FORM 10-Q
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For the quarterly period ended June 30, 2000
(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 ______
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Commission File Number: 1-13205
KING POWER INTERNATIONAL GROUP CO., LTD.
(Exact name of registrant as specified in its charter)
Nevada 75-2641513
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(State of incorporation) (IRS Employer ID number)
26th-27th Floor, Siam Tower, 989 Rama 1 Road, Patumwan, Bangkok 10330 Thailand
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(Address of principal executive offices)
011 (662) 658-0090
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(Registrant's telephone number, including area code)
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: August 10, 2000: 20,250,000
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KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarterly ended June 30, 2000
Table of Contents
Page
Part I - Financial Information
Item 1 Financial statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 26
Part II - Other Information
Item 1 Legal Proceeding 34
Item 2 Changes in Securities 34
Item 3 Defaults Upon Senior Securities 34
Item 4 Submission of Matters to a Vote of Securities Holders 34
Item 5 Other Information 34
Item 6 Exhibits and Reports on Form 8-K 34
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Independent Accountants' Review Report
The Board of Directors and Shareholders
King Power International Group Co., Ltd. and Subsidiaries
We have reviewed the consolidated balance sheet of King Power International
Group Co., Ltd. and Subsidiaries (a Nevada Corporation) as of June 30, 2000, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the three months and six months then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of King Power
International Group Co., Ltd. and Subsidiaries
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principals.
SMITH, JACKSON, BOYER & DANIELL
A Professional Limited Liability Company
Dallas, Texas
August 11, 2000
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<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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June 30, December 31,
Note 2000 1999
---- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,025,413 $ 2,192,510
Trade accounts receivable 182,333 179,485
Refundable value added tax 931,662 1,180,436
Trade accounts and accrued interest receivable from and
advances to affiliates, net 12 6,881,453 5,214,335
Merchandise inventories - net 16,863,656 16,498,754
Restricted fixed deposits 3 5,723,502 3,845,629
Deferred income tax assets 11 3,995,468 4,354,132
Prepaid expenses 5 1,270,375 2,607,962
Other current assets 387,347 667,209
----------- -----------
Total current assets 39,261,209 36,740,452
Property, plant and equipment - net 6 4,597,461 5,257,949
Investment and other assets 206,299 214,180
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TOTAL ASSETS $44,064,969 $42,212,581
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The accompanying notes are an integral part of the financial statements
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KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
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June 30, December 31,
Note 2000 1999
---- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and loans from banks 7 $13,037,916 $10,048,791
Current portion of long - term loan 9 33,854 28,089
Trade accounts payable 12 9,142,802 10,003,574
Accrued concession fees 8,12 4,049,064 8,467,028
Other current liabilities 2,777,486 1,967,996
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Total current liabilities 29,041,122 30,515,478
Long - term loan - net 9 215,263 254,000
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Total liabilities 29,256,385 30,769,478
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Minority interest 505,822 378,457
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 (deficit) (5,694,804) (9,503,916)
Translation adjustments (870,829) (299,833)
----------- -----------
Total shareholders' equity 14,302,762 11,064,646
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $44,064,969 $42,212,581
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
5
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<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six months ended June 30, Three months ended June 30,
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Note 2000 1999 2000 1999
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales revenue $52,649,919 $42,860,323 $25,115,820 $19,050,663
Cost of sales:
Cost of merchandise sold 25,014,380 20,257,555 11,909,320 9,060,775
Concession fees 8 11,398,115 11,783,937 5,232,504 5,315,822
----------- ----------- ----------- -----------
Total cost of sales 36,412,495 32,041,492 17,141,824 14,376,597
----------- ----------- ----------- -----------
Gross profit 16,237,424 10,818,831 7,973,996 4,674,066
Operating expenses:
Selling and administrative expenses 10,129,960 9,378,316 4,942,123 4,651,031
----------- ----------- ----------- -----------
Total operating expenses 10,129,960 9,378,316 4,942,123 4,651,031
----------- ----------- ----------- -----------
Income from operation 6,107,464 1,440,515 3,031,873 23,035
Other income (expenses)
Interest income 104,407 606,713 42,269 194,357
Interest expenses (549,064) (668,290) (285,252) (293,043)
Gain (Loss) on foreign exchange - net 105,544 (144,919) 138,612 (15,275)
Unrealized gain (loss) on foreign exchange - net (185,270) 368,013 (191,728) 179,397
Provision for doubtful account - 1,082,131 - 766,487
Other income 112,932 185,904 68,615 126,398
----------- ----------- ----------- -----------
Total other revenues (expenses) (411,451) 1,429,552 (227,484) 958,321
----------- ----------- ----------- -----------
Net income before income tax 5,696,013 2,870,067 2,804,389 981,356
Income tax benefit (expenses) 11 (1,739,790) (973,899) (861,961) (355,211)
----------- ----------- ----------- -----------
Net income before minority interest 3,956,223 1,896,168 1,942,428 626,145
Minority interest (147,111) (67,593) (31,975) (20,227)
----------- ----------- ----------- -----------
Net income attributed to common shares $ 3,809,112 $ 1,828,575 $ 1,910,453 $ 605,918
=========== =========== =========== ===========
Weighted average number of common shares
Outstanding 20,250,000 20,250,000 20,250,000 20,250,000
Basic earning per share $ 0.19 $ 0.09 $ 0.09 $ 0.03
</TABLE>
The accompanying notes are an integral part of the financial statements
6
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<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six months ended June 30, Three months ended June 30,
----------------------------------------------------------------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income attributed to common shares $ 3,809,112 $ 1,828,575 $ 1,910,453 $ 605,918
Other comprehensive income, before tax:
Foreign currency translation adjustments (570,996) 62,911 (459,707) 220,119
----------- ----------- ----------- -----------
Comprehensive income $ 3,238,116 $ 1,891,486 $ 1,450,746 $ 826,037
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
7
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<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, Three months ended June 30,
----------------------------------------------------------------------------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,809,112 $ 1,828,575 $ 1,910,453 $ 605,918
Adjustments to reconcile net income to net cash
Provided (used) by operating activities:
Depreciation 734,655 697,732 366,629 338,337
Unrealized loss (gain) on foreign exchange 185,270 (368,013) 191,728 (179,398)
Deferred income tax assets 358,664 462,005 418,185 38,246
Provision for doubtful accounts - (1,082,131) - (766,487)
Decrease (increase) in operating assets:
Loan and receivables to related companies and directors (1,657,584) 6,129,505 (839,444) 6,509,823
Trade accounts receivable 24,367 46,387 25,808 (22,467)
Refundable valued added tax 248,774 507,168 364,035 504,585
Inventories (364,902) (986,117) (1,382,809) (2,925,512)
Prepaid expense and other current assets 1,617,449 (3,882,081) 792,726 (3,842,600)
Other long term asset 6,131 207,325 (2,972) 55,843
Increase (decrease) in operating liabilities:
Trade accounts payable (925,111) 971,169 (681,653) 3,379,425
Accrued concession fees (4,417,964) (682,256) (2,196,592) (780,800)
Other current liabilities 809,490 (1,498,317) 539,758 185,050
Other liabilities 129,115 (56,832) 17,548 (3,057)
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities $ 557,466 $ 2,294,119 $ (476,600) $ 3,096,906
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements
8
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<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six months ended June 30, Three months ended June 30,
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Note 2000 1999 2000 1999
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVES:
Purchase of fixed assets $ (74,167) $ (219,630) $ (37,182) $ (270,743)
(Increase) decrease in restricted fixed deposit (1,877,873) 1,765,506 (214,794) 3,037,903
----------- ----------- ----------- -----------
Net cash provided (used) by investing activities (1,952,040) 1,545,876 (251,976) 2,767,160
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayment) in bank overdrafts, bank loans 2,792,797 (32,788) 2,489,853 (3,992,799)
Proceeds (repayment) from long-term loan (32,972) (1,306,904) 228,107 15,371
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities 2,759,825 (1,339,692) 2,717,960 (3,977,428)
Effect of exchange rate changes on cash and cash equivalents (532,348) 68,658 (438,716) 170,802
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents 832,903 2,568,961 1,550,668 2,057,440
Cash and cash equivalents - beginning of period 2,192,510 1,371,739 1,474,745 1,883,260
----------- ----------- ----------- -----------
Cash and cash equivalents - end of period $ 3,025,413 $ 3,940,700 $ 3,025,413 $ 3,940,700
=========== =========== =========== ===========
Supplement cash flow information
Cash paid during the period:
Interest paid $ 496,719 $ 778,391 $ 240,127 $ 696,602
Income taxes paid $ 647,960 $ 1,406,982 $ 375,724 $ 1,406,982
</TABLE>
The accompanying notes are an integral part of the financial statements
9
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<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE QUARTER ENDED JUNE 30, 2000 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>
Balances, 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
===========
Balances, June 30, 1999 20,250,000 20,250 20,848,145 (10,088,320) (137,270) 10,642,805
=========== =========== =========== =========== =========== ===========
Balances, January 1, 2000 20,250,000 20,250 20,848,145 (9,503,916) (299,833) 11,064,646
Net Income 3,809,112 3,809,112 3,809,112
Other comprehensive income, net of tax
Foreign currency translation adjustment (570,996) (570,996) (570,996)
-----------
Comprehensive Income 3,238,116
----------- ----------- ----------- =========== ----------- ----------- -----------
Balances, June 30, 2000 20,250,000 20,250 20,848,145 (5,694,804) (870,829) 14,302,762
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statement
12
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KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
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 was accounted for as a "reverse acquisition" for financial reporting
purposes and KPT and KPD were deemed to have acquired 94% of equity interest in
the Company as of the date of acquisition. The relevant acquisition process
utilized the capital structure of Immune America, Inc., and the assets and
liabilities of KPT and KPD were recorded at historical cost. 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
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 this specific nature. For the tax-free operation, KPT is subject to
input value added tax on purchases of merchandise and is exempt from output
value added tax on sales of merchandise.
On October 10, 1997, the Company acquired 4,900 shares of common stock
in King Power International Group (Thailand) Company Limited (KPG Thai),
equivalent to 49% of the registered capital. KPG Thai was established in
Thailand on September 11, 1997, and has registered capital totaling Baht 1
million divided into 10,000 shares of common stock with Baht 100 per 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. Investments in other companies under 20% of
interest are accounted for using the cost method. At December 31, 1999, these
investments have been written down due to an assumed permanent impairment of
their value. 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.
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KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
Provision for Doubtful Accounts - Estimated collection losses of the
Company are provided for based on the Company's collection experience together
with a review of the financial position of each debtor. Where the Company
determines reserves are necessary, it will provide an allowance for the total
receivable and accrued interest outstanding.
Marketable Securities - Securities held for trading are marked to
market at year-end with the resulting gain or loss being included in current
income.
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 during the year. Translation
adjustments arising from the use of different exchange rates from period to
period are included in the cumulative translation adjustment account in
shareholders' equity. Gains and losses resulting from foreign currency
transactions are included in operations. Gains or losses on 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 at June 30, 2000, and December 31, 1999, are $1=
Thai Baht 39.179 and Baht 37.520, respectively. The average exchange rates for
the six months ended June 30, 2000, and 1999 are $1= Thai Baht 38.188 and Baht
37.121 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, the disclosure of contingent assets and liabilities at the date of
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from these estimates.
Revenue Recognition - The Company recognizes revenue from sales of
merchandise at the point of sale.
Concession Fees - According to the concession agreement with Airports
Authority of Thailand, KPT is required to pay concession fees, rental and
services fees, and other related expenses at the fixed charges per month as
defined in the agreement. According to the concession agreement 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. In Thailand, such accounts are insured for the full amount of
their value by the Thai government. U.S. bank deposits are within Federal
insurance limits. 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
payables 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.
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KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
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 that 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
potentially dilutive securities outstanding.
Reclassification - Certain 1999 amounts have been reclassified to
conform to the 2000 presentation.
New Accounting Standards Not Yet Adopted-Accounting for Derivative
Instruments and Hedging Activities - Statement of Financial Accounting Standards
No. 133 as amended by Statement of Financial Accounting Standards No.137 is
effective for all fiscal quarters of all 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 year
ended December 31, 1999, and the quarter ended June 30, 2000, that adoption does
not have a significant impact on financial condition or operating results.
3. RESTRICTED FIXED DEPOSITS
June 30, 2000 December 31,1999
Restricted fixed deposits $ 5,723,502 $ 3,845,629
Interest rates 1.00% - 5.00% 3.00% - 5.50%
As of June 30, 2000, and December 31, 1999, 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.
5. PREPAID EXPENSES
Prepaid expenses consist of the following:
June 30, 2000 December 31, 1999
Prepaid management fee $ 2,297,149 $ 3,598,081
Less Amortization (1,148,575) (1,199,360)
---- ----------- -----------
Total 1,148,574 2,398,721
Prepaid expenses - other 121,801 209,241
-----------
Total $ 1,270,375 $ 2,607,962
=========== ===========
15
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KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
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 agreed to pay in advance for
these services, in the amount of $1,799,041 (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.
6. PROPERTY, PLANT AND EQUIPMENT - NET
June 30, 2000 December 31,1999
Land $ 670,767 $ 700,426
Building 131,898 137,730
Leasehold improvements 4,603,017 4,693,023
Sales office equipment and fixtures 2,319,990 2,317,640
Vehicles 690,486 720,864
Work in progress 67,578 -
----------- -----------
Total cost 8,483,736 8,569,683
Less Accumulated depreciation (3,886,275) (3,311,734)
---- ----------- -----------
Net book value $ 4,597,461 $ 5,257,949
=========== ===========
As of June 30, 2000, and December 31, 1999, land and building are
pledged as collateral for credit line of trust receipt and long-term loan from a
bank. (Note 7 and Note 9)
7. BANK OVERDRAFT AND LOANS FROM BANKS
June 30, 2000 December 31,1999
Bank overdraft $ 1,392,593 $ 484,398
Trust receipts 11,645,323 9,564,393
----------- -----------
$ 13,037,916 $ 10,048,791
=========== ===========
As of June 30, 2000, and December 31, 1999, the Company has an
overdraft facility with a commercial bank in Thailand totaling Baht 60.74
million ($1,550,320) and Baht 30.74 million ($819,296), respectively, bearing
interest at MOR (Minimum Overdraft Rate), plus 1.50% per annum. For the six
months ended June 30, 2000, the average rate of MOR was 8.75% - 9.75% per annum
and for the year ended December 31,1999, the average rate of MOR was 6.50% -
12.75% per annum. Available lines of credit for the bank overdrafts are
guaranteed by certain directors and collateralized by fixed deposits. (Note 3)
As of June 30, 2000, and December 31, 1999, trust receipts incurred by
KPD bear interest at the rates varying from 6.89%-12.75% and 6.17%-12.25% per
annum, respectively, and are collateralized by fixed deposits, KPD's land, and
guaranteed by two directors of KPD together with a related company.
16
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<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
Trust receipts at June 30, 2000, are:
Currencies Amount Interest rate (%)
Foreign currency borrowing by subsidiaries in Thailand
<S> <C> <C> <C> <C>
-Under forward contract and T/R BAHT 174,329,504 $ 4,449,565 9.25-10.50
-Without forward contract USD 5,780,938 5,795,236 9.25-11.07
CHF 275,515 169,400 6.89-10.25
DEM 43,468 21,305 8.00-8.11
ATS 169,820 11,854 7.75
AUD 25,148 15,206 10.75
FRF 1,403,529 205,373 7.75-8.00
HKD 4,152,515 535,760 10.25-12.75
ITL 38,121,300 18,974 10.00
BEF 1,007,485 24,164 7.75
SGD 31,331 18,223 10.00
EUR 396,602 380,263 7.75-10.25
-----------
$11,645,323
===========
Trust receipts at December 31, 1999, are:
Currencies Amount Interest rate (%)
Foreign currency borrowing by subsidiaries in Thailand
-Under forward contract and T/R BAHT 217,975,088 $ 5,809,571 6.17-12.25
-Without forward contract USD 2,892,560 2,907,192 7.50-11.50
CHF 290,055 183,289 6.17-7.50
DEM 12,542 6,512 7.46-7.56
AUD 29,266 19,280 10.50
FRF 727,837 112,731 7.50
HKD 2,135,117 276,894 10.25-12.25
ITL 367,483,750 192,949 7.50
GBP 4,903 7,997 9.75
EUR 47,260 47,978 7.50-7.56
-----------
$ 9,564,393
===========
</TABLE>
8. CONCESSION FEES
Accrued concession fees as of June 30, 2000, and December 31, 1999,
consist of the following:
June 30, 2000 December 31 ,1999
- The Customs Department of Thailand $ - $ 533,049
- The Airports Authority Of Thailand 4,049,064 7,933,979
--------- ---------
4,049,064 8,467,028
========== ==========
For the six months ended June 30,
2000 1999
---- ----
Concession fees expense $ 11,398,115 $ 11,783,937
========== ==========
17
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
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:
KPT KPD
--------------------------------------------------- -----------------------------------------------
Airport Rental, Service Collateral Airport and Rental, Service Collateral
Concession fees & other Customs & other
expenses Concession fees expenses
-----------------------------------------------------------------------------------------------------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Year
----
2000 $ 4,212 $ 261 $ 6,794 $ 4,920 $ 479 $ 4,638
2001 8,792 521 6,794 11,631 958 4,798
2002 9,229 511 6,794 - - -
2003 2,251 123 6,788 - - -
</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.
For the six months ended June 30, 2000, and 1999, both KPD and KPT were
charged penalty fees amounting to $ 374,217 and $ 741,549, respectively,
relating to late payment of concession fees to the Customs Department and the
Airports Authority of Thailand. Of these amounts, $ 223,565 and $ 175,464,
respectively, were unpaid at June 30, 2000 and December 31, 1999, and are
included in other current liabilities in the accompanying balance sheets.
9. LONG-TERM LOAN - NET
Long term liabilities as of June 30, 2000, and December 31, 1999,
consist of the following:
June 30, 2000 December 31, 1999
Long-term loans $ 233,470 $ 253,180
Installment purchase payable 15,647 28,909
-------- --------
249,117 282,089
Less Current portion of long-term debt (33,854) (28,089)
---- -------- --------
Total $ 215,263 $ 254,000
======== ========
18
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
As of June 30, 2000, and December 31, 1999, long-term loans consist of
loans from banks carrying interest rates of 8.75% and 14.75%, respectively. The
long-term loans are secured by the Company's land and building and guaranteed by
a director of the Company. (See Notes 6)
Loans are due as follows:
June 30,2000 December 31, 1999
Installment Purchase Obligation
2000 $ 4,077 $ 16,827
2001 6,311 6,590
2002 5,259 5,492
------- -------
Total $ 15,647 $ 28,909
======= =======
Long-term Loan Installment Payments
2000 $ 13,049 $ 11,262
2001 27,754 13,174
2002 30,282 15,254
2003 33,041 17,663
2004 36,019 20,443
Thereafter 93,325 175,384
------- -------
Total $ 233,470 $ 253,180
======= =======
10. 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 who 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, 1,200,000 shares of common stock as
of June 12, 1997, when the reverse acquisition was effective, represented
the other 4 % of equity interests. These 1,200,000 shares of common stock
were represented by the following components.
Common Stock
------------ Additional Retained Treasury Total
Shares Amount paid-in capital earnings stock ---------
--------- --------- --------------- --------- ---------
<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>
19
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
(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
issuance was conducted pursuant to Regulation S promulgated under the
United State Securities Act of 1933, as amended.
11. INCOME TAX
The provision for income taxes consist of the following:
June 30, 2000 June 30, 1999
Current income tax (Payable) $ $
United States - -
Foreign (1,381,126) (539,793)
---------- ----------
(1,381,126) (539,793)
---------- ----------
Deferred income tax
United States - -
Foreign (358,664) (434,106)
---------- ----------
(358,664) (434,106)
---------- ----------
Net income tax expense $ (1,739,790) $ (973,899)
========== ==========
Pre-tax income for foreign companies for the quarter ended June 30,
2000, was $ 5,799,300. Current taxes payable are included in other current
liabilities.
The components of deferred income tax assets and liabilities were:
June 30, 2000 December 31,1999
<S> <C> <C>
Reserves for bad debts and investment obsolescence $ 4,248,230 $ 4,423,804
Net operating loss carried forward 222,060 369,019
--------- ---------
4,470,290 4,792,823
Less Valuation allowance (474,822) (438,691)
----- --------- ---------
Deferred income tax assets $ 3,995,468 $ 4,354,132
========= =========
</TABLE>
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 six months ended June, 30
2000 1999
----- -----
Standard income tax rate 35.00% 30.00%
Foreign tax rate difference (4.46%) 3.70%
----- -----
Effective income tax rate 30.54% 33.70%
===== =====
As of June 30, 2000, and December 31, 1999, the Company has deferred
income tax assets relating to net operating loss carry forwards for income tax
purpose of $ 222,060 and $ 369,019, respectively, that expire in years 2000
through 2004. (A valuation allowance on the United States loss carry forward has
been provided, as the Company has determined that it is more likely than not
that this deferred income tax asset will not be realized.)
20
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
12. RELATED PARTIES AND DIRECTORS TRANSACTIONS
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. Balances at June 30, 2000,
and December 31, 1999, with related companies and directors are as follows ($ in
thousands)
As at June 30, 2000
Account Loans and receivables to related Management Accounts
Receivable companies and Directors fee receivables payable
----------- -------------------------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Loans Interest and Total
other
receivables
Second Quarter, 2000
King Power International Co., Ltd. 1,749 5,629 222 - 7,600 28
Forty Seven Co., Ltd. - 2,659 531 - 3,190 -
Downtown D.F.S. (Thailand) Co., Ltd. 432 2,486 228 2,355 5,501 -
King Power Duty Free (CBO) Ltd. - 1,048 45 - 1,093 -
Top China Group Co., Ltd. - 255 3 - 258 -
Lengle (Thailand) Co., Ltd. - 919 52 - 971 -
Lengle TAT Phanom Phen Duty Free 51 - - - 51 -
Grand Enterprise and Trading Partnership - 259 10 - 269 -
King Power On Board Sales and Services Co., Ltd. 16 1,717 - - 1,733 160
Thai Nishigawa International Co., Ltd. - - - - - 60
Niji (Thailand) Co., Ltd. - - - - - 20
----------- ----------- ----------- ----------- ----------- -------
2,248 14,972 1,091 2,355 20,666 268
Directors - to/(from) - - - - - -
----------- ----------- ----------- ----------- ----------- -------
2,248 14,972 1,091 2,355 20,666 268
Less Allowance for doubtful accounts: - - - - - -
----
Related companies (1,442) (9,413) (575) (2,355) (13,785) -
Directors - - - - - -
----------- ----------- ----------- ----------- ----------- -------
(1,442) (9,413) (575) (2,355) (13,785) -
----------- ----------- ----------- ----------- ----------- -------
Total 806 5,559 516 - 6,881 268
=========== =========== =========== =========== =========== =======
21
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
As of December 31, 1999
Account Loans and receivables to related Management Accounts
Receivable companies and Directors fee receivables payable
----------- -------------------------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Loans Interest and Total
other
receivables
1999
King Power International Co., Ltd. 2,613 3,340 207 - 6,160 222
Forty Seven Co., Ltd. - 2,777 541 - 3,318 -
Downtown D.F.S. (Thailand) Co., Ltd. 451 2,596 226 2,459 5,732 1
King Power Duty Free (CBO) Ltd. - 1,079 36 - 1,115 -
Top China Group Co., Ltd. - 267 - - 267 -
Lengle (Thailand) Co., Ltd. - 960 49 - 1,009 -
Lengle TAT Phanom Phen Duty Free 44 - - - 44 -
Grand Enterprise and Trading Partnership - 270 10 - 280 -
King Power On Board Sales and Services Co., Ltd. 11 1,628 1 - 1,640 11
Thai Nishigawa International Co., Ltd. - - - - - 45
Niji (Thailand) Co., Ltd. 9 - - - 9 27
----------- ----------- ----------- ----------- ----------- -------
3,128 12,917 1,070 2,459 19,574 306
Directors - to/(from) - - - - - -
----------- ----------- ----------- ----------- ----------- -------
3,128 12,917 1,070 2,459 19,574 306
Less Allowance for doubtful accounts: - - - - - -
----
Related companies (1,240) (10,066) (595) (2,459) (14,360) -
Directors - - - - - -
----------- ----------- ----------- ----------- ----------- -------
(1,240) (10,066) (595) (2,459) (14,360) -
----------- ----------- ----------- ----------- ----------- -------
Total 1,888 2,851 475 - 5,214 306
=========== =========== =========== =========== =========== =======
</TABLE>
Additionally, the Airports Authority of Thailand owns 5% of KPD common
shares. As at June 30, 2000, and December 31, 1999, there are accrued concession
fees amounting to $ 3,037,822 and $ 7,933,979, respectively.
22
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
On March 24, 1999, the board of directors of the company passed
resolution reducing the interest on loans to/from related companies and
directors to be 4.00% and 3.00% per annum, respectively, due to the dramatic
decline of market interest rate in Thailand and in order 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 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,
2000 1999
---- ----
Sales $ 394 $ 1,244
Interest income 52 449
Purchase 597 1,542
Concession fees 6,373 5,862
Directors
For the six months ended June 30,
2000 1999
---- ----
Interest income $ - $ 16
13. COMMITMENTS AND CONTINGENT LIABILITIES
Lease commitments
As of December 31, 1998, KPG Thai had 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 and KPD. 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
--- ---
2000 $ 62,662 $ 99,488
2001 $ 7,657 $ 104,280
Letter of guarantees
As of June 30, 2000, and December 31, 1999, KPT and KPD were
contingently liable for bank guarantees totaling $12.95 million and $12.68
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, 2000, and December 31, 1999, KPD has unused letters of
credit amounting to $3.60 million and $3.19 million, respectively.
23
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
Pledge of subsidiary stock
Subsequent to year end the Company applied for a new line of credit. As
a part of this application, the Company agreed to pledge its stock in both KPT
and KPD as collateral. The line of credit application is still in process.
14. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for June 30, 2000,and 1999, are
disclosed in accordance with Statement of Financial Accounting Standard No.131
("SFAS 131"). Information by legal entities is the reportable segment under SFAS
131 because each entity is reported separately for management ($ in thousands).
For the six months ended June 30, 2000
Duty Tax All Adjustment Consolidated
Free Free Other And
Retail Retail Elimination
----------- ---------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Segment Information US $ US $ US $ US $ US $
-------------------
- Revenue from external customers 38,160 14,566 - (76) 52,650
- Cost of merchandise sold 18,788 6,302 - (76) 25,014
- Concession fees 6,373 5,025 - - 11,398
- Gross profit 12,999 3,239 - - 16,238
- Interest Income 74 14 - 104
16
- Interest expense 532 17 - - 549
- Segment net income (loss) 2,899 1,161 3,808 (3,912) 3,956
- Segment total assets 35,942 13,751 14,714 (20,342) 44,065
- Expenditures for segment assets 76 - (4) 74
2
- Depreciation 544 191 - - 735
- Unrealized gain (loss) on exchange (214) 19 10 - (185)
- Deferred tax 2,670 1,302 23 - 3,995
Revenue Long-lived
Assets
-------------- ------------
Geographical Information US $ US $
------------------------
Bangkok 50,611 4,641
Northern Thailand region 293 45
Southern Thailand region 1,746 118
-------------- ------------
Total 52,650 4,804
============== ============
24
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED JUNE 30, 2000 AND 1999
For the six months ended June 30, 1999
Duty Tax All Adjustment Consolidated
Free Free Other And
Retail Retail Elimination
----------- ---------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Segment Information US $ US $ US $ US $ US $
-------------------
- Revenue from external customers 29,371 13,489 - - 42,860
- 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 1,890 (2,133) 1,828
- Segment total assets 40,331 16,919 12,925 (23,207) 46,968
- Expenditures for segment assets 729 342 - - 1,071
- Depreciation 539 159 - - 698
- Unrealized gain (loss) on exchange 366 (4) 6 - 368
- Deferred tax 2,430 1,540 32 - 4,002
Revenue Long-lived
Assets
-------------- ------------
Geographical Information US$ US$
------------------------
Bangkok 41,169 2,136
Northern Thailand region 255 6
Southern Thailand region 1,436 25
-------------- ------------
Total 42,860 2,167
============== ============
</TABLE>
25
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
(1) Caution Regarding Forward-Looking Information
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. When used in this document, the words
"anticipate", "believe", "estimate", "expect", "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 June 30, 1999:
Net realized gain on foreign exchange $0.1 million
Net unrealized loss on foreign exchange $0.2 million
The calculation of unrealized foreign exchange loss of $0.2 million is shown in
charts labeled A and B, respectively.
26
<PAGE>
CHART A
The calculation of Unrealized gain on foreign exchange of US$ = 75,396 was
calculated on accumulated basis with quarterly adjustment on financial
obligations, receivable and cash on hand in foreign currency as shown below:
Unrealized gain on Account receivable as of 06/30/2000
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
06/30/00 Baht
---------------------- ------------------ -------------------- ----------------
Swiss Franc 3,600.00 23.8300 85,788
---------------------- ------------------ -------------------- ----------------
German Deutschmark 7,441.10 59.1581 440,201
---------------------- ------------------ -------------------- ----------------
US Dollar 71,858.98 39.0656 2,807,214
---------------------- ------------------ -------------------- ----------------
Total 3,333,203
---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 3,537,959
----------------
Unrealized loss from account receivable 30/06/00 (204,756)
----------------
Unrealized gain from account receivable 01/01/00 1,244,035
Net unrealized gain from account receivable 30/06/00
----------------
1,039,279
----------------
Unrealized gain on advanced as at 06/30/00
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
06/30/00 Baht
---------------------- ------------------ -------------------- ----------------
BAHT CURRENCY 10,027,036.68 39.179 255,929
---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 265,463
----------------
Net unrealized gain on advanced 30/06/00 9,534
----------------
27
<PAGE>
Unrealized gain on cash on hand as at 06/30/00
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
06/30/00 Baht
---------------------- ------------------ -------------------- ----------------
Australian Dollar 10,132.94 23.2710 235,804
---------------------- ------------------ -------------------- ----------------
Swiss Franc - 22.6742 0
---------------------- ------------------ -------------------- ----------------
China Renminbi Yuan 24,825.00 4.5544 113,063
---------------------- ------------------ -------------------- ----------------
German Deutschmark 2,450.00 18.9434 46,411
---------------------- ------------------ -------------------- ----------------
French Franc 2,700.00 5.6445 15,240
---------------------- ------------------ -------------------- ----------------
British Pound Sterling 47,161.17 59.1581 2,789,965
---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 742,031.10 4.9968 3,707,781
---------------------- ------------------ -------------------- ----------------
Japanese Yen 10,037,824.00 0.368720 3,701,146
---------------------- ------------------ -------------------- ----------------
Korean Won 1,052,000.00 0.0350 36,820
---------------------- ------------------ -------------------- ----------------
Malaysia Ringgit 497.00 10.2242 5,081
---------------------- ------------------ -------------------- ----------------
Singapore Dollar 5,101.00 22.4546 114,541
---------------------- ------------------ -------------------- ----------------
Taiwanese Dollar 1,438,800.00 1.2702 1,827,564
---------------------- ------------------ -------------------- ----------------
Canadian Dollar - 25.8612 0
---------------------- ------------------ -------------------- ----------------
US Dollar 292,066.43 39.0656 11,409,750
---------------------- ------------------ -------------------- ----------------
Total 24,003,166
-------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 22,404,946
----------------
Unrealized gain on cash in hand in foreign currency 06/30/00 1,598,220
----------------
Unrealized loss on cash in hand in foreign currency 01/01/00 (122,343)
----------------
Net unrealized gain on cash in hand in foreign
currency 06/30/00 1,475,877
----------------
PLUS: Net unrealized gain on account receivable foreign
currency 06/30/00 1,039,279
----------------
Net unrealized gain on exchange rate as at 06/30/00 2,515,156
----------------
US$ = 75,396 (US$1 = 38.1880 Baht)
--------------------
28
<PAGE>
CHART B
The calculation of Unrealized loss on foreign exchange of US$ = 260,666 was
calculated on accumulated basis with quarterly adjustment on financial
receivable and cash on hand in foreign currency as shown below:
Unrealized loss on loan from bank (trust Receipt) as at 06/30/00
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
06/30/00 Baht
---------------------- ------------------ -------------------- ----------------
Austria Shilling 169,819.69 2.7348 464,423
---------------------- ------------------ -------------------- ----------------
Australian Dollar 25,148.22 23.6892 595,741
---------------------- ------------------ -------------------- ----------------
Belgium Franc 1,007,485.00 0.9397 946,734
---------------------- ------------------ -------------------- ----------------
Swiss Franc 275,515.40 24.0891 6,636,918
---------------------- ------------------ -------------------- ----------------
German Deutschmark 43,467.90 19.2025 834,692
---------------------- ------------------ -------------------- ----------------
Euro Dollar 396,602.36 37.5650 14,898,368
---------------------- ------------------ -------------------- ----------------
French Franc 1,403,528.90 5.7329 8,046,291
---------------------- ------------------ -------------------- ----------------
British Pound Sterling - 60.6426 0
---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 4,152,515.35 5.0549 20,990,550
---------------------- ------------------ -------------------- ----------------
Italian Lire 38,121,300.00 0.0195 743,365
---------------------- ------------------ -------------------- ----------------
Singapore Dollar 31,331.44 22.7879 713,978
---------------------- ------------------ -------------------- ----------------
US Dollar 5,780,937.95 39.2759 227,051,541
---------------------- ------------------ -------------------- ----------------
Total 281,922,601
----------------
BALANCE PER GENERAL LEDGER 277,805,140
----------------
Unrealized loss from loan from Bank in foreign
currency 06/30/00 (4,117,461)
----------------
Unrealized loss from loan from bank in foreign
currency 01/01/00 (3,379,893)
----------------
Net unrealized loss from loan from Bank in foreign
currency 30/06/00 (7,497,354)
----------------
29
<PAGE>
Unrealized loss on Account payable as at 06/30/00
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
06/30/00 Baht
---------------------- ------------------ -------------------- ----------------
Austria Shilling (10,597.60) 2.7348 (28,982)
---------------------- ------------------ -------------------- ----------------
Swiss Franc 11,993.30 24.0891 288,908
---------------------- ------------------ -------------------- ----------------
German Deutschmark 33,918.84 19.2025 651,327
---------------------- ------------------ -------------------- ----------------
French Franc 613,753.82 5.7329 3,518,589
---------------------- ------------------ -------------------- ----------------
British Pound Sterling 21,750.00 59.7879 1,300,387
---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 6,849,171.70 5.0549 34,624,638
---------------------- ------------------ -------------------- ----------------
Italian Lire 18,199,778.00 0.0195 354,896
---------------------- ------------------ -------------------- ----------------
Netherland Guilder 63,846.00 17.0457 1,088,300
---------------------- ------------------ -------------------- ----------------
Singapore Dollar (3,485.73) 22.7879 (79,432)
---------------------- ------------------ -------------------- ----------------
US Dollar 1,190,568.87 39.2759 46,760,664
---------------------- ------------------ -------------------- ----------------
Total 88,479,295
-------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 90,674,048
----------------
Unrealized loss from Account payable in foreign
currency 06/30/00 2,194,753
----------------
Unrealized loss from Account payable in foreign
currency 01/01/00 (4,651,712)
----------------
Net unrealized loss from account payable in foreign
currency 30/06/00 (2,456,959)
----------------
Net unrealized loss from loan from Bank
(Trust receipt) 06/30/00 (7,497,354)
----------------
Net unrealized exchange loss as of 30/06/00 (9,954,313)
----------------
US$ = (260,666)
(US$1 = 38.1880 Baht)
NET FOR UNREALIZED GAIN / LOSS EXCHANGE OF 06/30/00
---------------------------------------------------
(BAHT) (US)
----------- -----------
Net unrealized exchange gain as of 30/06/00 2,515,156
Net unrealized loss on exchange rate as at 30/06/00 (9,954,313)
----------
NET UNREALIZED EXCHANGE (7,439,157) (194,804)
----------
Net unrealized exchange GAIN KPG(US) as of 30/06/00 9,534
-----------
NET UNREALIZED EXCHANGE (185,270)
-----------
30
<PAGE>
(3) Results of operations, comparing six months ended June 30, 2000 and 1999
Sales revenue for the six months ended June 30, 2000, was approximately $52.6
million compared to approximately $42.9 million for 1999. This increase is
directly attributable to the continual growth in number of tourists entering
into Thailand and the promotional sales discount implemented to attract a larger
customer base. Commencing in the last half of 1997, the Thai Government began
the "Amazing Thailand" marketing campaign to coincide with various events
occurring in Thailand or other countries located near Thailand. This marketing
campaign is international in scope and directly targeted to attract additional
new and repeat visitors to Thailand. As a result, the number of passengers
traveling through Bangkok International Airport during the first half of 2000
has increased 9.48% from the same period last year. The Company expects that
this promotional campaign will continue to directly impact the Company's
operations in a positive manner during and subsequent to this time period. In
addition to the "Amazing Thailand" campaign, during the first half of 2000, the
Company launched promotional sales discounts in order to capture new and larger
base customer groups who are price sensitive. By implementing this strategy,
Management believes that the sales volume will continue to grow and will
ultimately result positively on the Company's operating profit.
The cost of merchandise sold for the six months ended June 30, 2000, and 1999,
was approximately $25.0 million and $20.3 million, respectively. The principal
factor causing this increase is directly related to the increase in merchandise
sold and the current campaign on promotional sales discount of products sold in
both subsidiaries where more units of merchandise were sold with slightly 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, 2000, to
the same period in 1999, the ratio of concession fees paid to sales revenue fell
from 27.49% in 1999 to 21.65% in 2000. 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 and due to the
concession fee structure of KPT being based on a fixed amount. 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 half of
the year.
Selling and administrative expenses also increased due to the higher volume of
sales resulting from the implementation of promotional sales discount. These
expenses were approximately $10.1 million for the six months ended June 30,
2000, and approximately $9.4 million for the same period in 1999. In terms of
percentage of sales, 2000 expenses were approximately 19.24% of sales and 1999
expenses were approximately 21.88% of sales. This percentage decrease confirms
Management's expectation that the sales volume increase over the break-even
point of certain fixed costs in these expenses, would favorably reduce the
expense ratio to sales.
Net income for the six months ended June 30, 2000, was approximately $3.8
million, or $0.19 per share (basic), and approximately $1.8 million, or $0.09
per share (basic), for the six months ended June 30, 1999.
The ratio of inventory divided by revenue for the six months ended June 30, 2000
and 1999, was approximately 32.03% and 37.09%, respectively. This decrease is a
result of the high turnover due to the sales promotional campaign coupled with
an increased number of tourists entering Thailand.
31
<PAGE>
(4) Results of operations, comparing three months ended June 30, 2000 and 1999
Sales revenue for the three months ended June 30, 2000, was approximately $25.1
million compared to approximately $19.1 million for 1999. This increase is
directly attributable to the continual growth in number of tourist entering into
Thailand and the promotional sales discount to attract larger customer base as
mentioned above. Numbers of passengers traveling through Bangkok International
Airport during the months of April through June, 2000, has increased 11.48% from
the same period last year.
The cost of merchandise sold for the three months ended June 30, 2000, and 1999,
was approximately $11.9 million and $9.1 million, respectively. The principal
factor causing this increase is directly related to the increase in merchandise
sold and the current campaign on promotional sales discounts of products sold in
both subsidiaries where more units of merchandise were sold with slightly less
profit margin. The concession fees paid to the AAT, comparing the three months
ended June 30, 2000, to the same period in 1999, the ratio of concession fees
paid to sales revenue reduced from 27.90% in 1999 to 20.84% in 2000. 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 and due to concession fee structure of KPT is based on fixed
amount. 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 half of the year.
Selling and administrative expenses were approximately $4.9 million for the
three months ended June 30, 2000, and approximately $4.7 million for the same
period in 1999. In terms of percentage of sales, 2000 expenses were
approximately 19.68% of sales and 1999 expenses were approximately 24.41% of
sales. This decrease is in-line with Management's expectation as to the sale
volume increased over break-even point of certain fixed cost in this expenses,
the ratio will reduce favorably.
Net income for the three months ended June 30, 2000, was approximately $1.9
million, or $0.09 per share (basic), and approximately $0.6 million, or $0.03
per share (basic), for the three months ended June 30, 1999.
(5) Liquidity and Capital Resources
For the quarter ended June 30, 2000, and the year ended December 31, 1999, the
Company had working capital of approximately $10.2 million and $6.2 million,
respectively. The improvement of this figure is due to the Company's ability to
expand operations and to generate increased sales, thereby increasing current
assets, coupled with reduction in current liabilities. Management anticipates
that the current positive trend will continue as sales continue to grow and
operations are stabilized.
32
<PAGE>
(6) Monetary Assets and Liabilities Denominated in Thai Baht
As of June 30, 2000, 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 2,406,350
Trade Accounts Receivable 903,279
Refundable value-added-tax 931,662
Related Parties 5,559,266
Deferred income tax assets 3,995,468
Restricted deposit 5,723,502
Other current assets 2,067,042
Other non-current assets 204,169
TYPE OF MONETARY LIABILITY
Bank overdraft & loan 5,842,158
Current portion of long-term loan 33,854
Accounts Payable 6,884,467
Advance from related companies -
Concession fees 4,049,064
Other current liabilities 2,726,318
Long-term loan - net 215,263
(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, as
amended by Statement of Financial Accounting Standards No. 137, is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. This
Statement requires that certain derivative instruments be recognized in balance
sheet at fair value and for changes in fair value to be recognized in
operations. Additional guidance is also provided to determine when hedge
accounting treatment is appropriate whereby hedging gains and losses are offset
by losses and gains related directly to the hedged item. The Company believes
that adoption will not have a significant impact on financial condition or
operating results.
33
<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, 2000.
The following six persons were elected as Directors to serve for a year.
NAME VOTES FOR VOTES AGAINST
Vichai Raksriaksorn 19,201,474 142
Viratana Suntaranond 19,201,474 142
Aimon Boonkhundha 19,201,474 142
Suwan Panyapas 19,201,474 142
Dharmnoon Prachuabmoh 19,201,474 142
Pong Chewananth 19,201,474 142
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
34
<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 11, 2000
By: /s/ Viratana Suntaranond
-------------------------------------------------------------
Viratana Suntaranond, Chief Financial Officer
August 11, 2000
35
