23.8990 1,990,437
Austria Schilling 580,474 2.9544 1,714,953
British Pound Sterling 10,817 61.0621 660,489
French Franc 1,517,581 6.1961 9,403,082
German Deutschmark 273,902 20.7703 5,689,021
Hong Kong Dollar 7,912,939 4.8891 38,687,149
Italian Lire 347,220,960 0.02100 7,291,640
Singapore Dollar 301,773 21.9529 6,624,799
Swiss Franc 227,330 25.4420 5,783,726
US Dollar 3,254,316 37.7915 122,985,477
- --------------------------------------------------------------------------------------------------
Total 200,830,774
BALANCE PER GENERAL LEDGER 198,793,810
Net Unrealized exchange loss as of 3/31/99 -2,036,964
---------------
US$ 1 = 37.3134 Baht US$ = 54,592
---------------
</TABLE>
26
<PAGE>
(3) Results of operations, comparing quarters ended March 31, 1999 and 1998
KPD began retail operations in 1997 and the revenue of this subsidiary is a
direct result of the increase in the number of tourists coming to Thailand as a
result of the Thai Baht devaluation and its fully functional retail stores.
Further growth was experienced in general merchandise sales at the KPT stores in
the Thailand airports, due to an increase in tourism traffic. Management
anticipates that Thailand will continue to be an attractive tourist destination
during future periods and will expand as a focal point for air travel throughout
Asia.
Sales revenue for the three months ended March 31, 1999, was approximately $23.8
million as compared to approximately $22.5 million for 1998. This increase is
directly attributable to the growth in number of tourist entering into Thailand
and the promotional sales discount to attract larger customer base. 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 closely located near Thailand. This
marketing campaign is international in scope and directly targeted to attract
additional new and repeat visitors to Thailand. The Company expects that this
promotional campaign will continue to directly impact the Company's operations
in a positive manner during and subsequent to this time period. In addition to
the "Amazing Thailand" campaign, during the first quarter of 1999, the Company
launched promotional sales discount in order to capture new and larger base
customer groups who are price sensitive. By implementing this strategy,
Management believes that the sales volume will continue to grow and will
ultimately result positively on the Company's operating profit.
The cost of merchandise sold for the three months ended March 31, 1999 and 1998,
was approximately $11.2 million and $8.9 million, respectively. The principal
factor causing this increase is directly related to the current campaign on
promotional sales discount of products sold in both subsidiaries that generated
more sales volume as described above. However, due to the higher sales volume
and lower cost of concession fees, comparing the time period ended March 31,
1998, to the time period ended March 31, 1999, the ratio of the Company's
concession fees to sales revenue dropped from approximately 30.86% in 1998 to
approximately 27.17% in 1999. The reasons for this decrease are an increase in
sales volume together with the fact that the additional customs duty of 15% on
gross sales previously imposed on KPD was exempted by the Customs Department
starting March 19, 1998, and continuing indefinitely. Furthermore, Management is
currently negotiated with the AAT to lower the fixed concession fees paid by KPT
to be more in-line with the size of sales volume of this subsidiary.
27
<PAGE>
Direct selling expenses, excluding depreciation and others, also reflect the
commencement of KPD's business and the increase in traffic at KPT's stores.
These expenses were approximately $2.6 million for the three months ended March
31, 1999, and approximately $1.9 million for the same period in 1998. In terms
of percentage of sales, 1999 expenses were approximately 10.97% of sales and
1998 expenses were approximately 8.43% of sales. This increase is directly
attributable to the promotional cost to support the on-going campaign activities
in order to expand customer base in parallel to the promotional sales discount
as mentioned above. However, Management believes that the sales volume will
continue to grow and will ultimately reduce this ratio favorably.
Administrative expenses for the three months ended March 31, 1999 and 1998, were
approximately $1.4 million and $1.0 million, respectively. As a percentage of
total sales, these expenses were approximately 5.77% and 4.22%, respectively.
This increase is directly attributable to the growth of the Company's size.
Management is constantly monitoring these expenses in order to control and
minimize this cost in relation to the Company's size, sales volume and
operational necessity.
Net income for the three months ended March 31, 1999, was approximately $1.2
million, or $0.06 per share (basic), and approximately $2.9 million, or $0.14
per share (basic), for the three months ended March 31, 1998.
The ratio of inventory divided by revenue for the three months ended March 31,
1999 and 1998, was approximately 54.48% and 65.42%, respectively. This decrease
is a result of the commencement of operations by the Company's new stores that
have begun to utilize the inventory build-up that occurred during previous
periods.
(4) Liquidity and Capital Resources
For the quarter ended March 31, 1999, and December 31, 1998, the Company had
working capital of approximately $4.4 million and $2.4 million, respectively.
The improvement of this figure is due to the Company's ability to expand
operations and to generate increased sales, thereby increasing current assets.
Management anticipates that the current positive trend will continue as sales
continue to grow and operations are stabilized.
Management is currently engaged in a corporate restructuring process in order to
ultimately enhance the profitability and cash flows of the Company by investing
in profitable related companies and incorporating new potential projects into
the operations of the Company or its subsidiaries.
28
<PAGE>
(5) Monetary Assets and Liabilities Denominated in Thai Baht
As of March 31, 1999 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 1,883,260
Trade Accounts Receivable 294,984
Refundable value-added-tax 2,236,279
Related Parties 13,169,984
Deferred income tax assets 4,040,847
Restricted deposit 6,526,882
Other current assets 734,924
Other non-current assets 6,139,019
TYPE OF MONETARY LIABILITY
Bank overdraft & loan 14,200,349
Current portion of long-term loan 40,108
Accounts Payable 8,804,524
Advance from related companies 589,396
Concession fees 10,896,379
Other current liabilities 860,912
Installment purchase payable - net 272,574
Long-term loan - net 17,789
(6) Year 2000 Disclosures
The Company's previous computer system was not Year 2000 compliant. Due to the
expansion of the Company's business and the necessity to operate more
efficiently, management decided to change computer software and related hardware
systems to fully support the integration of all systems and all subsidiaries in
order to generate centralized management reporting and ensure more effective
control of the business. The new system was installed in October 1998, tested in
February 1999 and will be fully operational by the end of May 1999. The total
cost for this new computer system is estimated to be $650,000.
The Company does not have the ability to contact all of its numerous suppliers
to confirm that each one has effectively dealt with this problem. The Company
believes that if any of its current suppliers fail to become Year 2000 compliant
and, as a result, cannot supply the needed merchandise, the Company can, for the
most part, obtain similar or comparable merchandise from suppliers that are Year
2000 compliant. The banks and other financial institutions with which the
Company and its subsidiaries deal have reported that they are, or will be
shortly, Year 2000 complaint.
29
<PAGE>
(7) Recently Issued Accounting Principles
New Accounting Standards Not Yet Adopted - Accounting for Derivative Instruments
and Hedging Activities Statement of Financial Accounting Standards No. 133 is
effective for fiscal year beginning after June 15, 1999. This Statement requires
that certain derivative instruments be recognized in balance sheet at fair value
and for changes in fair value to be recognized in operations. Additional
guidance is also provided to determine when hedge accounting treatment is
appropriate whereby hedging gains and losses are offset by losses and gains
related directly to the hedged item. The Company believes that adoption will not
have a significant impact on financial condition or operating results.
30
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
31
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned who are duly
authorized.
KING POWER INTERNATIONAL GROUP CO., LTD.
May 19, 1999 By: /s/ Vichai Raksriaksorn
------------------------------------------------------------------
Vichai Raksriaksorn, President and Chief Executive Officer
May 19, 1999 By: /s/ Viratana Suntaranond
---------------------------------------------
Viratana Suntaranond, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted from Balance
Sheet at 03/31/99, Statement of Operations at 03/31/99
</LEGEND>
<CIK> 0000787690
<NAME> King Power International Group Co., Ltd.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,883,260
<SECURITIES> 9,034
<RECEIVABLES> 28,551,968
<ALLOWANCES> 15,087,000
<INVENTORY> 12,970,769
<CURRENT-ASSETS> 42,048,086
<PP&E> 8,155,938
<DEPRECIATION> 2,392,836
<TOTAL-ASSETS> 48,187,105
<CURRENT-LIABILITIES> 37,697,283
<BONDS> 0
0
0
<COMMON> 20,250
<OTHER-SE> 9,816,766
<TOTAL-LIABILITY-AND-EQUITY> 48,187,105
<SALES> 23,809,660
<TOTAL-REVENUES> 23,809,660
<CGS> 11,196,780
<TOTAL-COSTS> 17,664,895
<OTHER-EXPENSES> 4,727,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 375,248
<INCOME-PRETAX> 1,888,711
<INCOME-TAX> 618,687
<INCOME-CONTINUING> 1,270,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,222,658
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
