FORM 10-Q
- --------------------------------------------------------------------------------
For the quarterly period ended September 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: November 10, 1999: 20,250,000
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarterly ended September 30, 1999
Table of Contents
Page
Part I - Financial Information
Item 1 Financial statements 3-21
Item 2 Management's Discussion and Analysis or Plan of Operation 21
Part II - Other Information 30
Item 1 Legal Proceeding 30
Item 2 Changes in Securities 30
Item 3 Defaults Upon Senior Securities 30
Item 4 Submission of Matters to a Vote of Securities Holders 30
Item 5 Other Information 30
Item 6 Exhibits and Reports on Form 8-K 30
2
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<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES-
CONSOLIDATED BALANCE SHEETS
Note September 30, December 31,
------------ ------------
ASSETS 1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,275,775 $ 1,371,739
Trade accounts receivable 247,317 334,015
Refundable value added tax 1,377,335 2,238,862
Trade account receivable, Interest receivable and advances to
Affiliates, net of allowances for doubtful
accounts of $13.314 million and $15.745 million at
September 30,1999, and December 31, 1998,
Respectively - net 11 5,846,047 11,911,642
Merchandise inventories - net 13,339,962 14,910,164
Restricted fixed deposits 3 3,189,890 5,254,485
Deferred income tax assets 10 3,998,334 4,464,606
Prepaid expense 5 2,895,542 273,163
Interest receivable 72,746 128,103
Other current assets 552,906 484,334
----------- -----------
Total current assets 33,795,854 41,371,113
Investment in other companies 133,266 149,110
Investment in marketable securities (trading) 8,284 9,268
Property, plant and equipment - net 6 4,930,225 6,173,610
Other long - term assets 218,157 373,028
----------- -----------
TOTAL ASSETS $39,085,786 $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)
September 30, December 31,
----------------- -----------------
Note 1999 1998
---- ---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and loans from banks 7 $ 6,939,316 $ 10,185,747
Current portion of long - term loan 9 36,425 1,346,820
Trade accounts payable 8,756,205 11,398,114
Advance from director 11 3,940,342 -
Accrued concession fee 8 7,749,945 10,977,142
Accrued corporate income tax 929,861 3,223,829
Other current liabilities 732,010 1,446,758
--------------- ---------------
Total current liabilities 29,084,104 38,578,410
Long - term loan - net 9 236,280 288,137
Other liabilities - 114,790
--------------- ---------------
Total liabilities 29,320,384 38,981,337
--------------- ---------------
Minority interest 310,219 343,473
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) (10,204,975) (11,916,895)
Translation adjustments (1,208,237) (200,181)
--------------- ---------------
Total shareholders' equity 9,455,183 8,751,319
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 39,085,786 $ 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
Nine months ended September 30, Three months ended September 30,
------------------------------- ---------------------------------
Note 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales revenue $ 63,171,833 $ 62,343,321 $ 20,311,510 $ 18,642,886
Cost of sales :
Cost of merchandise sold 29,770,984 26,267,041 9,513,429 8,445,930
Concession fees 8 16,872,477 18,491,707 5,088,540 5,239,561
------------ ------------ ------------ ------------
Total cost of sales 46,643,461 44,758,748 14,601,969 13,685,491
------------ ------------ ------------ ------------
Gross profit 16,528,372 17,584,573 5,709,541 4,957,395
Operating expenses :
Selling expenses
Sales salaries and welfare 6,095,794 5,456,670 1,921,746 1,736,330
Rental and service fee and other
expenses under the concession fee 1,604,136 1,697,312 527,059 635,088
Depreciation 1,093,203 725,987 395,471 209,678
Others 2,510,188 915,162 1,694,250 243,031
------------ ------------ ------------ ------------
Subtotal 11,303,321 8,795,131 4,538,526 2,824,127
Provision for doubtful account (962,609) -- 119,522 --
Administrative expenses 4,161,611 3,436,357 1,548,090 1,287,759
------------ ------------ ------------ ------------
Total operating expenses 14,502,323 12,231,488 6,206,138 4,111,886
------------ ------------ ------------ ------------
Income from operation 2,026,049 5,353,085 (496,597) 845,509
Other income:
Interest income - related company 500,875 485,119 97,816 66,920
Interest income 265,512 501,179 61,858 --
Realized gain on foreign exchange 558,548 632,234 294,689 42,579
Unrealized gain on foreign
exchange 98,970 312,772 -- 262,393
Management fee income -- 221,592 -- 80,748
Other income 238,727 96,714 52,823 34,713
------------ ------------ ------------ ------------
Total other revenues 1,662,632 2,249,610 507,186 487,353
------------ ------------ ------------ ------------
Other expenses :
Interest expenses 898,524 1,097,416 230,234 418,341
Realized loss on foreign exchange 427,815 993,793 19,037 261,323
Unrealized loss on foreign
exchange 261,968 16,718 531,011 376,151
------------ ------------ ------------ ------------
Total other expenses 1,588,307 2,107,927 780,282 1,055,815
------------ ------------ ------------ ------------
Net income before income tax 2,100,374 5,494,768 (769,693) 277,047
Income tax 10 (385,873) (1,709,665) 588,026 (123,139)
------------ ------------ ------------ ------------
Net income before minority interest 1,714,501 3,785,103 (181,667) 153,908
Minority interest (2,581) (229,660) (65,012) (52,082)
------------ ------------ ------------ ------------
Net income attributed to common shares 1,711,920 3,555,443 (116,655) 101,826
------------ ------------ ------------ ------------
Weighted average number of common shares
outstanding 20,250,000 20,250,000 20,250,000 20,250,000
Basic earning per share $ 0.08 $ 0.18 $ (0.006) $ 0.005
</TABLE>
The accompanying notes are an integral part of the financial statements
5
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<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Nine months ended September 30, Three months ended September 30,
------------------------------- --------------------------------
Note 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income attribute to common shares $ 1,711,920 $ 3,555,443 $ (116,655) $ 101,826
Other comprehensive income, before tax :
Foreign currency translation adjustments (1,008,056) 1,711,746 (1,070,968) 966,201
Income tax expense related to items of other
comprehensive income -- -- -- --
Other comprehensive income, net of tax (1,008,056) 1,711,746 (1,070,968) 966,201
----------- ----------- ----------- -----------
Comprehensive income $ 703,864 $ 5,267,189 $(1,187,623) $ 1,068,027
----------- ----------- ----------- ===========
</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
Nine months ended September 30,
Note 1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income $ 1,711,920 $ 3,555,443
Adjustments to reconcile net income to net
cash provided (used) by operating
activities :
Depreciation 1,093,203 725,987
Unrealized loss on foreign exchange 261,968 16,718
Unrealized gain on foreign exchange (98,970) (312,772)
Deferred income tax assets 466,272 38,763
Provision for doubtful accounts (962,609) --
Minority interest - income statements
impact 2,581 229,660
Decrease (increase) in operating assets :
Trade accounts receivable, Interest
Receivable and Advances to 7,058,061 (11,836,443)
Affiliates
Trade accounts receivable 84,665 (73,333)
Refundable valued added tax 861,527 (1,955,758)
Inventories 1,570,202 (437,708)
Interest receivable 55,357 420,977
Prepaid expense (2,622,379) --
Other current assets (68,573) (358,997)
Increase (decrease) in operating liabilities :
Trade accounts payable (2,769,047) (883,366)
Advance from director 3,940,342 --
Accrued concession fee (3,227,197) 2,811,174
Other current liabilities (714,746) 2,278,121
Accrued corporate income tax (2,293,967) --
Other liabilities (114,790) --
Minority interest - income statement
impact (35,835) 43,458
Net cash provided (used) by
operating activities $ 4,197,985 $ (5,738,076)
------------ ------------
</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)
Nine months ended September 30,
-------------------------------
Note 1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES :
Reduction in investment in other company $ 15,844 $ (23,382)
Reduction in investment in marketable
Securities 984 (4,275)
Purchase of fixed assets 150,182 (2,106,248)
Addition in long- term assets 154,871 648,717
----------- -----------
Net cash provided (used) by
investing activities 321,881 (1,485,188)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds (repayment) in bank overdrafts (3,376,827) (2,176,198)
Proceeds (repayment) from long-term loan (1,362,252) 2,534,128
Translation adjustment (1,008,056) 1,711,746
Net cash provided (used) by
Financing activities (5,747,135) 2,069,676
----------- -----------
Effect of exchange rate changes on cash and
cash Equivalents 66,710 12,660
Decrease (Increase) in restricted fixed deposit 2,064,595 5,268,722
----------- -----------
Net increase in cash and cash equivalents 904,036 127,794
Cash and cash equivalents - beginning of period 1,371,739 1,316,880
----------- -----------
ash and cash equivalents - end of period $ 2,275,775 $ 1,444,674
=========== ===========
Supplement cash flow information Cash paid during the period :
Interest paid 954,599 1,321,757
Income taxes paid 2,592,324 --
</TABLE>
The accompanying notes are an integral part of the financial statements
8
<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 purposes. 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 purposes, 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 import 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 that 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.
9
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(UNAUDITED
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 nine 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 income.
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 nine months September 30, 1999 and year
ended December 31, 1998, are $1= Thai Baht 41.045 and Baht 36.688, respectively.
The average rates of exchange for the nine months ended September 30,1999,and
1998, are $1= Thai Baht 37.6387 and Baht 40.697, 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 nine months ended September 30, 1998 and1999, are unaudited. In the opinion
of management, such statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the results of
operations for the interim periods. The results of operations for the nine
months ended September 30, 1998 and 1999,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. KPD must also 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 12 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.
10
<PAGE>
(UNAUDITED
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes - The Company accounts for income taxes using the
liability method, which requires an entity to recognize the deferred tax
liabilities and assets. Deferred income taxes are recognized based on the
differences between the tax bases of assets and liabilities and their reported
amounts in the financial statements which will result in taxable or deductible
amounts in future years. Further, the effects of enacted tax laws or rate
changes are included as part of deferred tax 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 - Certain 1998 amounts have 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 nine
months ended September 30, 1999 that adoption does not have a significant impact
on financial condition or operating results.
3. RESTRICTED FIXED DEPOSITS
September 1999 December 1998
-------------- -------------
Restricted fixed deposits $ 3,189,890 $ 5,254,485
Interest rates 5.00% - 6.25% 6.00% - 15.00%
As of September 30, 1999 and December 31, 1998 the restricted fixed
deposits with maturities from three 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.
<TABLE>
5. PREPAID EXPENSES
Prepaid expenses consist of the following:
<S> <C> <C>
September 1999 December 1998
-------------- -------------
Prepaid management fee $ 3,289,072 $ --
Less Amortization (548,178) --
---------
Total 2,740,894 --
Prepaid expenses - other 154,648 273,163
--------- ----------
Total $ 2,895,542 $ 273,163
</TABLE>
On June 29,1999 KPT and KPD entered into an agreement to engage Down
Town D.F.S. (Thailand) Co.,Ltd., a related company, to provide statistical
analysis and marketing procedures over a period of 18 months, commencing July 1,
1999. In accordance with the agreement, KPT and KPD agree to pay in advance such
remuneration amounting to $ 1,644,536 (excluding VAT). Accordingly, the advance
payments are treated as prepaid expenses in the accompanying financial
statements and amortized on a monthly basis over the term of the agreement.
11
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<TABLE>
<CAPTION>
(UNAUDITED
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. PROPERTY, PLANT AND EQUIPMENT - NET
September 1999 December 1998
-------------- -------------
<S> <C> <C>
Land $ 640,273 $ 716,393
Building 125,902 140,870
Leasehold improvements 4,176,270 4,556,110
Sales office equipment and fixtures 2,031,705 2,160,045
Vehicles 647,175 654,010
----------- -----------
Total cost 7,621,325 8,227,428
Less Accumulated depreciation (2,691,100) (2,053,818)
---- ----------- -----------
Net book value $ 4,930,225 $ 6,173,610
=========== ===========
As of September 30,1999 and December 31,1998 land and building
are pledged as collateral for long-term loans from bank.( Note 7 and Note 9)
7. BANK OVERDRAFT AND LOANS FROM BANKS
September 1999 December 1998
-------------- -------------
Bank overdraft $ 629,581 $ 516,589
Trust receipts 5,779,000 9,669,158
Promissory note 530,735
---------- ------------
$ 6,939,316 $ 10,185,747
========== ============
</TABLE>
As of September 30, 1999 and December 31, 1998 the Company has an
overdraft facility with a commercial bank in Thailand totaling Baht 30.74
million ( $ 748,934) , carrying interest rates at MOR (Minimum Overdraft Rate),
plus 1.00% - 1.50% per annum. For the nine months ended September 30, 1999 the
average rate of MOR was 9.75% - 12.75% 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 of September 30, 1999 and December 31, 1998 trust receipts incurred
by KPD bear interest at the rates varying from 7.50%-12.50% 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 September 30, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Currencies Amount Interest rate(%)
Foreign currency borrowing by subsidiaries in Thailand
-under forward contract and T/R BAHT 176,385,168 $ 4,297,361 11.00-12.50
-without forward contract USD 932,886 934,906 9.50
CHF 37,342 24,960 7.50
ATS 551,084 42,891 7.50
AUD 54,650 36,007 7.50 -7.75
FRF 530,957 86,677 7.50
HKD 1,350,785 174,702 11.50
ITL 223,232,600 123,459 7.50
SGD 13,890 8,217 7.50
EUR 46,540 49,820 7.50
-----------
$ 5,779,000
============
</TABLE>
12
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<TABLE>
<CAPTION>
(UNAUDITED
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of September 21,1999 KPD renewed a 30-day promissory note payable to
a local commercial bank which bears interest at rates varying from 8.75%-9.70%
per annum.
8. CONCESSION FEES
Accrued concession fees as of September 30,1999, and December 31,1998,
consist of the following:
<S> <C> <C>
September 1999 December 1998
-------------- -------------
- The Customs Department of Thailand $ 1,169,448 $ 2,881,077
- The Airports Authority Of Thailand 6,454,668 7,817,591
--------- ----------
7,624,116 10,698,668
Accrued penalty on delay payment 125,829 278,474
--------- ----------
$ 7,749,945 $ 10,977,142
For the nine months ended September 30,
1999 1998
---- ----
Concession fee expense $ 16,872,477 $ 18,491,707
========== ==========
</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. KPD must also
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
- -------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
($ in thousands) ($ in thousands)
Year
1999 $ 10,471 $ 586 $ 6,433 $ 10,678 $ 962 $ 4,275
2000 10,264 519 6,433 11,464 966 4,428
2001 10,754 506 6,134 11,858 966 4,580
2002 11,219 492 6,134 - - -
2003 2,798 120 6,022 - - -
</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 $
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 (Bath 62,953,299) as installment payments, carrying
interest rate of 1% per month and due in October 1999.
13
<PAGE>
(UNAUDITED
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the nine month period ended September 30,1999 and September
30,1998 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 $ 1,017,085 and $ 1,170,254 respectively.
<TABLE>
9. LONG-TERM
Long term liabilities as of September 30,1999, and December 31,1998 consist
of the following:
<S> <C> <C>
September 1999 December 1998
Long-term loans $ 233,765 $ 1,575,401
Installment purchase payable 38,940 59,556
-------- ----------
272,705 1,634,957
Less Current portion of long-term debt (36,425) (1,346,820)
---- -------- ----------
Total $ 236,280 $ 288,137
As of September 30,1999 and December 31,1998 long-term loans consist of
loans from banks carrying interest rate of 14.75% - 17.25% per annum. The
long-term loans are secured by the Company's land and building and guarantee by
a director of the Company. ( See Notes 6 )
Loans are due as follows: September 1999 December 1998
-------------- -------------
Installment Purchase Obligation
1999 $ 12,514 $ 38,340
2000 15,382 8,859
2001 6,024 6,740
2002 5,020 5,617
Total ------ ------
38,940 $ 59,556
$ ====== ======
Long-term Loan Installment Payments
1999 $ 2,301 $ 1,346,820
2000 10,413 11,647
2001 12,057 13,485
2002 13,961 15,615
Thereafter 195,033 187,834
------- ---------
Total $ 233,765 $ 1,575,401
======= =========
10. INCOME TAX
The provision for income taxes consist of the following:
September 1999 September 1998
-------------- --------------
Current income tax (Payable) $ $
United States - -
Foreign 305,668 1,738,689
------- ---------
305,668 1,738,689
------- --------
Deferred income tax
United States - -
Foreign 80,205 (29,024)
------ --------
80,205 (29,024)
------ --------
Net income tax expense $ 385,873 $ 1,709,665
======= =========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pre-tax income for foreign companies for nine months period ended
September 30, 1999, was $1,081,014 Current taxes payable are included in other
current liabilities.
The components of deferred income tax assets and liabilities were:
<S> <C> <C>
September 1999 December 1998
-------------- -------------
Reserves for bad debts and inventory obsolescence $ 4,071,599 $ 4,945,942
Net operating loss carried forward 376,388 333,572
--------- ---------
4,447,987 5,279,514
Less Valuation allowance (449,653) (814,908)
----- --------- ----------
Deferred income tax $ 3,998,334 $ 4,464,606
---------
assets
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.
For the nine months ended September, 30
1999 1998
---- ----
Standard income tax rate (32.48%) (31.64%)
Recognition of net operating loss carried-forward - 0.53%
Less : Valuation allowance 17.39% -
Non deductible expenses (3.28%) -
Income tax benefit - -
Effective income tax rate (18.37%) (31.11%)
======= ======
</TABLE>
As of September 30, 1999 and December 31,1998 The Company has deferred
income tax assets relating to net operating loss carry forwards for income tax
purpose of $ 376,388 and $ 333,572, respectively, that expire in years 1999 to
2004. (A valuation allowance on the United States loss carried forward has been
provided, and the Company has determined that it is more likely than not that
these deferred income tax assets will not be realized.)
15
<PAGE>
<TABLE>
<CAPTION>
(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 September 30,1999 and
December 31,1998 with related companies and directors are as follows ($ in
thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of September 30, 1999
Accounts Loans and receivables Management Accounts Loan
Receivable to related companies Fee receivables payable from
and Directors Director
--------------------------------------------------------------------------------
Loans Interest and Total
other
receivables
Quarter 3rd, 1999 -- -- -- -- -- -- --
King Power International Co.,Ltd 1,730 5,043 197 -- 6,970 118 --
Forty Seven Co.,Ltd -- 2,538 469 -- 3,007 -- --
Downtown D.F.S. (Thailand) Co.,Ltd 412 2,373 183 2,248 5,216 -- --
Siam D.F.S. Co.,Ltd 65 -- -- -- 65 -- --
King Power Duty Free (CBO) Ltd. -- 1,222 24 -- 1,246 -- --
Top China Group Co.,Ltd -- 244 -- -- 244 -- --
Lengle (Thailand) Co.,Ltd -- 878 19 -- 897 -- --
Lengle (Phanom pen) Co.,Ltd 2 -- -- -- 2 -- --
Grand Enterprise and Trading Parnership -- 247 8 -- 255 -- --
King Power On Board Sales and Services Co.,Ltd -- 1,208 -- -- 1,208 10 --
Niji (Thailand) Co.,Ltd 7 -- -- -- 7 -- --
------- ------- ------- ------- ------- ------- -------
2,216 13,753 900 2,248 19,117 128 --
Directors - to/(from) -- 43 -- -- 43 -- 3,940
------- ------- ------- ------- ------- ------- -------
2,216 13,796 900 2,248 19,160 128 3,940
Less Allowance for doubtful account : -- -- -- -- -- -- --
Related companies (1,133) (9,350) (554) (2,248) (13,285) -- --
Directors -- (29) -- -- (29) -- --
------- ------- ------- ------- ------- ------- -------
(1,133) (9,379) (554) (2,248) (13,314) -- --
------- ------- ------- ------- ------- ------- -------
Total 1,083 4,417 346 -- 5,846 128 3,940
======= ======= ======= ======= ======= ======= =======
16
<PAGE>
(UNAUDITED
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1998
Accounts Loans and receivables Management Accounts Other
Receivable to related companies Fee receivables payable payable
and Directors
----------------------------------------------------------------------------------
Loans Interest and Total
other
receivables
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 September 30 , 1999 and December 31, 1998 there are accrued
concession fees and accrued penalty on delay payment of concession fee amounting
to $ 4,041,264 and $ 4,795,722 , respectively.
17
<PAGE>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of September 30,1999 an allowance for doubtful accounts of $
13,313,981 has been provided for certain amounts due from related companies and
directors based on liquidity restraints of such parties.
As of 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's 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 nine months ended September 30,
1999 1998
---- ----
Sales $ 2,236 $ 424
Interest income 501 485
Management fee income - 222
Purchase 1,967 543
Directors
For the nine months ended September 30,
1999 1998
---- ----
Interest income $ 16 $ 145
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 transferred the rights of the following lease
agreements 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.
-KPT and KPD have made lease agreement with the third party starting
from April 1,1998 to December 31, 2001 Lease and service charge committment are
due as follows:
KPT KPD
--- ---
1999 $ 41,206 $ 58,781
2000 $ 142,224 $ 212,527
2001 $ 7,309 $ 99,539
Letters of guarantees
As of September 30, 1999 and December 31, 1998, KPT and KPD were
contingently liable for bank guarantees totaling $11.37 million and $ 13.46
million, respectively, issued in favor of the Excise Department and the Airport
Authority of Thailand as a performance bond.
18
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unused letters of credit
As of September 30, 1999 and December 1998, KPD have the unused letters
of credit amounting to $ 0.87 million and $ 6.46 million, respectively.
13. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for September 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 nine months ended September 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
customers 44,369 18,803 - - 63,172
- - Intersegment revenue - - - - -
- - Cost of merchandise sold 21,721 8,050 - - 29,771
- - Concession fees 8,224 8,649 - - 16,873
- - Gross profit 14,424 2,104 - - 16,528
- - Interest Income 686 98 73 (91) 766
- - Interest expense 886 12 92 (91) 899
- - Segment net income (loss) 43 603 1,782 (713) 1,715
- - Segment total assets 31,707 15,328 9,827 (17,777) 39,085
- - Expenditures for segment
assets 432 271 8 (861) (150)
Revenue Long-lived
Assets
-------------------- -----------------
Geographical Information US $ US $
- ------------------------
Bangkok 60,848,075 5,188,941
Northern Thailand region 736,809 58,379
Southern Thailand region 1,586,949 42,612
Total 63,171,833 5,289,932
========== =========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the nine months ended September 30,1998
Duty Free Tax Free All Adjustments Consolidated
Retail Retail Other And Elimination
------------- ------------ --------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Segment Information US $ US $ US $ US $ US $
- -------------------
- - Revenue from external
customers 36,933 25,410 - - 62,343
- - Intersegment revenue 440 71 - (511) -
- - Cost of merchandise sold 16,605 9,662 - - 26,267
- - Concession fees 7,655 10,836 - - 18,491
- - Gross profit 13,041 4,544 - - 17,585
- - Management fee income - - 1,153 (931) 222
- - Interest Income 870 189 49 (122) 986
- - Interest expense 791 315 113 (122) 1,097
- - Segment net income (loss) 4,553 (575) 3,806 (3,999) 3,785
- - Segment total assets 29,637 16,219 17,559 (18,571) 44,844
- - Expenditures for segment
assets 970 170 527 - 1,667
Revenue Long-lived
Assets
------------------- ----------------
Geographical US$ US$
Information
Bangkok 60,615,643 6,242,412
Northern Thailand region 1,404,441 92,021
Southern Thailand region 323,237 51,817
=================== ================
Total 62,343,321 6,386,250
=================== ================
</TABLE>
20
<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.
In accordance with generally accepted accounting principles, the Company has
separately presented the following items in its statement of income for the
quarter ended September 30, 1999:
Realized gain on foreign exchange $0.6 million
Realized loss on foreign exchange $0.4 million
Unrealized gain on foreign exchange $0.1 million
Unrealized loss on foreign exchange $0.3 million
The calculation of unrealized foreign exchange gain of $0.1 million and
unrealized foreign exchange loss of $0.3 million is shown in charts labeled A
and B, respectively.
21
<PAGE>
<TABLE>
<CAPTION>
CHART A
-------
The calculation of Unrealized gain on foreign exchange of US$ = 98,970 was
calculated on accumulated basis with quarterly adjustment on financial
obligations, receivable and cash on hand in foreign currency as shown below:
Account receivable in foreign currency as of 09/30/99
- ---------------------- ---------------------- ---------------------- ----------------------
Currency Amount Exchange Rate Total
09/30/99
- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Swiss Franc 66,324 27.1213 1,798,793
- ---------------------- ---------------------- ---------------------- ----------------------
British Pound Sterling 7,441 67.1387 499,586
- ---------------------- ---------------------- ---------------------- ----------------------
Hong Kong Dollar 347,521 5.2523 1,825,285
- ---------------------- ---------------------- ---------------------- ----------------------
Italian Lire 61,623,560 0.0224 1,380,368
- ---------------------- ---------------------- ---------------------- ----------------------
US Dollar 92,430 40.9203 3,782,265
- ---------------------- ---------------------- ---------------------- ----------------------
Total 9,286,297
- ---------------------------------------------------------------------------- ----------------------
BALANCE PER GENERAL LEDGER 8,899,914
Unrealized gain on accounts receivable in foreign currency
----------------------
386,382
----------------------
Unrealized gain on cash on hand as at 09/30/99
- ---------------------- ---------------------- ---------------------- ----------------------
Currency Amount Exchange Rate Total
09/30/99
- ---------------------- ---------------------- ---------------------- ----------------------
US Dollar 463,591 40.9203 18,970,283
- ---------------------- ---------------------- ---------------------- ----------------------
British Pound Sterling 26,767 67.1387 1,797,110
- ---------------------- ---------------------- ---------------------- ----------------------
German Deutschmark 10,005 22.1738 221,849
- ---------------------- ---------------------- ---------------------- ----------------------
Singapore Dollar 11,171 23.9185 267,194
- ---------------------- ---------------------- ---------------------- ----------------------
Malaysia Ringgit 747 10.6104 7,926
- ---------------------- ---------------------- ---------------------- ----------------------
Hong Kong Dollar 403,148 5.2523 2,117,452
- ---------------------- ---------------------- ---------------------- ----------------------
Japanese Yen 32,132,238 0.3817 12,265,293
- ---------------------- ---------------------- ---------------------- ----------------------
Swiss Franc 1,890 27.1213 51,259
- ---------------------- ---------------------- ---------------------- ----------------------
French Franc 12,990 6.6133 85,907
- ---------------------- ---------------------- ---------------------- ----------------------
Korean Won 2,939,000 0.0335 98,457
- ---------------------- ---------------------- ---------------------- ----------------------
Netherland Guilder 825 19.6808 16,237
- ---------------------- ---------------------- ---------------------- ----------------------
China Renminbi Yuan 58,041 4.9047 284,674
- ---------------------- ---------------------- ---------------------- ----------------------
Canadian Dollar 15 27.8200 417
- ---------------------- ---------------------- ---------------------- ----------------------
Australian Dollar 27,458 26.5587 729,239
- ---------------------- ---------------------- ---------------------- ----------------------
Taiwanese dollar 129,600 1.2898 167,158
- ---------------------- ---------------------- ---------------------- ----------------------
Total 37,080,453
- ---------------------------------------------------------------------------- ----------------------
BALANCE PER GENERAL LEDGER 34,569,570
----------------------
Unrealized gain on cash in hand in foreign currency 2,510,883
----------------------
Add: Unrealized gain on account receivable in foreign currency 386,382
----------------------
Sub-total Unrealized gain on exchange rate as at 09/30/99 2,897,265
----------------------
(US$1 = 37.6387 Baht) US$ = 76,976
----------------------
22
<PAGE>
Unrealized gain advance and interest payable from Companies as at 09/30/99
- ---------------------- ---------------------- ---------------------- ----------------------
Currency Amount Exchange Rate Total
09/30/99 US Dollar
- ---------------------- ---------------------- ---------------------- ----------------------
BAHT CURRENCY 8,283,630 41.0450 201,818
- ---------------------------------------------------------------------------- ----------------------
BALANCE PER GENERAL LEDGER 223,812
----------------------
Unrealized gain on Advance and interest payable from Companies - in USD 21,994
----------------------
Add : Sub total in Baht 76,976
======================
Net unrealized gain on exchange rate as of 09/30/99 US$ = 98,970
======================
23
<PAGE>
CHART B
-------
The calculation of Unrealized loss on foreign exchange of US$ = 261,968 was
calculated on accumulated basis with quarterly adjustment on financial
receivable and cash on hand in foreign currency as shown below:
Unrealized loss on Accout Payable as at 09/30/99
- ---------------------- ---------------------- ---------------------- ----------------------
Currency Amount Exchange Rate Total
09/30/99 Baht
- ---------------------- ---------------------- ---------------------- ----------------------
Swiss Franc 42,390.32 27.4350 1,162,978
- ---------------------- ---------------------- ---------------------- ----------------------
British Pound Sterling 27,585.00 67.8170 1,870,732
- ---------------------- ---------------------- ---------------------- ----------------------
French Franc 1,006,551.66 6.7005 6,744,399
- ---------------------- ---------------------- ---------------------- ----------------------
US Dollar 1,532,943.03 41.1339 63,055,925
- ---------------------- ---------------------- ---------------------- ----------------------
German Deutschmark 32,541.70 22.4588 730,848
- ---------------------- ---------------------- ---------------------- ----------------------
Hong Kong Dollar 12,452,845.54 5.3085 66,105,931
- ---------------------- ---------------------- ---------------------- ----------------------
Singapore Dollar 29,665.02 24.2803 720,276
- ---------------------- ---------------------- ---------------------- ----------------------
Australian Dollar 2,444.40 27.0435 66,105
- ---------------------- ---------------------- ---------------------- ----------------------
Italian Lire 24,555,500.00 0.0227 557,410
- ---------------------- ---------------------- ---------------------- ----------------------
Japanese Yen 49,000.00 0.3900 19,110
- ---------------------- ---------------------- ---------------------- ----------------------
EURO 14,564.67 43.9378 639,940
- ---------------------- ---------------------- ---------------------- ----------------------
Total 141,673,653
- ---------------------------------------------------------------------------- ----------------------
BALANCE PER GENERAL LEDGER 136,721,446
----------------------
Unrealized loss on Account Payable 4,952,208
----------------------
Unrealized loss Loan from Bank on Trust Receipt as at 09/30/99
- ---------------------- ---------------------- ---------------------- ----------------------
Currency Amount Exchange Rate Total
09/30/99 Baht
- ---------------------- ---------------------- ---------------------- ----------------------
Swiss Franc 37,342 27.4350 1,024,475
- ---------------------- ---------------------- ---------------------- ----------------------
French Franc 530,957 6.7005 3,557,677
- ---------------------- ---------------------- ---------------------- ----------------------
US Dollar 932,886 41.1339 38,373,232
- ---------------------- ---------------------- ---------------------- ----------------------
Austrian Shilling 551,085 3.1945 1,760,441
- ---------------------- ---------------------- ---------------------- ----------------------
Hong Kong Dollar 1,350,785 5.3085 7,170,641
- ---------------------- ---------------------- ---------------------- ----------------------
Singapore Dollar 13,890 24.2803 337,257
- ---------------------- ---------------------- ---------------------- ----------------------
Australian Dollar 54,650 27.0435 1,477,922
- ---------------------- ---------------------- ---------------------- ----------------------
Italian Lire 223,232,600 0.0227 5,067,380
- ---------------------- ---------------------- ---------------------- ----------------------
EURO 46,540 43.9378 2,044,849
- ---------------------- ---------------------- ---------------------- ----------------------
Total 60,813,874
- ---------------------------------------------------------------------------- ----------------------
BALANCE PER GENERAL LEDGER 55,905,939
----------------------
Unrealized loss on Trust Receipt in foreign currency 4,907,936
----------------------
Add : Unrealized loss on Account Payable in foreign currency 4,952,208
----------------------
Net Unrealized exchange loss as of 09/30/99 9,860,143
----------------------
US$ 1 = 37.6387 Baht US$ = 261,968
----------------------
</TABLE>
24
<PAGE>
(3) Results of operations, comparing nine months ended September 30, 1999 and
1998
Sales revenue for the nine months ended September 30, 1999 was approximately
$63.2 million compared to approximately $62.3 million for 1998. This increase is
a result of the 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 nine months ended September 30, 1999 and
1998, was approximately $29.8 million and $26.3 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 nine months ended September 30, 1999, to the same period in 1998,
the ratio of concession fees paid to sales revenue fell from 29.66% in 1998 to
26.71% 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 $7.7 million for the nine months
ended September 30, 1999 and approximately $7.2 million for the same period in
1998. In terms of percentage of sales, 1999 expenses were approximately 12.18%
of sales and 1998 expenses were approximately 11.48% 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.
25
<PAGE>
Administrative expenses for the nine months ended September 30, 1999 and 1998,
were approximately $4.2 million and $3.4 million, respectively. As a percentage
of total sales, these expenses were approximately 6.59% and 5.51%, 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 nine months ended September 30, 1999 was approximately $1.7
million, or $0.08 per share (basic), and approximately $3.6 million, or $0.18
per share (basic), for the nine months ended September 30, 1998.
The ratio of inventory divided by revenue for the nine months ended September
30, 1999 and 1998, was approximately 21.12% and 23.92%, respectively. This
decrease is the result of the merchandise adjustment to attract new and larger
base customer groups who are price sensitive, thereby, caused faster turnover of
merchandise.
(4) Results of operations, comparing three months ended September 30, 1999 and
1998
Sales revenue for the three months ended September 30, 1999 was approximately
$20.3 million compared to approximately $18.6 million for 1998. This increase is
a result of the 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 September 30, 1999 and
1998, was approximately $9.5 million and $8.4 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 three months ended September 30,
1999 to the same period in 1998, the ratio of concession fees paid to sales
revenue reduced from 28.10% in 1998 to 25.05% in 1999. This decrease is a result
of successful negotiations with the AAT to lowering down the fixed concession
fees of KPT. Management anticipates a further reduction in these fees may result
from the increase in sales volume generated from the upcoming high seasons
during the last quarter of the year.
Direct selling expenses, excluding depreciation and others were approximately
$2.4 million for the three months ended September 30, 1999 and approximately
$2.4 million for the same period in 1998. In terms of percentage of sales, 1999
expenses were approximately 12.06% of sales and 1998 expenses were approximately
12.72% of sales. Direct selling expenses have improved in terms of percentage of
sales due to the growth in the Company's sales. 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.
26
<PAGE>
Administrative expenses for the three months ended September 30, 1999 were
approximately $1.6 million, and approximately $1.3 million for the same period
in 1998. As a percentage of total sales, these expenses were approximately 7.62%
and 6.91%, 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 loss for the three months ended September 30, 1999 was approximately $0.1
million, or $0.01 per share (basic), and net income of approximately $0.1
million, or $0.01 per share (basic), for the three months ended September 30,
1998.
(5) Liquidity and Capital Resources
For the quarter ended September 30, 1999 and the year ended December 31, 1998,
the Company had working capital of approximately $4.7 million and $2.8 million,
respectively. This improvement is the result of the Company's successful efforts
to generate more cash from operation and pay down the short-term loan.
Furthermore, the Company is successful in collecting 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 and such amount will be used both to increase level of inventory and
pay down liabilities, therefore, would improve working capital further.
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.
27
<PAGE>
(5) Monetary Assets and Liabilities Denominated in Thai Baht
As of September 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 1,283,956
Trade Accounts Receivable 1,076,202
Refundable value-added-tax 1,377,335
Related Parties 6,335,399
Deferred income tax assets 3,998,334
Restricted deposit 3,189,890
Other current assets 3,791,053
Other non-current assets 357,629
TYPE OF MONETARY LIABILITY
Bank overdraft & loan 4,984,484
Current portion of long-term loan 36,425
Accounts Payable 5,323,588
Advance from related companies/directors 5,872,761
Concession fees 7,694,603
Other current liabilities 1,700,582
Long-term loan - net 236,280
(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.
28
<PAGE>
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.
29
<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
30
<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.
November 12, 1999 By: /s/ Vichai Raksriaksorn
------------------------------------------------
Vichai Raksriaksorn, President and
Chief Executive Officer
November 12, 1999 By: /s/ Viratana Suntaranond
--------------------------------------------------
Viratana Suntaranond, Chief Financial Officer
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted from Balance
Sheet at 09/30/99, Statement of Operations at 09/30/99
</LEGEND>
<CIK> 0000787690
<NAME> KING POWER INTERNATIONAL GROUP CO., LTD.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,275,775
<SECURITIES> 8,284
<RECEIVABLES> 247,317
<ALLOWANCES> (14,583,533)
<INVENTORY> 13,339,962
<CURRENT-ASSETS> 33,795,854
<PP&E> 7,621,325
<DEPRECIATION> (2,691,100)
<TOTAL-ASSETS> 39,085,786
<CURRENT-LIABILITIES> 29,084,104
<BONDS> 0
0
0
<COMMON> 20,250
<OTHER-SE> 9,434,933
<TOTAL-LIABILITY-AND-EQUITY> 39,085,786
<SALES> 63,171,833
<TOTAL-REVENUES> 63,171,833
<CGS> (29,770,984)
<TOTAL-COSTS> (46,643,461)
<OTHER-EXPENSES> (14,502,323)
<LOSS-PROVISION> 962,609
<INTEREST-EXPENSE> (898,524)
<INCOME-PRETAX> 2,100,374
<INCOME-TAX> (385,873)
<INCOME-CONTINUING> 1,714,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,711,920
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
