FORM 10-Q
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For the quarterly period ended September 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: November 10, 2000: 20,250,000
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarterly ended September 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 24
Part II - Other Information
Item 1 Legal Proceeding 31
Item 2 Changes in Securities 31
Item 3 Defaults Upon Senior Securities 31
Item 4 Submission of Matters to a Vote of Securities Holders 31
Item 5 Other Information 31
Item 6 Exhibits and Reports on Form 8-K 31
2
<PAGE>
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 September 30,
2000, and the related consolidated statements of operations, shareholders'
equity and cash flows for the three months and nine 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
November 10, 2000
3
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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Note September 30, December 31,
2000 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,862,849 $ 2,192,510
Trade accounts receivable 244,992 179,485
Refundable value added tax 867,688 1,180,436
Trade accounts and accrued interest receivable
from and advances to related companies 10 9,064,104 5,214,335
Merchandise inventories - net 16,736,611 16,498,754
Restricted fixed deposits 3 5,880,547 3,845,629
Deferred income tax assets 9 3,704,603 4,354,132
Prepaid expenses 614,687 2,607,962
Other current assets 322,720 667,209
---------- ----------
Total current assets 39,298,801 36,740,452
Property, plant and equipment - net 5 4,295,719 5,257,949
Investment and other assets 208,165 214,180
---------- ----------
TOTAL ASSETS $43,802,685 $42,212,581
========== ==========
See Accountant's Review Report.
The accompanying notes are an integral part of the financial statements
4
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
--------------------------------------------------------------------------------
Note September 30, December 31,
2000 1999
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and loans from banks 6 $11,537,796 $10,048,791
Current portion of long - term loan 8 31,048 28,089
Trade accounts payable 10 9,070,079 10,003,574
Advances from directors 10 1,391,668 -
Accrued concession fees 7, 10 2,270,836 8,467,028
Other current liabilities 3,373,948 1,967,996
---------- ----------
Total current liabilities 27,675,375 30,515,478
Long - term loan - net 8 191,572 254,000
---------- ----------
Total liabilities 27,866,947 30,769,478
---------- ----------
Minority interest 581,834 378,457
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) (3,521,092) (9,503,916)
Translation adjustments (1,993,399) (299,833)
---------- ----------
Total shareholders' equity 15,353,904 11,064,646
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $43,802,685 $42,212,581
========== ==========
See Accountant's Review Report.
The accompanying notes are an integral part of the financial statements
5
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine months ended September 30, Three months ended September 30,
----------------------------------------------------------- ------------------------------- --------------------------------
Note 2000 1999 2000 1999
---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales revenue $ 79,233,573 $ 63,171,833 $ 26,583,654 $ 20,311,510
Cost of sales:
Cost of merchandise sold 38,144,747 29,770,984 13,130,367 9,513,429
Concession fees 7 16,247,188 16,872,477 4,849,073 5,088,540
------------ ------------ ------------ ------------
Total cost of sales 54,391,935 46,643,461 17,979,440 14,601,969
------------ ------------ ------------ ------------
Gross profit 24,841,638 16,528,372 8,604,214 5,709,541
Operating expenses:
Selling and administrative expenses 15,148,652 15,464,932 5,018,692 6,086,616
------------ ------------ ------------ ------------
Total operating expenses 15,148,652 15,464,932 5,018,692 6,086,616
------------ ------------ ------------ ------------
Income from operation 9,692,986 1,063,440 3,585,522 (377,075)
Other income (expenses)
Interest income 222,633 766,387 118,226 159,674
Interest expenses (817,784) (898,524) (268,720) (230,234)
Gain (Loss) on foreign exchange - net 10,696 130,733 (94,848) 275,652
Unrealized gain (loss) on foreign exchange - net (268,898) (162,998) (83,628) (531,011)
Provision for doubtful account -- 962,609 -- (119,522)
Other income 151,876 238,727 38,944 52,823
------------ ------------ ------------ ------------
Total other revenues (expenses) (701,477) 1,036,934 (290,026) (392,618)
------------ ------------ ------------ ------------
Net income before income tax 8,991,509 2,100,374 3,295,496 (769,693)
Income tax benefit (expenses) 9 (2,743,695) (385,873) (1,003,905) 588,026
------------ ------------ ------------ ------------
Net income before minority interest 6,247,814 1,714,501 2,291,591 (181,667)
Minority interest (264,990) (2,581) (117,879) 65,012
------------ ------------ ------------ ------------
Net income attributed to common shares 5,982,824 1,711,920 2,173,712 (116,655)
============ ============ ============ ============
Weighted average number of common shares
Outstanding 20,250,000 20,250,000 20,250,000 20,250,000
Basic earning per share $ 0.30 $ 0.08 $ 0.11 $ (0.006)
</TABLE>
See Accountant's Review Report.
The accompanying notes are an integral part of the financial statements
6
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Nine months ended September 30, Three months ended September 30,
---------------------------------------------- ------------------------------- --------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income attribute to common shares $ 5,982,824 $ 1,711,920 $ 2,173,712 $ (116,655)
Other comprehensive income, before tax:
Foreign currency translation adjustments (1,693,566) (1,008,056) (1,122,570) (1,070,968)
----------- ----------- ----------- -----------
Comprehensive income $ 4,289,258 $ 703,864 $ 1,051,142 $ 1,187,623
=========== =========== =========== ===========
</TABLE>
See Accountant's Review Report.
The accompanying notes are an integral part of the financial statements
7
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, Three months ended September 30,
-------------------------------------------------------------- ------------------------------- --------------------------------
Note 2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,982,824 $ 1,711,920 $ 2,173,712 $ (116,655)
Adjustments to reconcile net income to net cash
Provided (used) by operating activities:
Depreciation 1,097,628 1,093,203 362,973 395,471
Unrealized loss (gain) on foreign exchange 268,898 162,998 83,628 531,011
Deferred income tax assets 649,529 466,272 290,865 4,267
Provision for doubtful accounts -- (962,609) -- 119,522
Decrease (increase) in operating assets:
Loan and receivables to related companies (3,819,588) 10,998,403 (2,162,004) 4,868,898
Trade accounts receivable (30,951) 84,665 (55,318) 38,278
Refundable valued added tax 312,748 861,527 63,974 354,359
Inventories (237,857) 1,570,202 127,045 2,556,319
Prepaid expense and other current assets 2,337,763 (2,635,595) 720,314 1,246,486
Other long term asset 1,383 154,871 (4,748) (52,454)
Increase (decrease) in operating liabilities:
Trade accounts payable (1,117,320) (2,769,047) (192,209) (3,740,216)
Advances from directors 1,391,668 -- 1,391,668 --
Accrued concession fees (6,196,191) (3,227,197) (1,778,227) (2,544,941)
Other current liabilities 1,405,952 (3,008,713) 596,462 (1,510,396)
Other liabilities 208,009 (131,216) 78,894 (74,384)
------------ ------------ ------------ ------------
Net cash provided (used) by
Operating activities $ 2,254,495 $ 4,369,684 $ 1,697,029 $ 2,075,565
------------ ------------ ------------ ------------
</TABLE>
See Accountant's Review Report.
The accompanying notes are an integral part of the financial statements
8
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Nine months ended September 30, Three months ended September 30,
----------------------------------------------------------------- ------------------------------- --------------------------------
Note 2000 1999 2000 1999
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets $ (135,398) $ 150,182 $ (61,231) $ 369,812
(Increase) decrease in restricted fixed deposit (2,034,918) 2,064,595 (157,045) 299,089
----------- ----------- ----------- -----------
Net cash provided (used) by investing activities (2,170,316) 2,214,777 (218,276) 668,901
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayment) in bank overdrafts, bank loans 1,277,245 (3,376,827) (1,515,552) (3,344,039)
Proceeds (repayment) from long-term loan (59,469) (1,362,252) (26,497) (55,348)
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities 1,217,776 (4,739,079) (1,542,049) (3,399,387)
Effect of exchange rate changes on cash and cash
Equivalents (1,631,616) (941,346) (1,099,268) (1,010,004)
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents (329,661) 904,036 (1,162,564) (1,664,925)
Cash and cash equivalents - beginning of period 2,192,510 1,371,739 3,025,413 3,940,700
----------- ----------- ----------- -----------
Cash and cash equivalents - end of period $ 1,862,849 $ 2,275,775 $ 1,862,849 $ 2,275,775
=========== =========== =========== ===========
Supplement cash flow information
Cash paid during the period:
Interest paid $ 805,989 $ 954,599 $ 318,730 $ 176,208
Income taxes paid $1,172,630 $ 2,592,324 $ 541,317 $ 1,185,342
</TABLE>
See Accountant's Review Report.
The accompanying notes are an integral part of the financial statements
9
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
-----------------------------------------------------------------------------------------------------------------------------------
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 1,711,920 1,711,920 1,711,920
Other Comprehensive income, net of tax
Foreign currency translation adjustment (1,008,056) (1,008,056) (1,008,056)
----------
Comprehensive Income 703,864
---------- ---------- ---------- ========== ---------- ---------- ----------
Balances, September 30, 1999 20,250,000 20,250 20,848,145 (10,204,975) (1,208,237) 9,455,183
========== ========== ========== ========== ========== ==========
Balances, January 1, 2000 20,250,000 20,250 20,848,145 (9,503,916) (299,833) 11,064,646
Net Income 5,982,824 5,982,824 5,982,824
Other comprehensive income, net of tax
Foreign currency translation adjustment (1,693,566) (1,693,566) (1,693,566)
----------
Comprehensive Income 4,289,258
---------- ---------- ---------- ========== ---------- ---------- ----------
Balances, September 30, 2000 20,250,000 20,250 20,848,145 (3,521,092) (1,993,399) 15,353,904
========== ========== ========== ========== ========== ==========
</TABLE>
See Accountant's Review Report.
The accompanying notes are an integral part of the financial statement
10
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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.
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
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.
11
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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 September 30, 2000, and December 31, 1999, are
$1= Thai Baht 42.256 and Baht 37.520, respectively. The average exchange rates
for the nine months ended September 30, 2000 and 1999 are $1= Thai Baht 39.195
and Baht 37.6387 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 10 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.
12
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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
unlimited 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,
2000. 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 September 30, 2000, that adoption
does not have a significant impact on financial condition or operating results.
3. RESTRICTED FIXED DEPOSITS
September 30, 2000 December 31, 1999
Restricted fixed deposits $ 5,880,547 $ 3,845,629
Interest rates 1.00% - 5.00% 3.00% - 5.50%
As of September 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.
13
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
5. PROPERTY, PLANT AND EQUIPMENT - NET
September 30, 2000 December 31, 1999
Land $ 621,924 $ 700,426
Building 122,294 137,730
Leasehold improvements 4,332,090 4,693,023
Sales office equipment and fixtures 2,330,251 2,317,640
Vehicles 812,299 720,864
Work in progress 33,552 -
------------ ------------
Total cost 8,252,410 8,569,683
Less Accumulated depreciation (3,956,691) (3,311,734)
---- ------------ ------------
Net book value $ 4,295,719 $ 5,257,949
============ ============
As of September 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 6 and Note 8)
6. BANK OVERDRAFT AND LOANS FROM BANKS
September 30, 2000 December 31, 1999
Bank overdraft $ 1,251,961 $ 484,398
Trust receipts 10,285,835 9,564,393
------------ ------------
$ 11,537,796 $ 10,048,791
============ ============
As of September 30, 2000, and December 31, 1999, the Company has an
overdraft facility with a commercial bank in Thailand totaling Baht 60.74
million ($1,437,429) and Baht 30.74 million ($819,296), respectively, bearing
interest at MOR (Minimum Overdraft Rate), plus 1.50% per annum. For the nine
months ended September 30, 2000, the average rate of MOR was 8.50% - 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 September 30, 2000, and December 31, 1999, trust receipts
incurred by KPD and KPT bear interest at the rates varying from 4.00%-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.
Trust receipts at September 30, 2000 are:
Currencies Amount Interest rate (%)
<S> <C> <C> <C>
Foreign currency borrowing by subsidiaries in Thailand
-Under forward contract and T/R BAHT 253,769,200 $ 6,005,519 8.75-10.50
-Without forward contract USD 3,847,898 3,857,869 9.25-11.07
CHF 33,730 19,609 7.17-7.50
ATS 189,577 12,242 8.00
FRF 12,452 1,686 8.00
HKD 2,077,160 267,820 9.50-12.75
ITL 98,394,000 45,173 10.00
JPY 2,050,000 19,143 4.00
SGD 83,464 48,259 8.25-8.75
EUR 9,599 8,515 8.15-8.65
-----------
$10,285,835
===========
14
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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>
7. CONCESSION FEES
Accrued concession fees as of September 30, 2000, and December 31,
1999, consist of the following:
September 30, 2000 December 31, 1999
- The Customs Department of Thailand $ - $ 533,049
- The Airports Authority Of Thailand 2,270,836 7,933,979
---------- ----------
2,270,836 8,467,028
========== ==========
For the nine months ended September 30,
2000 1999
---- ----
Concession fees expense $ 16,247,188 $ 16,872,477
========== ==========
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.
15
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
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 and Rental, Service Collateral Airport and Rental, Service Collateral
Customs & other Customs & other
Concession fees expenses Concession fees expenses
------------------------------------------- -------------------------------------------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Year
----
2000 $ 1,984 $ 127 $4,359 $ 1,726 $ 234 $ 4,301
2001 8,395 509 4,359 10,854 936 4,449
2002 8,852 500 4,359 11,241 720 6,014
2003 2,299 128 4,354 11,596 720 6,204
2004 - - - 12,069 720 6,457
2005 - - - 12,543 - 6,710
2006 - - - 13,016 - 6,964
</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 nine months ended September 30, 2000, and 1999, both KPD and
KPT were charged penalty fees amounting to $ 478,697 and $ 1,017,093,
respectively, relating to late payment of concession fees to the Customs
Department and the Airports Authority of Thailand. Of these amounts, $ 132,737
and $ 175,464 , respectively, were unpaid at September 30, 2000 and December 31,
1999, and are included in other current liabilities in the accompanying balance
sheets.
16
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
8. LONG-TERM LOAN - NET
Long term liabilities as of September 30, 2000, and December 31, 1999, consist
of the following:
September 30, 2000 December 31, 1999
Long-term loans $ 210,430 $ 253,180
Installment purchase payable 12,190 28,909
-------- --------
222,620 282,089
Less Current portion of long-term debt (31,048) (28,089)
---- -------- --------
Total $ 191,572 $ 254,000
======== ========
As of September 30, 2000, and December 31, 1999, long-term loans
consist of loans from banks carrying interest rates of 8.75% and 14.75% per
annum, respectively. The long-term loans are secured by the Company's land and
building and guaranteed by a director of the Company. (See Notes 5)
Loans are due as follows:
September 30, 2000 December 31, 1999
Installment Purchase Obligation
2000 $ 1,463 $ 16,827
2001 5,851 6,590
2002 4,876 5,492
-------- --------
Total $ 12,190 $ 28,909
======== ========
Long-term Loan Installment Payments
2000 $ 6,115 $ 11,262
2001 25,738 13,174
2002 28,083 15,254
2003 30,641 17,663
2004 33,403 20,443
Thereafter 86,450 175,384
-------- --------
Total $ 210,430 $ 253,180
======= ========
17
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
9. INCOME TAX
The provision for income taxes consist of the following:
September 30, 2000 September 30, 1999
<S> <C> <C>
Current income tax (Payable) $ $
United States - -
Foreign (2,094,166) (305,668)
----------- -----------
(2,094,166) (305,668)
----------- -----------
Deferred income tax
United States - -
Foreign (649,529) (80,205)
----------- -----------
(649,529) (80,205)
----------- -----------
Net income tax expense $ (2,743,695) $ (385,873)
=========== ===========
Pre-tax income for foreign companies for the quarter ended September
30, 2000, was $ 9,145,649. Current taxes payable are included in other current
liabilities.
The components of deferred income tax assets and liabilities were:
September 30, 2000 December 31, 1999
Reserves for bad debts and investment obsolescence $ 3,958,982 $ 4,423,804
Net operating loss carried forward 237,986 369,019
----------- -----------
4,196,968 4,792,823
Less Valuation allowance (492,365) (438,691)
----- ----------- -----------
Deferred income tax assets $ 3,704,603 $ 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 nine months ended September 30,
2000 1999
---- ----
Standard income tax rate 35.00 % 32.48 %
Foreign tax rate difference (4.49%) (14.11%)
------- --------
Effective income tax rate 30.51 % 18.37 %
======= =======
As of September 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 $ 237,986 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.)
18
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
10. 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 September 30,
2000, and December 31, 1999, with related companies and directors are as follows
($ in thousands)
As at September 30, 2000
Account Loans and receivables to Management Accounts
Receivable related companies and Directors fee receivables payable
---------------------------------------------------------------------------------
Loans Interest and Total
other receivables
<S> <C> <C> <C> <C> <C> <C>
Third Quarter, 2000
King Power International Co., Ltd. 2,092 5,903 231 -- 8,226 77
Forty Seven Co., Ltd. -- 2,465 517 -- 2,982 --
Downtown D.F.S. (Thailand) Co., Ltd. 400 2,305 235 2,184 5,124 --
King Power Duty Free (CBO) Ltd. -- 972 47 -- 1,019 --
Top China Group Co., Ltd. -- 237 4 -- 241 --
Lengle (Thailand) Co., Ltd. -- 852 56 -- 908 --
Lengle TAT Phanom Phen Duty Free 58 -- -- -- 58 --
Grand Enterprise and Trading Partnership -- 240 13 -- 253 --
King Power On Board Sales and Services Co., Ltd. 19 3,073 -- -- 3,092 159
Thai Nishigawa International Co., Ltd. -- -- -- -- -- 68
Niji (Thailand) Co., Ltd. -- -- -- -- -- 75
------- ------- ------- ------- ------- -------
2,569 16,047 1,103 2,184 21,903 379
Less Allowance for doubtful accounts: -- -- -- -- -- --
----
Related companies (1,337) (8,776) (542) (2,184) (12,839) --
------- ------- ------- ------- ------- -------
Total 1,232 5,879 561 -- 7,672 379
======= ======= ======= ======= ======= =======
Directors - to/(from) -- (1,392) -- -- (1,392) --
======= ======= ======= ======= ======= =======
19
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
As of December 31, 1999
Account Loans and receivables to Management Accounts
Receivable related companies and Directors fee receivables payable
---------------------------------------------------------------------------------
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
Less Allowance for doubtful accounts: (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 September 30, 2000, and December 31, 1999, there are accrued
concession fees amounting to $ 1,984,688 and $ 7,933,979, respectively.
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
On March 8, 2000, the board of directors of the company passed
resolution reducing the interest on loans to/from related companies and
directors to be 2.00% and 1.00% 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 January 1, 2000, 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 nine months ended September 30,
2000 1999
---- ----
Sales $ 1,137 $ 2,236
Interest income 140 501
Purchase 966 1,967
Concession fees 9,291 8,296
Directors
For the nine months ended September 30,
2000 1999
---- ----
Interest income $ - $ 16
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.
11. 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 November 1, 2000, to October 31, 2003.
-KPD has made lease agreement with SIAM TOWER to lease 27th floor
starting from November 1, 2000, to October 31, 2003.
KPT and KPD have made lease agreement with the third party starting
from April 1, 1998, to December 31, 2001.
Lease and service charge commitments are due as follows:
KPT KPD
--- ---
2000 $ 43,898 $ 60,970
2001 163,332 252,919
2002 163,980 163,980
2003 $ 142,030 $ 142,030
21
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Letter of guarantees
As of September 30, 2000, and December 31, 1999, KPT and KPD were
contingently liable for bank guarantees totaling $10.06 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 September 30, 2000, and December 31, 1999, KPD and KPT have the
unused letters of credit amounting to $5.56 million and $3.19 million,
respectively.
12. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for September 30, 2000
and 1999, are disclosed in accordance with Statement of Financial Accounting
Standard No.131 ("SFAS 131"). Information by legal entities is the reportable
segment under SFAS 131 because each entity is reported separately for management
($ in thousands).
For the nine months ended September 30, 2000
Duty Free Tax Free All Other Adjustment Consolidated
Retail Retail And
Elimination
--------- -------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Segment Information US $ US $ US $ US $ US $
-------------------
- Revenue from external customers 58,476 20,849 - (92) 79,233
- Cost of merchandise sold 29,340 8,897 - (92) 38,145
- Concession fees 9,290 6,957 - - 16,247
- Gross profit 19,846 4,995 - - 24,841
- Interest Income 169 29 25 - 223
- Interest expense 790 28 - - 818
- Segment net income (loss) 5,234 1,169 5,982 (6,137) 6,248
- Segment total assets 35,342 12,164 15,809 (19,512) 43,803
- Expenditures for segment assets 135 4 - (4) 135
- Depreciation 815 283 - - 1,098
- Unrealized gain (loss) on exchange (320) 21 30 - (269)
- Deferred tax 2,476 1,208 21 - 3,705
Revenue Long-lived
Assets
----------- ------------
Geographical Information US $ US $
------------------------
Bangkok 76,340 4,365
Northern Thailand region 394 38
Southern Thailand region 2,499 101
-------- --------
Total 79,233 4,504
======== ========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
For the nine months ended September 30, 1999
Duty Free Tax Free All Other Adjustment 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
- 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)
- Depreciation 799 248 46 - 1,093
- Unrealized gain (loss) on exchange (187) 2 22 - (163)
- Deferred tax 2,543 1,436 26 - 4,005
Revenue Long-lived
Assets
----------- -----------
Geographical Information US$ US$
------------------------
Bangkok 60,848 5,189
Northern Thailand region 736 58
Southern Thailand region 1,587 42
----------- ------------
Total 63,171 5,289
=========== ============
</TABLE>
23
<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, 2000:
Net realized gain on foreign exchange $0.001 million
Net unrealized loss on foreign exchange $0.27 million
The calculation of unrealized foreign exchange loss of $0.27 million is shown in
charts labeled A and B, respectively.
24
<PAGE>
CHART A
-------
The calculation of Unrealized gain on foreign exchange of US$ = 126,687 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 09/30/00
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
09/30/00
---------------------- ------------------ -------------------- ----------------
Swiss Franc 6,749.50 24.3143 164,109
---------------------- ------------------ -------------------- ----------------
Australian Dollar 2,444.40 22.7666 55,651
---------------------- ------------------ -------------------- ----------------
EURO 838.32 36.9674 30,991
---------------------- ------------------ -------------------- ----------------
French Franc 4,560.00 5.6303 25,674
---------------------- ------------------ -------------------- ----------------
British Pound Sterling 8,110.24 61.5456 499,150
---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 5,553.60 5.3893 29,930
---------------------- ------------------ -------------------- ----------------
US Dollar 174,056.64 42.1630 7,338,750
---------------------- ------------------ -------------------- ----------------
Total 8,144,255
---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 8,033,838
----------------
Unrealized gain from account receivable 09/30/00 110,417
----------------
Unrealized gain from account receivable 01/01/00 1,244,035
----------------
Net unrealized gain on account receivable 09/30/00 1,354,452
----------------
Unrealized gain on advanced from as at 09/30/00
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
BAHT 09/30/00
---------------------- ------------------ -------------------- ----------------
BAHT CURRENCY 12,931,507.03 42.256 306,028
---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 336,209
----------------
Net unrealized gain on advanced from 30/09/00 30,181
----------------
25
<PAGE>
Unrealized gain on Cash on hand as of 09/30/00
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
09/30/00 BAHT
---------------------- ------------------ -------------------- ----------------
Australian Dollar 160,822.54 22.7666 3,661,382
---------------------- ------------------ -------------------- ----------------
Swiss Franc 1,750.00 24.3143 42,550
---------------------- ------------------ -------------------- ----------------
China Renminbi Yuan 50,340.00 4.7877 241,013
---------------------- ------------------ -------------------- ----------------
German Deutschmark 3,475.00 18.8978 65,670
---------------------- ------------------ -------------------- ----------------
EURO 200.00 36.9674 7,393
---------------------- ------------------ -------------------- ----------------
French Franc 7,500.00 5.6303 42,227
---------------------- ------------------ -------------------- ----------------
British Pound Sterling 69,439.84 61.5456 4,273,717
---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 762,691.10 5.3893 4,110,371
---------------------- ------------------ -------------------- ----------------
Japanese Yen 11,879,621.00 0.389130 4,622,717
---------------------- ------------------ -------------------- ----------------
Korean Won 3,478,000.00 0.0377 131,121
---------------------- ------------------ -------------------- ----------------
Malaysian Ringgit 497.00 11.0343 5,484
---------------------- ------------------ -------------------- ----------------
Singapore Dollar 6,528.00 24.1028 157,343
---------------------- ------------------ -------------------- ----------------
Taiwanese Dollar 1,675,300.00 1.3486 2,259,310
---------------------- ------------------ -------------------- ----------------
US Dollar 322,796.53 42.1630 13,610,070
---------------------- ------------------ -------------------- ----------------
Total 33,230,368
---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 30,679,904
----------------
Unrealized gain on cash in hand in foreign
currency 09/30/00 2,550,464
----------------
Unrealized gain on cash in hand in foreign
currency 01/01/00 (122,343)
----------------
Net unrealized gain on cash in hand in foreign
currency 09/30/00 2,428,121
----------------
Net unrealized gain on account receivable foreign
currency 09/30/00 1,354,452
----------------
Net unrealized gain on exchange rate as at 30/09/00 3,782,573
----------------
US$ = 126,687 (US$1 = Baht 39.1950)
26
<PAGE>
CHART B
-------
The calculation of Unrealized loss on foreign exchange of US$ = 395,585 was
calculated on accumulated basis with quarterly adjustment on financial
receivable and cash on hand in foreign currency as shown below:
Unrealized loss from Loan from Bank (Trust Receipt) as at 09/30/00
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
09/30/00 BAHT
---------------------- ------------------ -------------------- ----------------
Shilling Austria 189,577.28 2.7286 517,281
---------------------- ------------------ -------------------- ----------------
Swiss Franc 33,729.90 24.5656 828,595
---------------------- ------------------ -------------------- ----------------
Europe 9,599.49 37.4886 359,871
---------------------- ------------------ -------------------- ----------------
French Franc 12,451.50 5.7207 71,231
---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 2,077,160.14 5.4483 11,316,992
---------------------- ------------------ -------------------- ----------------
Italian Lire 98,394,000.00 0.0194 1,908,844
---------------------- ------------------ -------------------- ----------------
Japanese Yen 2,050,000.00 0.3946 808,910
---------------------- ------------------ -------------------- ----------------
Singapore Dollar 83,464.00 24.4323 2,039,217
---------------------- ------------------ -------------------- ----------------
US Dollar 3,847,897.64 42.3655 163,018,107
---------------------- ------------------ -------------------- ----------------
Total 180,869,048
---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 175,949,024
----------------
Unrealized loss from Bank Loan in foreign currency 09/30/00 (4,920,024)
----------------
Unrealized loss from Bank Loan in foreign currency 01/01/00 (3,379,893)
----------------
Net unrealized loss from Bank Loan in foreign currency 09/30/00 (8,299,917)
----------------
Unrealized loss from Account Payable as at 09/30/00
-------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
09/30/00 BAHT
---------------------- ------------------ -------------------- ----------------
Swiss franc 30,176.15 24.5656 741,295
---------------------- ------------------ -------------------- ----------------
German Deutschmark 141,190.13 19.1644 2,705,824
---------------------- ------------------ -------------------- ----------------
Europe 9,541.00 37.4886 357,679
---------------------- ------------------ -------------------- ----------------
French Franc 594,065.46 5.7207 3,398,470
---------------------- ------------------ -------------------- ----------------
British Pound Sterling 21,750.00 62.1701 1,352,200
---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 7,170,171.00 5.4483 39,065,243
---------------------- ------------------ -------------------- ----------------
Italian Lire 20,455,778.00 0.0194 396,842
---------------------- ------------------ -------------------- ----------------
Netherland Guilder 13,518.90 17.0119 229,982
---------------------- ------------------ -------------------- ----------------
Singapore Dollar 24,359.50 24.4323 595,159
---------------------- ------------------ -------------------- ----------------
US Dollar 1,644,842.02 42.3655 69,684,555
---------------------- ------------------ -------------------- ----------------
Total 118,527,249
---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 115,973,934
----------------
Unrealized loss from Account payable in foreign
currency 09/30/00 (2,553,315)
----------------
Unrealized loss from Account payable in foreign
currency 01/01/00 (4,651,712)
----------------
Net unrealized loss from account payable in foreign
currency 09/30/00 (7,205,027)
----------------
Net unrealized loss from Bank Loan (Trust receipt) 09/30/00 (8,299,917)
----------------
Net unrealized exchange loss as of 09/30/00 (15,504,944)
----------------
US$ = (395,585) (US$1 = Baht 39.1950)
27
<PAGE>
NET FOR UNREALIZED GAIN / LOSS EXCHANGE OF 09/30/00
---------------------------------------------------
(BAHT) (US)
----------- -----------
Net unrealized exchange gain as of 09/30/00 3,782,573
Net unrealized loss on exchange rate as at 09/30/00 (15,504,944)
-----------
NET UNREALIZED EXCHANGE (11,722,371) (299,079)
-----------
Net unrealized exchange GAIN KPG(US) as of 09/30/00 30,181
-----------
NET UNREALIZED EXCHANGE (268,898)
-----------
(3) Results of operations, comparing nine months ended September 30, 2000 and
1999
Sales revenue for the nine months ended September 30, 2000, was approximately
$79.2 million compared to approximately $63.2. 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. 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 closely located near Thailand. This marketing
campaign is international in scope and directly targeted to attract additional
new and repeat visitors to Thailand. The Company expects that this promotional
campaign will continue to directly impact the Company's operations in a positive
manner during and subsequent to this time period. In addition to the "Amazing
Thailand" campaign, during the first half of 2000, the Company launched
promotional sales discount in order to capture new and larger base customer
groups who are price sensitive. By implementing this strategy, Management
believes that the sales volume will continue to grow and result positively on
the Company's operating profit.
The cost of merchandise sold for the nine months ended September 30, 2000 and
1999, was approximately $38.1 million and $29.8 million, respectively. The
principal factor causing this increase is directly related to the increase in
sales volume. However, due to the lower concession fees paid to the Airport
Authorities of Thailand (AAT), comparing the nine months ended September 30,
2000, to the same period in 1999, the ratio of concession fees paid to sales
revenue fell from 26.71% in 1999 to 20.50% 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.
Management anticipates a further reduction in these fees may result from
continued negotiations with the AAT.
Selling and administrative expenses were approximately $15.1 million for the
nine months ended September 30, 2000, and approximately $15.5 million for the
same period in 1999. In terms of percentage of sales, 2000 expenses were
approximately 19.12% of sales and 1999 expenses were approximately 24.48% of
sales. This decrease is in-line with Management's expectation as the result of
increasing efficiency among business units.
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Net income for the nine months ended September 30, 2000, was approximately $6.0
million, or $0.30 per share (basic), and approximately $1.7 million, or $0.08
per share (basic), for the nine months ended September 30, 1999.
The ratio of inventory divided by revenue for the nine months ended September
30, 2000 and 1999, was approximately 21.12% and 26.12%, respectively. This
decrease is the result of an unscheduled increase in number of tourists who shop
at the Company's stores causing faster turnover of merchandise.
(4) Results of operations, comparing three months ended September 30, 2000 and
1999
Sales revenue for the three months ended September 30, 2000, was approximately
$26.6 million compared to approximately $20.3 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.
The cost of merchandise sold for the three months ended September 30, 2000 and
1999, was approximately $13.1 million and $9.5 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. Comparing the concession fees paid to the AAT
for the three months ended September 30, 2000, to the same period in 1999, the
ratio of concession fees paid to sales revenue reduced from 25.05% in 1999 to
18.24% 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 quarter of the year.
Selling and administrative expenses were approximately $5.0 million for the
three months ended September 30, 2000, and approximately $6.1 million for the
same period in 1999. In terms of percentage of sales, 2000 expenses were
approximately 18.88% of sales and 1999 expenses were approximately 29.97% of
sales. This decrease is in-line with Management's expectation as the result of
increasing efficiency among business units.
Net income for the three months ended September 30, 2000, was approximately $2.2
million, or $0.11 per share (basic), and net loss of approximately $0.1 million,
or $0.01 per share (basic), for the three months ended September 30, 1999.
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(5) Liquidity and Capital Resources
For the quarter ended September 30, 2000, and the year ended December 31, 1999,
the Company had working capital of approximately $11.6 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 overall reduction in current liabilities. Management
anticipates that the current positive trend will continue as sales continue to
grow and operations are stabilized.
(6) Monetary Assets and Liabilities Denominated in Thai Baht
As of September 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 1,071,487
Trade Accounts Receivable 1,285,105
Refundable value-added-tax 867,688
Advanced to related companies 7,270,559
Deferred income tax assets 3,704,603
Restricted deposit 5,880,547
Other current assets 1,386,545
Other non-current assets 206,009
TYPE OF MONETARY LIABILITY US DOLLARS
Bank overdraft & loan 7,257,480
Current portion of long-term debt 31,048
Accounts Payable 6,265,099
Advance from directors 1,391,668
Concession fees 2,270,836
Other current liabilities 3,319,472
Long-term loan - net 191,572
(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.
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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
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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
November 13, 2000
By: /s/ Viratana Suntaranond
--------------------------------------------------------------
Viratana Suntaranond, Chief Financial Officer
November 13, 2000
32
