FORM 10-Q
- --------------------------------------------------------------------------------
For the quarterly period ended June 30, 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: August 10, 1999: 20,250,000
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarterly ended June 30, 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 22
Part II - Other Information
Item 1 Legal Proceeding 33
Item 2 Changes in Securities 33
Item 3 Defaults Upon Senior Securities 33
Item 4 Submission of Matters to a Vote of Securities Holders 33
Item 5 Other Information 33
Item 6 Exhibits and Reports on Form 8-K 33
2
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<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Note June 30, December 31,
---------------------------
ASSETS 1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,940,700 $ 1,371,739
Trade accounts receivable 257,145 334,015
Refundable value added tax 4 1,731,694 2,238,862
Trade account receivable, Interest receivable and advances to
Affiliates, net of allowances for doubtful
accounts of $14.584 million and $15.745 million at
June 30,1999, and December 31, 1998,
respectively - net 11 6,864,268 11,911,642
Merchandise inventories - net 15,896,281 14,910,164
Restricted fixed deposits 3 3,488,979 5,254,485
Deferred income tax assets 10 4,002,601 4,464,606
Prepaid expense 3,978,514 273,163
Interest receivable 198,820 128,103
Other current assets 590,347 484,334
----------- -----------
Total current assets 40,949,349 41,371,113
Investment in other companies 148,248 149,110
Investment in marketable securities (trading) 9,215 9,268
Property, plant and equipment - net 5 5,695,508 6,173,610
Other long - term assets 165,703 373,028
----------- -----------
TOTAL ASSETS $46,968,023 $48,076,129
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
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<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, December 31,
-----------------------------
Note 1999 1998
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and loans from banks 6 $ 10,028,452 $ 10,185,747
Current portion of long - term loan 8 45,373 1,346,820
Trade accounts payable 11 12,107,201 11,398,114
Accrued concession fee 7 10,115,579 10,797,835
Accrued corporate income tax 2,404,649 3,223,829
Other current liabilities 940,768 1,626,065
------------ ------------
Total current liabilities 35,642,022 38,578,410
Long - term loan - net 8 272,731 288,137
Other liabilities 8 -- 114,790
------------ ------------
Total liabilities 35,914,753 38,981,337
------------ ------------
Minority interest 410,465 343,473
COMMITMENTS AND CONTINGENCIES 7,12
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) (10,088,320) (11,916,895)
Translation adjustments (137,270) (200,181)
------------ ------------
Total shareholders' equity 10,642,805 8,751,319
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 46,968,023 $ 48,076,129
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
4
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<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six months ended June 30, Three months ended June 30,
---------------------------- ----------------------------
Note 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales revenue $ 42,860,323 $ 43,700,435 $ 19,050,663 $ 21,154,789
Cost of sales:
Cost of merchandise sold 20,257,555 17,821,111 9,060,775 8,946,874
Concession fees 7 11,783,937 13,252,146 5,315,822 6,292,143
------------ ------------ ------------ ------------
Total cost of sales 32,041,492 31,073,257 14,376,597 15,239,017
------------ ------------ ------------ ------------
Gross profit 10,818,831 12,627,178 4,674,066 5,915,772
Operating expenses :
Selling expenses
Sales salaries and welfare 4,174,048 3,720,340 2,096,931 2,085,657
Rental and service fee and other expenses
under the Concession fee 1,077,077 1,062,224 540,997 795,774
Provision for doubtful account (1,082,131 (764,850)
Depreciation 697,732 516,309 338,336 296,185
Others 815,938 672,131 435,669 393,193
------------ ------------ ------------ ------------
Subtotal 5,682,664 5,971,004 2,647,083 3,570,809
Administrative expenses 2,613,521 2,148,598 1,239,098 1,197,599
------------ ------------ ------------ ------------
Total operating expenses 8,296,185 8,119,602 3,886,181 4,768,408
------------ ------------ ------------ ------------
Income from operation 2,522,646 4,507,576 787,885 1,147,364
Other income :
Interest income - related company 403,059 228,037 101,012 206,950
Interest income 203,654 691,341 93,345 434,834
Realized gain on foreign exchange 263,859 589,655 89,715 187,096
Unrealized gain on foreign exchange 402,269 688,923 181,503 139,174
Management fee income 140,844 93,124
Provision for doubtful account 1,082,131 764,850
Other income 185,904 62,001 128,035 24,232
------------ ------------ ------------ ------------
Total other revenues 1,458,745 2,400,801 593,610 1,085,410
------------ ------------ ------------ ------------
Other expenses :
Interest expenses 668,290 679,075 293,043 330,673
Realized loss on foreign exchange 408,778 732,470 104,990 44,524
Unrealized loss on foreign exchange 34,256 279,111 2,106 981,474
------------ ------------ ------------ ------------
Total other expenses 1,111,324 1,690,656 400,139 1,356,671
------------ ------------ ------------ ------------
Net income before income tax 2,870,067 5,217,721 981,356 876,103
Income tax 10 (973,899) (1,586,526) (355,211) (277,218)
------------ ------------ ------------ ------------
Net income before minority interest 1,896,168 3,631,195 626,145 598,885
Minority interest (67,593) (177,578) (20,227) (49,524)
------------ ------------ ------------ ------------
Net income attributed to common shares 1,828,575 3,453,617 605,918 549,361
============ ============ ============ ============
Weighted average number of common shares outstanding 20,250,000 20,250,000 20,250,000 20,250,000
Basic earning per share $ 0.09 $ 0.17 $ 0.03 $ 0.03
The accompanying notes are an integral part of the financial statements
</TABLE>
5
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<TABLE>
<CAPTION>
UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six months ended June 30, Three months ended June 30,
------------------------- ---------------------------
Note 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income attribute to common shares $ 1,828,575 $ 3,453,617 $ 605,918 $ 549,361
Other comprehensive income, before tax:
Foreign currency translation adjustments 62,911 745,545 220,119 (1,518,382)
Income tax expense related to items of other
comprehensive
Income
----------- ----------- ----------- -----------
Other comprehensive income, net of tax 62,911 745,545 220,119 (1,518,382)
----------- ----------- ----------- -----------
Comprehensive income $ 1,891,486 $ 4,199,162 $ 826,037 $ 969,021
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
6
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<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, Three months ended June 30,
------------------------- ---------------------------
Note 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income $ 1,828,575 $ 3,453,617 $ 605,918 $ 549,361
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 697,732 516,309 338,337 296,185
Unrealized loss on foreign exchange 34,256 279,111 2,106 981,474
Unrealized gain on foreign exchange (402,269) (688,923) (181,504) (139,174)
Deferred tax assets 462,005 408,923 38,246 55,221
Provision for doubtful accounts (1,082,131) (569,982)
Minority interest - income statements impact 67,593 177,578 20,227 49,524
Decrease (increase) in operating assets :
Trade accounts receivable, Interest receivable 6,129,505 (8,393,812) 6,313,318 (3,796,187)
and Advances to Affiliates
Trade accounts receivable 46,387 (38,378) (22,467) 8,596
Refundable valued added tax 507,168 (1,310,653) 504,585 (348,113)
Inventories (986,117) 719,063 (2,925,512) 2,441,145
Interest receivable (70,717) 305,469 (8,663) 398,344
Prepaid expense (3,705,351) (3,705,351)
Other current assets (106,013) (238,611) (128,586) 894,483
Increase (decrease) in operating liabilities :
Trade accounts payable 971,169 (600,263) 3,379,425 (1,262,688)
Accrued concession fee (682,256) 4,174,551 (780,800) 2,220,904
Other current liabilities (679,137) 2,052,258 86,016 (124,275)
Accrued corporate income tax (819,180) 99,034 (993,099)
Other liabilities (124,739) (27,736)
Minority interest - income statement impact (601) 11,927 7,545 (48,927)
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities $ 2,085,879 $ 828,166 $ 3,044,156 $ 1,182,774
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements
7
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<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six months ended June 30, Three months ended June 30,
-------------------------- ---------------------------
Note 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES :
Reduction in investment in other company $ 862 $ (13,500) $ (2,912) $ 12,420
Reduction in investment in marketable securities 53 (2,468) (181) 2,271
Purchase of fixed assets (219,630) (1,582,459) (270,743) (179,798)
Addition in long-term assets 207,325 (191,145) 55,843 (192,667)
Addition in deposit with related company (634,961)
----------- ----------- ----------- -----------
Net cash provided (used) by investing activities (11,390) (1,789,572) (217,993) (992,735)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds (repayment) in bank overdrafts, Bank
loan and note payable (32,788) 2,714,451 (3,992,799) 314,640
Proceeds (repayment) from installment purchase payable 4,012 (11,052)
Proceeds (repayment) from long-term loan (1,306,904) 23,320 15,371 (23,226)
Translation adjustment 62,911 745,545 220,119 (1,518,382)
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities (1,276,781) 3,487,328 (3,757,309) (1,238,020)
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash and cash equivalents 5,747 41,900 (49,317) 55,575
Decrease (Increase) in restricted fixed deposit 1,765,506 (522,046) 3,037,903 1,239,362
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents 2,568,961 2,045,776 2,057,440 246,956
Cash and cash equivalents - beginning of period 1,371,739 1,316,880 1,883,260 3,115,700
----------- ----------- ----------- -----------
Cash and cash equivalents - end of period 3,940,700 3,362,656 3,940,700 3,362,656
=========== =========== =========== ===========
Supplement cash flow information
Cash paid during the period :
Interest paid 778,391 533,220 306,150 256,893
Income taxes paid 1,406,982 1,006,215
</TABLE>
The accompanying notes are an integral part of the financial statements
8
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(UNAUDITED)
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Accumulated
Additional Other
Common Stock Paid in Comprehensive Retained Comprehensive
Shares Amount Capital Income Earnings Income Total
------- ------ ---------- ------------- -------- ------------- -----
US$ US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 20,250,000 20,250 20,848,145 (7,629,761) (3,474,340) 9,764,294
Net Income 3,453,617 3,453,617 3,453,617
Other Comprehensive income, net of tax
Foreign currency translation adjustment 745,545 745,545 745,545
----------
Comprehensive Income - - - 4,199,162 - - -
---------- --------- ----------- ========== ---------- ---------- ----------
Balance, June 30, 1998 20,250,000 20,250 20,848,145 (4,176,144) (2,728,795) 13,963,456
========== ========= =========== ========== ========== ==========
Balance January 1, 1999 20,250,000 20,250 20,848,145 (11,916,895) (200,181) 8,751,319
Net Income 1,828,575 1,828,575 1,828,575
Other comprehensive income, net of tax
Foreign currency translation adjustment 62,911 62,911 62,911
---------
Comprehensive Income - - - 1,891,486 - - -
---------- --------- ----------- ========= ---------- ---------- ----------
Balance, June 30, 1999 20,250,000 20,250 20,848,145 (10,088,320) (137,270) 10,642,805
========== ========= =========== ========== ========== ==========
</TABLE>
9
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(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 terminals of
the various airports located in 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.
Provision for Doubtful Accounts - The provision 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 however the company will provide the amount of
total allowance for loan loss reserved at the maximum of the total loan and
interest outstanding.
10
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(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Currency Translation and Transactions - The financial position
and results of operations of the Company's foreign subsidiaries are determined
using the local currency as the functional currency. Assets and liabilities of
these subsidiaries are translated at the prevailing exchange rates in effect at
each period 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 for the six months. 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 foreign exchange transaction are recognized as
incurred in the consolidated statements of in 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 the six months June 30,1999, and December 31,
1998, are $1= Thai Baht 36.897 and Baht 36.688, respectively. The average rates
of exchange for the six months ended June 30,1999,and 1998, are $1= Thai Baht
37.121 and Baht 40.413, respectively.
Property, Plant and Equipment - Property, plant and equipment are
stated at cost.
Depreciation is computed by using the straight-line method over the
estimated useful lives of the assets as follows:
Buildings 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.
Interim financial information- the interim financial statements for the
six months ended June 30, 1998 and1999, are unaudited, in the oopinion of
management, such statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the results of
operations for the interim periods. The results of operations for the six months
ended June,301998and1999,are not necessarily indicative of the results for the
entire year.
Revenue Recognition - The Company recognizes revenue from sales of
merchandise at the point of 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 with 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.
Fair Value of Financial Instruments - The carrying amount of cash,
trade accounts receivable, notes receivable, trade accounts payable and accrued
payable are reasonable estimates of their fair value because of the short
maturity of these items. The carrying amounts of the Company's credit facilities
approximate fair value because the interest rates on these instruments are
subject to change with market interest rates.
Income Taxes - The Company accounts for income taxes using the
liability method,which requires an entity to recognize the deferred tax
liabilities and assets. Deffered income taxes are recognized based on the
differences between the tax bases of assets and liabilities and their reported
amounts in the financial statements which will result in taxable or deductible
11
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(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
amounts in future years. Further, the effects of enacted tax laws or rate
changes are included as part of deferred tax expense or benefits in the period
that covers the enactment date . A valuation allowance is recognized if it is
more likely than not that some portion, or all of, a deferred tax asset will not
be realized.
The Company does not provide 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 - ertain 1998 amounts has been reclassified to conform
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 to 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. For the period six
months ended June 30,1999, that adoption does not have a significant impact on
financial condition or operating results.
3. RESTRICTED FIXED DEPOSITS
June 1999 December 1998
--------- -------------
Restricted fixed deposits $3,488,979 $5,254,485
Interest rates 5.00% - 15.00% 6.00% - 15.00%
As of June 30, 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
For 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% effective 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
June 1999 December 1998
----------- --------------
Land $ 712,253 $ 716,393
Building 140,056 140,870
Leasehold improvements 4,604,279 4,556,110
Sales office equipment and fixtures 2,193,277 2,160,045
Vehicles 673,982 654,010
---------- -----------
Total cost 8,323,847 8,227,428
Less Accumulated depreciation (2,628,339) (2,053,818)
---- ---------- -----------
Net book value $ 5,695,508 $ 6,173,610
========== ===========
As of June 30,1999 and December 31,1998,land and building are pledged
as collateral for lines of credit and trust receipts and long-term loans from
bank. (Note 6 and Note 8)
12
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. BANK OVERDRAFT AND LOANS FROM BANKS
June 1999 December 1998
------------ -------------
Bank overdraft $ 620,498 $ 516,589
Trust receipts 8,522,326 9,669,158
Promissory note 885,628 --
----------
$ 10,028,452 $ 10,185,747
========== ==========
As of June 30, 1999, and December 31, 1998, the Company has an
overdraft facility with a commercial bank in Thailand totaling Baht 30.74
million ( $ 711,169) , carrying interest rates at MOR (Minimum Overdraft Rate),
plus 1% per annum. For the six months ended June 30, 1999, the average rate of
MOR was 10.25% - 14.25% 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 June 30, 1999, and December 31, 1998, trust receipts incurred by
KPD bear interest at the rates varying from 5.483%-15.50% 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 June30, 1999:
Currencies Amount Interest rate(%)
BAHT 159,027,647 $ 4,309,649 11.50-14.50
USD 2,413,461 2,420,037 8.96-11.25
CHF 170,674 110,716 7.75
DEM 45,147 24,001 7.22-9.03
AUD 81,975 54,536 10.75
FRF 1,565,767 248,437 7.5-9.0
GBP 10,997 17,408 11.25
HKD 4,086,005 529,581 11.50
ITL 300,260,004 161,927 9.00
SGD 142,299 84,296 8.25
EUR 539,373 560,960 8.07
-----------
8,521,548
===========
As of June 21,1999,KPD renewed a 30-day promissory note payable to a
local commercial bank, which bears interest at rates varying from 8.75%-14.50%
per annum. The amount was paid on July 21, 1999.
7. CONCESSION FEES
Accrued concession fees as of June 30, 1999, and December 31, 1998,
consist of the following:
1999 1998
---- ----
- - The Customs Department of Thailand $ 2,051,354 $ 2,783,903
- - The Airports Authority Of Thailand 7,683,013 7,735,458
--------- ---------
9,734,367 10,519,361
Accrued penalty on delay payment 381,212 278,474
--------- ----------
$ 10,115,579 $ 10,797,835
========== ==========
Six months ended June 30,
1999 1998
---- ----
Concession fee expense $ 11,783,937 $ 13,252,146
========== ==========
13
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
A summary of the concession and rental fees payable and value of
collateral for the remaining period of the agreement are as amended are as
follows:
<TABLE>
<CAPTION>
KPT KPD
- ------------------------------------------------------------ ------------------------------------------------
Airport Rental,Service Collateral Airport and Rental,Service Collateral
Concession fee & other Customs & other
expense Concession fee expense
- ------------------------------------------------------------ ------------------------------------------------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Year
1999 $ 11,794 $ 671 $ 7,387 $ 9,401 $ 916 $ 4,690
2000 11,979 675 7,322 9,736 916 4,858
2000 12,631 675 7,121 10,071 916 5,025
2002 13,349 675 7,012 - - -
2003 13,531 675 6,762 - - -
</TABLE>
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
$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.
For the six month period ended June30,1999, and December 31,1998 both
KPD and KPT were charged penalty fees relating to late payment of concession fee
to the Customs Department and the Airports Authority of Thailand amounting to $
454,550 and $ 291,501 , respectively.
Effective June 8, 1999, KPT was entered into new concession contracts
for new 6 areas at the lower rate with the Airport Authority of Thailand to
continue the operation at the international and domestic airports in Thailand
out of which for the 2 areas , the rental fee per month for these areas is the
greater of 15 percent of total sales generated in each area or ,for area
4,US$6,411.47 and area 8, US$ 4,795.13 and the remaining four areas the rental
fees are totaling US$ 18,699.06 per month.
8. LONG-TERM LIABILITIES
Long term liabilities as of June 30, 1999, and December 31, 1998
consist of the following:
June 1999 December 1998
--------- -------------
Long-term loans $ 261,843 $ 1,575,401
Installment purchase payable 56,261 59,556
------- ---------
318,104 1,634,957
Less Current portion of long-term debt 45,373 (1,346,820)
---- ------- ---------
Long-term liabilities 272,731 288,137
Other liabilities 0 114,790
------- ---------
$ 272,731 $ 402,927
======= =========
14
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of June,30,1999, and December 31,1998, long-term loans consist of
loans from banks and financial institution, carrying interest rate of 16.25% 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 $ 26,545 $ 38,340
2000 17,431 8,859
2001 6,701 6,740
2002 5,584 5,617
------ --------
$ 56,261 $ 59,556
====== ========
Total
Long-term Loan Installment Payments
1999 $ 3,043 $ 1,346,820
Thereafter 258,800 228,581
------- --------
$ 261,843 $ 1,575,401
======= =========
Total
9. SHAREHOLDERS'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>
Additional
Common Stock paid-in Retained Treasury
Shares Amount capital earnings stock Total
--------- --------- --------- --------- --------- ---------
<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, 125,000 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
15
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
---- ----
<S> <C> <C>
Current income tax
$ $
United States - -
Foreign 539,793 1,615,754
------------------- ------------------
539,793 1,615,754
------------------- ------------------
Deferred income tax
United States - -
Foreign 434,106 (29,228)
------------------- ------------------
434,106 (29,228)
------------------- ------------------
Net income tax expense $ 973,899 $ 1,586,526
=================== ==================
Pre-tax income for foreign companies for half period ended June 30,
1999, was $3,074,892. Current taxes payable are included in other current
liabilities.
The components of deferred tax assets and liabilities were:
1999 1998
---- ----
Reserves for bad debts and inventory obsolescence $ 4,637,307 $ 4,945,942
Net operating loss carried forward 281,537 333,572
------------------ ------------------
4,918,844 5,279,514
Less Valuation allowance (916,243) (814,908)
- ----
------------------ ------------------
Deferred tax assets $ 4,002,601 $ 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 3.70 -
Recognition of net operating loss carried-forward - 0.60%
Less : Valuation allowance - -
Income tax benefit - -
----------------- ------------------
Effective income tax rate 33.70% (30.20%)
================= ==================
</TABLE>
As of June 30, 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 $ 281,537 and $ 333,572, respectively, that expire in years 1999 to
2000. A valuation allowance on the United States loss carried forward has been
provided , as the Company has determined that it is more likely than not that
these deferred income tax assets will not be realized.
16
<PAGE>
<TABLE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 June 30, 1999, and
December 31, 1998, with related companies and directors are as follows ($ in
thousands):
As of June 30 , 1999
Loans and receivables Management
Accounts to related companies fee
receivable and Directors receivables
---------- ------- ----------------- ------------ ------
Loans Interest and Total
other receivables
<S> <C> <C> <C> <C> <C>
Quarter 2nd, 1999
KING Power International Co.,Ltd. 910 7,331 184 - 8,425
Forty Seven Co.,Ltd. - 3,195 493 - 3,688
Downtown D.F.S. (Thailand) Co.,Ltd. 459 2,638 167 2,501 5,765
King Power Duty Free (CBO) Ltd. - 1,359 13 - 1,372
Top China Group Co.,Ltd. - - - - -
Lengle (Thailand) Co.,Ltd. 4 34 20 - 58
Grand Enterprise and Trading Parnership - 99 8 - 107
King Power On Board Sales and Services Co.,Ltd. - 1,010 2 - 1,012
Infotel Communication (Thailand) Co., Ltd. - 978 - - 978
King Power Development Co., Ltd. - - - - -
King Power Alpha on Board and Sale Service Co., Ltd. - - - - -
Thai Nishigawa Internation Co., Ltd. - - - - -
Niji (Thailand) Co., Ltd. - - - - -
Airports Authority of Thailand. - - - -
---------- ------- ----------------- ------------ ------
1,373 16,644 887 2,501 21,405
Directors - to/(from) - 43 - - 43
---------- ------- ----------------- ------------ ------
1,373 16,687 887 2,501 21,448
Less Allowance for doubtful account : - -
- ----
Related companies (1,261) (10,181) (612) (2,501) (14,555)
Directors - (29) - - (29)
---------- ------- ----------------- ------------ ------
(1,261) (10,181) (612) (2,501) (14,584)
---------- ------- ----------------- ------------ ------
Total 112 6,477 275 - 6,864
========== ======= ================= ============ ======
</TABLE>
Accounts Other
payable payable
-------- --------
Quarter 2nd, 1999
KING Power International Co.,Ltd. 74 -
Forty Seven Co.,Ltd. - -
Downtown D.F.S. (Thailand) Co.,Ltd. - -
King Power Duty Free (CBO) Ltd. - 50
Top China Group Co.,Ltd. - -
Lengle (Thailand) Co.,Ltd. - -
Grand Enterprise and Trading Parnership - -
King Power On Board Sales and Services Co.,Ltd. - -
Infotel Communication (Thailand) Co., Ltd. - -
King Power Development Co., Ltd. - -
King Power Alpha on Board and Sale Service Co., Ltd. - -
Thai Nishigawa Internation Co., Ltd. 46 -
Niji (Thailand) Co., Ltd. 24 -
Airports Authority of Thailand. - -
-------- --------
144 50
Directors - to/(from) - -
-------- --------
144 50
Less Allowance for doubtful account : - -
- ----
Related companies - -
Directors - -
-------- --------
- -
-------- --------
Total 144 50
======== ========
17
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1998
Loans and receivables
Accounts to related companies Management Accounts Other
receivalbe and Directors fee receivables payable payable
----------------------------------------------------------------------------
Loans Interest and Total
other
receivables
<S> <C> <C> <C> <C> <C> <C> <C>
Quarter 4th, 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 Sales and Services 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 June 30 , 1999 and December 31, 1998 there are accrued concession
fees amounting to $ 7,683,013 and $ 7,916,758 , respectively. (see Note 7)
18
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of June30,1999,an allowance for doubtful accounts of $ 14,583,533
has been provided for certain amounts due from related companies and directors
based on liquidity restraints of such parties.
As at December 31,1998. The Company charged interest for loans to/from
related companies at14.50 - 17.50% per annum and to/from directors at 14.50
- -17.50% per annum. According to minutes of the board of director meeting
no.1/1999 held on March 24,1999, the company passed resolution to decrease
interest for loans to/from related companies and directors to be 4.00% and 3.00%
per annum respectively due to the dramatic decrease of market interest rate in
Thailand and to maintain liquidity within the group of companies. Effective
April 1, 1999,promissory notes with maturity less than 6 months bear no
interest. 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 thousands):
Related Companies
For the six months ended June 30,
1999 1998
---- ----
Sales 1244 322
Interest income 449 299
Management fee income - 870
Purchase 1542 94
Directors
For the six months ended June 30,
1999 1998
---- ----
Interest income 16 140
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
starting 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.
Lease committment are due as follows:
KPT KPD
--- ---
1999 $ 10,941 $ 10,941
2000 $ 54,707 $ 54,707
As of June 30, 1999 and December 31, 1998 KPT and KPD were contingently
liable for bank guarantees totaling $12.83 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 June 30,1999 and December 1998, KPD have the unused letters of
credit amounting to $ 2.12 million and $ 6.46 million, respectively.
19
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for June 30, 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 thousands ).
For the six months ended June 30,1999
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 29,371 13,489 - - 42,860
customers
- - Intersegment revenue - - - - -
- - Cost of merchandise sold 13,948 6,310 - - 20,258
- - Concession fees 5,862 5,922 - - 11,784
- - Gross profit 9,562 1,257 - - 10,819
- - Interest Income 564 86 48 (91) 607
- - Interest expense 659 9 91 (91) 668
- - Segment net income (loss) 1,329 742 ,890 (2,133) 1,828
- - Segment total assets 40,331 16,919 12,925 (23,030) 47,145
- - Expenditures for segment
assets 729 342 - - 1,071
Revenue Long-lived Assets
-------------------- --------------------
Geographical Information US $ US $
Bangkok 41,169,257 2,135,900
Northern Thailand region 254,977 5,838
Southern Thailand region 1,436,089 25,599
-------------------- --------------------
Total 42,860,323 2,167,337
==================== ====================
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the six months ended June 30,1998
Duty Free Tax Free All Other Adjustments Consolidated
Retail Retail And Elimination
------------ ------------- ---------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Segment Information US $ US $ US $ US $ US $
- -------------------
- - Revenue from external 25,755 17,945 - - 43,700
customers
- - Intersegment revenue 443 - - (443) -
- - Cost of merchandise sold 11,418 6,846 - (443) 17,821
- - Concession fees 5,874 7,378 - - 13,252
- - Gross profit 8,906 3,721 - - 12,627
- - Management fee income - - 800 (659) 141
- - Interest Income 654 282 49 (66) 919
- - Interest expense 444 243 57 (65) 679
- - Segment net income (loss) 3,513 180 3,764 (3,826) 3,631
- - Segment total assets 29,287 20,101 16,324 (18,501) 47,211
- - Expenditures for segment
assets 870 264 448 - 1,582
Revenue Long-lived
Assets
------------------- ------------------
Geographical US$ US$
Information
Bangkok 41,998,814 5,722,970
Northern Thailand region 290,944 67,399
Southern Thailand region 1,410,677 47,998
=================== ==================
Total 43,700,435 5.838,367
=================== ==================
</TABLE>
21
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
(1) Caution Regarding Forward-Looking Information
This quarter report contains certain forward-looking statements and information
relating to the Company that is based on the beliefs of the Company or
management as well as assumptions made by and information currently available to
the Company or management. When used in this document, the words "anticipate",
"believe", "estimate", "expect", and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company regarding future events and are subject to certain risks, uncertainties
and assumptions, including the risks and uncertainties noted. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected or intended. In each instance,
forward-looking information should be considered in light of the accompanying
meaningful cautionary statements herein.
(2) Effects on the Change in Foreign Currency Exchange System
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.
22
<PAGE>
In accordance with generally accepted accounting principles, the Company has
separately presented the following items in its statement of income for the
quarter ended June 30, 1999:
Realized gain on foreign exchange $0.3 million
Realized losson foreign exchange $0.4 million
Unrealized gain on foreign exchange $0.4 million
Unrealized loss on foreign exchange $0.003 million
The calculation of unrealized foreign exchange gain of $0.4 million and
unrealized foreign exchange loss of $0.003 million is shown
in charts labeled A and B, respectively.
23
<PAGE>
<TABLE>
<CAPTION>
CHART A
The calculation of unrealized gain on foreign exchange of US$ = 402,269 was
calculated on accumulated basis with quarterly adjustment on financial
obligations, receivable and cash on hand in foreign currency as shown below:
Accounts payable in foreign currency as of 06/30/99
- ------------------------------------------------------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
06/30/99 Baht
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
<S> <C> <C> <C>
British Pound Sterling 28,058 58.4110 1,638,896
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
France Franc 1,670,760 5.8549 9,782,131
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
German Deutschmark 56,165 19.6171 1,101,798
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
Hong Kong Dollar 8,947,097 4.7826 42,790,387
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
Italian Lire 409,123,500 0.0199 8,141,558
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
Japanese Yen 490 30.6971 15,042
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
Singapore Dollar 4,505 21.8592 98,486
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
Swiss Franc 196,232 23.9374 4,697,292
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
US Dollar 3,403,225 37.0009 125,922,399
- -------------------------------- ----------------------------- ----------------------------- ---------------------------------
Total 194,187,987
- -------------------------------- ----------------------------- ----------------------------- --------------------------------
Less: balance per General Ledger 203,916,746
Unrealized gain on accounts payable in foreign currency 9,728,759
---------------------------------
---------------------------------
Loan from Bank (Trust Receipt) in Foreign Currency as of 06/30/99
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Currency Amount Exchange rate Total
06/30/99 Baht
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
German Deutschmark 45,147 19.6171 885,660
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Hong Kong Dollar 4,086,005 4.7826 19,541,726
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Italian Lire 300,260,004 0.0199 5,975,174
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Singapore Dollar 142,299 21.8592 3,110,550
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
US Dollar 2,413,461 37.0009 89,300,244
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Swiss Franc 170,674 23.9374 4,085,492
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
British Pound Sterling 10,997 58.4110 642,352
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Australian Dollar 81,975 24.5491 2,012,405
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
France Franc 1,565,767 5.8549 9,167,406
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Euro 539,373 38.3772 20,699,616
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Total 155,420,625
- ----------------------------------------------------------------------------------------------- ------------------------------
Less: balance per General Ledger 160,042,435
------------------------------
Unrealized gain on Trust Receipt in foreign currency 4,621,810
------------------------------
24
<PAGE>
Unrealized gain on cash on hand as at 06/30/99
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Currency Amount Exchange rate Total
06/30/99 Baht
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
US Dollar 80,062 36.6709 2,935,946
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
British Pound Sterling 29,898 57.6099 1,722,433
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
German Deutschmark 2,929 19.3073 56,548
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Singapore Dollar 2,287 21.4265 49,000
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Malaysia Ringgit 692 9.3248 6,453
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Hong Kong Dollar 262,029 4.7009 1,231,773
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Japanese Yen 3,348,609 0.3017 1,010,409
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Swiss Franc 300 23.6112 7,083
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
French Franc 2,153 5.7491 12,379
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Korean Won 145,200 0.0317 4,603
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
China Renminbi Yuan 23,957 4.4121 105,702
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Australian Dollar 3,396 24.0385 81,638
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Taiwanese dollar 12,141 1.1360 13,792
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Total 7,237,759
- ----------------------------------------------------------------------------------------------- ------------------------------
Less: balance per General Ledger 6,884,361
------------------------------
Unrealized gain on cash in hand in foreign currency 353,398
------------------------------
Add: Unrealized gain on accounts payable in foreign currency 9,728,759
------------------------------
Unrealized gain on trust receipt in foreign currency 4,621,810
------------------------------
Sub-total Unrealized gain on exchange rate as at 06/30/99 (in Baht) 14,703,967
------------------------------
(US$1 = 37.121 Baht) US$ = 396,109
------------------------------
Unrealized gain advanced and interest payable from companies as at 06/30/99
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
Currency Amount Exchange rate Total
06/30/99 US Dollar
- --------------------------------- ------------------------------ ------------------------------ ------------------------------
BAHT CURRENCY 53,046,931 37.0009 1,433,666
- ----------------------------------------------------------------------------------------------- ------------------------------
Less: balance per General Ledger 1,439,826
------------------------------
Unrealized gain on advanced and interest payable from companies - in USD 6,160
------------------------------
Add : Sub total after conversion into US Dollar from Baht currency 396,109
------------------------------
Net unrealized gain on exchange rate as of 06/30/99 402,269
==============================
25
<PAGE>
CHART B
The calculation of unrealized loss on foreign exchange of US$ = 34,256 was
calculated on accumulated basis with quarterly adjustment on financial
receivable and cash on hand in foreign currency as shown below:
Cash on Hand in Foreign Currency as of 06/30/99
- ------------------------------ --------------------------- ----------------------- --------------------------
Currency Amount Exchange Rate Total
06/30/99 Baht
- ------------------------------ --------------------------- ----------------------- --------------------------
US Dollar 61,920 36.6709 2,351,337
- ------------------------------ --------------------------- ----------------------- --------------------------
British Pound Sterling 4,047 57.6099 233,161
- ------------------------------ --------------------------- ----------------------- --------------------------
German Deutschmark 170 19.3073 3,282
- ------------------------------ --------------------------- ----------------------- --------------------------
Singapore Dollar 944 21.4265 20,227
- ------------------------------ --------------------------- ----------------------- --------------------------
Malaysian Ringgit 55 9.3248 513
- ------------------------------ --------------------------- ----------------------- --------------------------
Hong Kong Dollar 36,250 4.7009 170,408
- ------------------------------ --------------------------- ----------------------- --------------------------
Japanese Yen 3,612,400 0.3017 1,138,284
- ------------------------------ --------------------------- ----------------------- --------------------------
French Franc 1,550 5.7491 8,911
- ------------------------------ --------------------------- ----------------------- --------------------------
Korean Won 294,000 0.0317 9,320
- ------------------------------ --------------------------- ----------------------- --------------------------
China Renminbi Yuan 5,802 4.4121 25,599
- ------------------------------ --------------------------- ----------------------- --------------------------
Australian Dollar 2,853 24.0385 68,574
- ------------------------------ --------------------------- ----------------------- --------------------------
Taiwanese Dollar 18,700 1.1360 21,243
- ------------------------------ --------------------------- ----------------------- --------------------------
Total 4,050,858
- ---------------------------------------------------------------------------------- --------------------------
Less: balance per General Ledger 4,190,904
--------------------------
Unrealized loss from cash in hand in foreign currency -140,046
--------------------------
Unrealized loss on Account receivable as at 06/30/99
- ------------------------------ --------------------------- ----------------------- --------------------------
Currency Amount Exchange Rate Total
06/30/99 Baht
- ------------------------------ --------------------------- ----------------------- --------------------------
Swiss Franc 132,910 23.6112 3,138,173
- ------------------------------ --------------------------- ----------------------- --------------------------
British Pound Sterling 7,441 57.6099 428,681
- ------------------------------ --------------------------- ----------------------- --------------------------
French Franc 4,940 5.7491 28,401
- ------------------------------ --------------------------- ----------------------- --------------------------
US Dollar 653,080 36.6709 23,949,049
- ------------------------------ --------------------------- ----------------------- --------------------------
German Deutschmark 23,834 19.3073 460,172
- ------------------------------ --------------------------- ----------------------- --------------------------
Hong Kong Dollar 1,009,693 4.7009 4,746,467
- ------------------------------ --------------------------- ----------------------- --------------------------
Singapore Dollar 26,093 21.4265 559,071
- ------------------------------ --------------------------- ----------------------- --------------------------
Italian Lire 294,165,730 0.0194 5,706,815
- ------------------------------ --------------------------- ----------------------- --------------------------
Total 39,016,829
- ---------------------------------------------------------------------------------- --------------------------
Less: balance per General Ledger 40,148,410
--------------------------
Unrealized loss from loan from bank in foreign currency -1,131,581
-------------------------
Add: Unrealized loss from cash in hand in foreign currency -140,046
--------------------------
Net Unrealized exchange loss as of 06/30/99 (in Baht) -1,271,627
--------------------------
US$ 1 = 37.121 Baht US$ = -34,256
--------------------------
</TABLE>
26
<PAGE>
(3) Results of operations, comparing six months ended June 30, 1999 and 1998
Sales revenue for the six months ended June 30, 1999, was approximately $42.9
million compared to approximately $43.7 million for 1998. This decrease is a
result of the temporary merchandise adjustment made by the Company and the
implementation of promotional sales discounts targeted to increase purchases by
a new and larger base customer consisting of consumers who are very price
sensitive. Commencing during the last half of 1997, the Thai Government began
the "Amazing Thailand" tourism marketing campaign for the period 1998 and 1999.
This campaign coincides with the devaluation of the Thai Baht that makes
Thailand more attractive to numerous travelers, including, in particular,
budget-conscious tourist. This caused the Company to adjust its marketing and
operating strategies to cater to this new and larger base of customers. In order
to obtain the same level of sales volume as in prior years, the Company must
sell more units of merchandise. The Company intends to optimize its resources
and obtain benefits from economies of scale in its operations in order to
improve its financial performance. Management believes that this trend is likely
to continue and ultimately should, as a result of increase sales volume, affect
the Company's results positively.
The cost of merchandise sold for the six months ended June 30, 1999 and 1998,
was approximately $20.3 million and $17.8 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 where more
units of merchandise were sold with less profit margin. However, due to the
lower concession fees paid to the Airport Authorities of Thailand (AAT),
comparing the six months ended June 30, 1999, to the same period in 1998, the
ratio of concession fees paid to sales revenue fell from 30.32% in 1998 to
27.49% in 1999. This decrease is a result of successful negotiations with the
AAT to lower the fixed concession fees paid by KPT to be more closely in line
with the current sales of this subsidiary. Management anticipates a further
reduction in these fees may result from continued negotiations with the AAT.
Direct selling expenses, excluding depreciation and others, also reflect the
temporary merchandise adjustment and the implementation of promotional sales
discount. These expenses were approximately $5.3 million for the six months
ended June 30, 1999, and approximately $4.8 million for the same period in 1998.
27
<PAGE>
In terms of percentage of sales, 1999 expenses were approximately 12.25% of
sales and 1998 expenses were approximately 10.94% of sales. This increase is
directly attributable to the promotional costs supporting the on-going campaigns
to expand the customer base for both subsidiaries and the promotional sales
discount offered to increase sales volume. However, Management believes that the
sales volume will grow and will ultimately reduce this ratio favorably.
Administrative expenses for the six months ended June 30, 1999 and 1998, were
approximately $2.6 million and $2.1 million, respectively. As a percentage of
total sales, these expenses were approximately 6.10% and 4.92%, 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 six months ended June 31, 1999, was approximately $1.8
million, or $0.09 per share (basic), and approximately $3.5 million, or $0.17
per share (basic), for the six months ended June 30, 1998.
The ratio of inventory divided by revenue for the six months ended June 30, 1999
and 1998, was approximately 37.09% and 34.12%, respectively. This increase is
the result of the temporary merchandise adjustment to attract new and larger
base customer groups who are price sensitive.
(4) Results of operations, comparing three months ended June 30, 1998 and 1997
Sales revenue for the three months ended June 30, 1999 was approximately $19.1
million compared to approximately $21.2 million for 1998. This decrease is a
result of the temporary merchandise adjustment made by the Company and the
implementation of promotional sales discounts targeted to increase purchases by
a new and larger base customer consisting of consumers who are very price
sensitive as mentioned above.
The cost of merchandise sold for the three months ended June 30, 1999 and 1998
was approximately $9.1 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 where more
units of merchandise were sold with less profit margin. The concession fees paid
to the AAT, comparing the six months ended June 30, 1999, to the same period in
1998, the ratio of concession fees paid to sales revenue increased from 27.74%
in 1998 to 27.90% in 1999. This increase is a result of successful negotiations
with the AAT to expand two additional shops for KPT. Management anticipates a
further reduction in these fees may result from the sales volume generated from
these new shops.
28
<PAGE>
Direct selling expenses, excluding depreciation and others were approximately
$2.6 million for the three months ended June 30, 1999 and approximately $2.9
million for the same period in 1998. In terms of percentage of sales, 1999
expenses were approximately 13.85% of sales and 1998 expenses were approximately
13.62% of sales. Direct selling expenses have grown in terms of percentage of
sales due to the growth in the Company's business even when comparing the
seasonally lowest sales period of the year, the second quarter. However, because
of the upcoming high or peak season that usually occurs during the third and
fourth quarters of the year, management anticipates that these expenses as
percentage of sales will be improved. Furthermore, The Management has made a
commitment to improve this ratio by improving the effectiveness and efficiency
of the Company's sales force that should result from additional training and
management supervision.
Administrative expenses for the three months ended June 30, 1999 and 1998 were
approximately $1.2 million and $1.2 million, respectively. As a percentage of
total sales, these expenses were approximately 6.50% and 5.66%, respectively.
Administrative expenses have grown due to the growth in the Company's business.
Management has designated these expenses for constant monitoring in order to
control their levels in relation to the Company's size, sales volume and
operational necessity.
Net income for the three months ended June 30, 1999 was approximately $0.6
million, or $0.03 per share (basic), and approximately $0.5 million, or $0.03
per share (basic), for the three months ended June 30, 1998.
(4) Liquidity and Capital Resources
For the quarter ended June 30, 1999, and the year ended December 31, 1998, the
Company had working capital of approximately $5.3 million and $2.8 million,
respectively. This improvement is the result of the Company's successful efforts
to collect receivables owed by related companies. Management anticipates that
this positive trend will continue as more receivables are scheduled to be
collected throughout the remainder of fiscal year 1999.
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.
29
(5) Monetary Assets and Liabilities Denominated in Thai Baht
As of June 30, 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 3,628,101
Trade Accounts Receivable 305,233
Refundable value-added-tax 1,731,694
Related Parties 6,587,128
Deferred income tax assets 4,002,601
Restricted deposit 3,488,979
Other current assets 4,982,961
Other non-current assets 321,118
TYPE OF MONETARY LIABILITY
Bank overdraft & loan 5,816,168
Current portion of long-term loan 45,373
Accounts Payable 6,895,366
Advance from related companies 125,849
Concession fees 10,115,579
Other current liabilities 3,331,557
Long-term loan - net 272,731
30
<PAGE>
(6) Year 2000 Disclosures
The Company's computer system prior to this year 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 fully operational in May 1999.
The total cost for this new computer system was approximately $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.
(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. For the period six months ended June 30,
1999, that adoption will not have a significant impact on financial condition or
operating results.
32
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June, 1999.
The Following seven persons were elected as Directors to serve for a year.
NAME VOTES FOR VOTES AGAINST
Vichai Raksriaksorn 19,374,275 2,042
Viratana Suntaranond 19,374,275 2,042
Antares Cheng 19,374,075 2,242
Aimon Boonkhundha 19,374,275 2,042
Dr. Panya Tantiyavarong 19,374,175 2,142
Suwan Panyapas 19,373,975 2,342
Dharmnoon Prachuabmoh 19,373,975 2,342
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
33
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned who are duly
authorized.
KING POWER INTERNATIONAL GROUP CO., LTD.
By: /s/ Vichai Raksriaksorn
------------------------
Vichai Raksriaksorn, President and Chief Executive Officer
August , 1999
By: /s/ Viratana Suntaranond
-------------------------
Viratana Suntaranond, Chief Financial Officer
August , 1999
34
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted from Balance
Sheet at 06/30/99, Statement of Operations at 06/30/99
</LEGEND>
<CIK> 0000787690
<NAME> King Power International Group Co., Ltd.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,940,700
<SECURITIES> 9,215
<RECEIVABLES> 257,145
<ALLOWANCES> (14,583,533)
<INVENTORY> 15,896,281
<CURRENT-ASSETS> 40,949,349
<PP&E> 8,323,847
<DEPRECIATION> (2,628,339)
<TOTAL-ASSETS> 46,968,023
<CURRENT-LIABILITIES> 35,636,565
<BONDS> 0
0
0
<COMMON> 20,250
<OTHER-SE> 10,622,555
<TOTAL-LIABILITY-AND-EQUITY> 46,968,023
<SALES> 42,860,323
<TOTAL-REVENUES> 42,860,323
<CGS> (20,257,555)
<TOTAL-COSTS> (32,041,492)
<OTHER-EXPENSES> (9,378,316)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (668,290)
<INCOME-PRETAX> 2,870,067
<INCOME-TAX> (973,899)
<INCOME-CONTINUING> 1,896,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,828,575
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
