FORM 10-Q
- --------------------------------------------------------------------------------
For the quarterly period ended March 31, 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 ______
- --------------------------------------------------------------------------------
Commission File Number: 1-13205
KING POWER INTERNATIONAL GROUP CO., LTD.
(Exact name of registrant as specified in its charter)
Nevada 75-2641513
------ ----------
(State of incorporation) (IRS Employer ID number)
26th-27th Floor, Siam Tower, 989 Rama 1 Road, Patumwan, Bangkok 10330 Thailand
------------------------------------------------------------------------------
(Address of principal executive offices)
011 (662) 658-0090
------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the proceeding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: April 30, 2000: 20,250,000
1
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KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarter ended March 31, 2000
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 4-10
Item 2 Management's Discussion and Analysis or Plan of Operation 23
Part II - Other Information
Item 1 Legal Proceedings 30
Item 3 Defaults Upon Senior Securities 30
Item 4 Submission of Matters to a Vote of Securities Holders 30
Item 5 Other Information 30
Item 6 Exhibits and Reports on Form 8-K 30
2
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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 March 31, 2000,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the three 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
May 12, 2000
3
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<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------
Note March 31, December 31,
2000 1999
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,474,745 $ 2,192,510
Trade accounts receivable 207,033 179,485
Refundable value added tax 1,295,697 1,180,436
Trade accounts and accrued interest receivable from and
advances to affiliates, net 12 6,034,416 5,214,335
Merchandise inventories - net 15,480,847 16,498,754
Restricted fixed deposits 3 5,508,708 3,845,629
Deferred income tax assets 11 4,413,653 4,354,132
Prepaid expenses 5 1,951,735 2,607,962
Other current assets 498,713 667,209
----------- -----------
Total current assets 36,865,547 36,740,452
Property, plant and equipment - net 6 4,926,908 5,257,949
Investment and other assets 204,692 214,180
----------- -----------
TOTAL ASSETS $41,997,147 $42,212,581
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
See Accountant Review Report
4
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
- -----------------------------------------------------------------------------------------------------
Note March 31, December 31,
2000 1999
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and loans from banks 7 $ 10,388,118 $ 10,048,791
Current portion of long - term loan 9 10,673 28,089
Trade accounts payable 9,762,980 10,003,574
Accrued concession fee 8 6,245,656 8,467,028
Other current liabilities 2,237,728 1,967,996
------------ ------------
Total current liabilities 28,645,155 30,515,478
Long - term loan - net 9 10,337 254,000
------------ ------------
Total liabilities 28,655,492 30,769,478
------------ ------------
Minority interest 489,639 378,457
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) (7,605,257) (9,503,916)
Translation adjustments (411,122) (299,833)
------------ ------------
Total shareholders' equity 12,852,016 11,064,646
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 41,997,147 $ 42,212,581
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
See Accountant Review Report
5
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<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
Three months ended March 31,
- ----------------------------------------------------------------------------------------------------------
Note 2000 1999
<S> <C> <C> <C>
Sales revenue $ 27,534,099 $ 23,809,660
Cost of sales:
Cost of merchandise sold 13,105,060 11,196,780
Concession fees 8 6,165,611 6,468,115
------------- -------------
Total cost of sales 19,270,671 17,664,895
------------- -------------
Gross profit 8,263,428 6,144,765
Operating expenses:
Selling and administrative expenses 5,187,837 4,727,282
------------- -------------
Total operating expenses 5,187,837 4,727,282
------------- -------------
Income from operation 3,075,591 1,417,483
Other income (expenses)
Interest income 62,138 412,357
Interest expenses (263,812) (375,248)
Gain (Loss) on foreign exchange - net (33,068) (129,644)
Unrealized gain (loss) on foreign exchange - net 6,458 188,615
Other income 44,317 375,148
------------- -------------
Total other revenues (expenses) (183,967) 471,228
------------- -------------
Net income before income tax 2,891,624 1,888,711
Income tax expenses 11 (877,829) (618,687)
------------- -------------
Net income before minority interest 2,013,795 1,270,024
Minority interest (115,136) (47,366)
------------- -------------
Net income attributed to common shares 1,898,659 1,222,658
------------- -------------
Weighted average number of common shares outstanding 20,250,000 20,250,000
Basic earning per share $ 0.09 $ 0.06
</TABLE>
The accompanying notes are an integral part of the financial statements
See Accountant Review Report
6
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
Three months ended March 31,
- --------------------------------------------------------------------------------
2000 1999
Net income attribute to common shares $ 1,898,659 $ 1,222,658
Other comprehensive income, before tax:
Foreign currency translation adjustments (111,289) (157,209)
------------ ------------
Comprehensive income $ 1,787,370 $ 1,065,449
------------ ------------
The accompanying notes are an integral part of the financial statements
See Accountant Review Report
7
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<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
Three months ended march 31,
- --------------------------------------------------------------------------------------------------------------------------
Note 2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,898,659 $ 1,222,658
Adjustments to reconcile net income to net cash
Depreciation 368,026 359,395
Unrealized loss (gain) on foreign exchange (6,458) (188,615)
Deferred income tax assets (59,521) 423,759
Decrease (increase) in operating assets:
Loan and receivables to related companies and directors (818,140) (1,285,358)
Trade accounts receivable (1,441) 68,854
Refundable valued added tax (115,261) 2,583
Inventories 1,017,907 1,939,395
Prepaid expense and other current assets 824,723 (39,481)
Other long term assets 9,103 151,482
Increase (decrease) in operating liabilities:
Trade accounts payable (243,458) (2,408,256)
Advance from directors - 589,396
Accrued concession fees (2,221,372) 98,544
Other current liabilities 269,732 (1,683,367)
Other liabilities 111,567 (45,629)
------------- -------------
Net cash provided (used) by operating activities $ 1,034,066 $ (794,640)
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements
See Accountant Review Report
8
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
Three months ended March 31,
- --------------------------------------------------------------------------------------------------------------------
Note 2000 1999
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets $ (36,985) $ 51,113
(Increase) Decrease in restricted fixed deposit (1,663,079) (1,272,397)
------------ ------------
Net cash provided (used) by investing activities (1,700,064) (1,221,284)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayment) in bank overdrafts 97,607 4,014,602
Proceeds (repayment) from bank loans 205,337 (54,591)
Proceeds (repayment) from long-term loan (261,079) (1,322,275)
------------ ------------
Net cash provided (used) by financing activities 41,865 2,637,736
Effect of exchange rate changes on cash and cash equivalents (93,632) (110,291)
------------ ------------
Net increase (decrease) in cash and cash equivalents (717,765) 511,521
Cash and cash equivalents - beginning of period 2,192,510 1,371,739
Cash and cash equivalents - end of period $ 1,474,745 $ 1,883,260
============ ============
Supplement cash flow information Cash paid during the period:
Interest paid 256,592 81,789
Income taxes paid 272,236 -
</TABLE>
The accompanying notes are an integral part of the financial statements
See Accountant Review Report
9
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Other
------------ Paid in Comprehensive Retained Comprehensive
Shares Amount Capital Income Earnings Income
US$ US$ US$ US$ US$
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1999 20,250,000 20,250 20,848,145 (11,916,897) (200,181)
Net Income 1,222,658 1,222,658
Other Comprehensive income, net of tax
Foreign currency translation adjustment (157,209) (157,209)
-----------
Comprehensive Income 1,065,449 - -
----------- ----------- ----------- =========== ----------- -----------
Balances, March 31, 1999 20,250,000 20,250 20,848,145 (10,694,239) (357,390)
=========== =========== =========== =========== ===========
Balances, January 1, 2000 20,250,000 20,250 20,848,145 (9,503,916) (299,833)
Net Income 1,898,659 1,898,659
Other comprehensive income, net of tax
Foreign currency translation adjustment (111,289) (111,289)
----------- ----------- ----------- -----------
Comprehensive Income 1,787,370
=========== ----------- -----------
Balances, March 31, 2000 20,250,000 20,250 20,848,145 (7,605,257) (411,122)
=========== =========== =========== =========== ===========
</TABLE>
Total
US$
-----------
Balances, January 1, 1999 8,751,317
Net Income 1,222,658
Other Comprehensive income, net of tax
Foreign currency translation adjustment (157,209)
Comprehensive Income -
-----------
Balances, March 31, 1999 9,816,766
===========
Balances, January 1, 2000 11,064,646
Net Income 1,898,659
Other comprehensive income, net of tax
Foreign currency translation adjustment (111,289)
Comprehensive Income
-----------
Balances, March 31, 2000 12,852,016
===========
The accompanying notes are an integral part of the financial statement
See Accountant Review Report
10
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 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.
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.
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.
11
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KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
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 March 31, 2000,and December 31, 1999, $1= Thai
Baht 37.873 and Baht 37.520, respectively. The average exchange rates for the
three months ended March 2000 and 1999 are $1= Thai Baht 37.732 and Baht 37.310
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.
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.
12
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KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
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,
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, the quarter ended March 31, 2000, that adoption does not
have a significant impact on financial condition or operating results.
3. RESTRICTED FIXED DEPOSITS
March 31, 2000 December 31,1999
Restricted fixed deposits $ 5,508,708 $ 3,845,629
Interest rates 1.00% - 5.50% 3.00% - 5.50%
As of March 31, 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:
March 31, 2000 December 31, 1999
Prepaid management fee $ 3,564,544 $ 3,598,081
Less Amortization 1,782,272 1,199,360
---- --------- ---------
Total 1,782,272 2,398,721
Prepaid expenses - other 169,463 209,241
--------- ---------
Total $ 1,951,735 $ 2,607,962
--------- ---------
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.
13
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
6. PROPERTY, PLANT AND EQUIPMENT - NET
March 31, 2000 December 31,1999
Land $ 693,898 $ 700,426
Building 136,447 137,730
Leasehold improvements 4,750,030 4,693,023
Sales office equipment and fixtures 2,268,354 2,317,640
Vehicles 714,297 720,864
Work in progress 11,404
----------- -----------
Total cost 8,574,430 8,569,683
Less Accumulated depreciation (3,647,522) (3,311,734)
---- ----------- -----------
Net book value $ 4,926,908 $ 5,257,949
=========== ===========
As of March 31, 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
March 31, 2000 December 31,1999
Bank overdraft $ 582,005 $ 484,398
Trust receipts 9,806,113 9,564,393
----------- -----------
$ 10,388,118 $ 10,048,791
=========== ===========
As of March 31, 2000 and December 31,1999, the Company has an
overdraft facility with a commercial bank in Thailand totaling Baht 40.74
million ($1,075,700) and Baht 30.74 million ($819,296) respectively. Bearing
interest at MOR (Minimum Overdraft Rate), plus 1.00% - 1.50% per annum. For the
three months ended March 31, 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 March 31, 2000 and December 31, 1999, trust receipts incurred by
KPD bear interest at the rates varying from 6.50%-12.25% 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 March 31, 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 174,136,410 $ 4,597,904 11.00-12.50
-Without forward contract USD 4,103,355 4,113,085 9.25-10.41
CHF 289,417 175,153 6.75
DEM 160,265 79,067 7.55-7.75
ATS 169,820 11,918 7.5
AUD 58,293 35,762 10.25-10.50
FRF 629,977 92,738 7.75
HKD 2,778,460 358,743 6.50-12.26
ITL 358,441,000 178,875 7.75
GBP 4,567 7,312 10.00
EUR 161,152 155,556 7.67-7.99
-----------
$ 9,806,113
===========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
8. CONCESSION FEES
Accrued concession fees as of March 31, 2000 and December 31, 1999, consist
of the following:
March 31, 2000 December 31 ,1999
- The Customs Department of Thailand $ - $ 533,049
- The Airports Authority Of Thailand 6,245,656 7,933,979
--------- ---------
6,245,656 8,467,028
--------- ---------
For the three month ended March 31,
2000 1999
---- ----
Concession fee expense $ 6,165,611 $ 6,468,115
========== =========
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 fee & other Customs & other
expenses Concession fee expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
($ in thousands) ($ in thousands)
Year
- ----
2000 $ 6,971 $ 409 $ 7,028 $ 11,168 $ 960 $ 4,798
2001 9,082 527 7,022 11,552 960 4,963
2002 9,541 524 7,022 - - -
2003 2,329 127 7,022 - - -
</TABLE>
Effective March 19, 1998, the Customs Department of Thailand agreed to
waive the concession fees which KPD is required to pay for the duration of KPD's
concession through 2001, thus reducing the total amount required.
For the three month ended March 31, 2000 and 1999, both KPD and KPT
were charged penalty fees amounting to $ 179,323 and $ 360,924, respectively
relating to late payment of concession fees to the Customs Department and the
Airports Authority of Thailand. Of these amounts, $ 178,796 and $ 175,464,
respectively, were unpaid at March 31, 2000 and December 31, 1999, and are
included in other current liabilities in the accompanying balance sheets.
15
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
9. LONG-TERM LOAN - NET
Long term liabilities as of March 31, 2000 and December 31, 1999, consist of the
following:
March 31, 2000 December 31, 1999
Long-term loans $ - $ 253,180
Installment purchase payable 21,010 28,909
---------- ----------
21,010 282,089
Less Current portion of long-term debt (10,673) (28,089)
---- ---------- ----------
Total $ 10,337 $ 254,000
========== ==========
As of December 31, 1999, long-term loans consist of loans from banks
carrying interest rates of 14.75% per annum. The long-term loans are secured by
the Company's land and building and guaranteed by a director of the Company.
(See Notes 6)
Loans are due as follows: March 31,2000 December 31, 1999
Installment Purchase Obligation
2000 $ 10,673 $ 16,827
2001 6,529 6,590
2002 3,808 5,492
---------- ----------
Total $ 21,010 $ 28,909
========== ==========
Long-term Loan Installment Payments
- $ 11,262
2001 - 13,174
2002 - 15,254
2003 - 17,663
2004 - 20,443
Thereafter - 175,384
---------- ----------
Total $ - $ 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
------------ paid-in Retained Treasury Total
Shares Amount 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>
16
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 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:
March 31, 2000 March 31, 1999
Current income tax (Payable) $ $
United States - -
Foreign (937,350) (524,807)
--------- ---------
(937,350) (524,807)
--------- ---------
Deferred income tax
United States - -
Foreign 59,521 (93,880)
--------- ---------
59,521 (93,880)
--------- ---------
Net income tax expense $ (877,829) $ (618,687)
========= =========
Pre-tax income for foreign companies for the quarter ended March 31,
2000, was $ 2,925,759. Current taxes payable are included in other current
liabilities.
The components of deferred income tax assets and liabilities were:
March 31, 2000 December 31,1999
<S> <C> <C>
Reserves for bad debts and investment obsolescence $ 4,525,682 $ 4,423,804
Net operating loss carried forward 338,688 369,019
---------- ----------
4,864,370 4,792,823
Less Valuation allowance (450,717) (438,691)
---- ---------- ----------
Deferred income tax assets $ 4,413,653 $ 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 three months ended March, 31
2000 1999
------ ------
Standard income tax rate 35% 30%
Foreign tax rate difference (5%) 2.75%
------ ------
Effective income tax rate 30% 32.75%
------ ------
As of March 31, 2000 and December 31, 1999, the Company has deferred
income tax assets relating to net operating loss carry forwards for income tax
purpose of $ 338,688, 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.)
17
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
12. RELATED PARTIES AND DIRECTORS TRANSATIONS
The Company has business transactions with and has advanced funds to related
companies and directors. These transactions are with companies that have joint
directors and/or shareholders with the Company. Balances at March 31,2000 and
December 31, 1999 with related companies and directors are as follows ($ in
thousands)
As at March 31, 2000
Account Loans and receivables Management Accounts
Receivable to related companies fee receivables payable
and Directors
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans Interest and Total
other
receivables
First Quarter, 2000
King Power International Co., Ltd. 1,931 4,766 215 - 6,912 180
Forty Seven Co., Ltd. - 2,719 549 - 3,268 -
Downtown D.F.S. (Thailand) Co., Ltd. 447 2,548 236 2,436 5,667 -
King Power Duty Free (CBO) Ltd. - 1,084 36 - 1,120 -
Top China Group Co., Ltd. - 264 1 - 265 -
Lengle (Thailand) Co., Ltd. - 928 53 - 981 -
Lengle TAT Phnom Penh Duty Free 42 - - - 42 -
Grand Enterprise and Trading Partnership - 246 10 - 256 -
King Power On Board Sales and Services Co., Ltd. 11 1,745 - - 1,756 11
Thai Nishigawa International Co., Ltd. - - - - - 38
Niji (Thailand) Co., Ltd. - - - - - 6
------------------------------------------------------------------------------
2,431 14,300 1,100 2,436 20,267 235
Directors - to/(from) - - - - - -
------------------------------------------------------------------------------
2,431 14,300 1,100 2,436 20,267 235
Less Allowance for doubtful accounts: - - - - - -
- ----
Related companies (1,229) (9,978) (590) (2,436) (14,233) -
Directors - - - - - -
------------------------------------------------------------------------------
(1,229) (9,978) (590) (2,436) (14,233) -
------------------------------------------------------------------------------
Total 1,202 4,322 510 - 6,034 235
==============================================================================
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
As of December 31, 1999
Account Loans and receivables to Management Accounts
Receivable related companies and fee receivables payable
Directors
-------------------------------------------------------------------------------
<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 Phnom Penh 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 March 31, 2000 and December 31,1999, there are accrued concession
fees amounting to $ 4,538,390 and $ 7,933,979, respectively.
19
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 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 three month ended March 31,
2000 1999
----- -----
Sales $ 129 $ 757
Interest income 40 366
Purchase 277 74
Commission 6 -
Concession fee 3,364 3,454
Directors
For the three month ended March 31,
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 transfered the rights of the following lease
agreements to KPT, KPD and KING POWER INTERNATIONAL CO., LTD. The obligations of
the various consolidated companies under these lease agreements are set forth as
follows:
-KPT has made lease agreement with SIAM TOWER to lease 26th floor
starting from January 1, 1999, to October 31, 2000.
-KPD has made lease agreement with SIAM TOWER to lease 27th floor
starting from January 1,1999, to October 31, 2000.
KPT and KPD have made lease agreement with the third party starting
from April 1, 1998, to December 31, 2001.
Lease and service charge committment are due as follows:
KPT KPD
--- ---
2000 $ 109,480 $ 230,327
2001 $ 7,921 $ 107,875
Letter of guarantees
As of March 31, 2000 and December 31, 1999, KPT and KPD were
contingently liable for bank guarantees totaling $13.39 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 March 31, 2000 and December 31, 1999, KPD have the unused letters
of credit amounting to $4.85 million and $3.19 million, respectively.
20
<PAGE>
<TABLE>
<CAPTION>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
Pledge of subsidiary stock
Subsequent to year end the Company applied for a new line of credit. As
a part of this application, the Company agreed to pledge its stock in both KPT
and KPD as collateral. The line of credit application is still in process.
14. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for March 31, 2000
and1999, are disclosed in accordance with Statement of Financial Accounting
Standard No.131 ("SFAS 131"). Information by legal entities is the reportable
segment under SFAS 131 because each entity is reported separately for management
($ in thousands).
For the three month ended March 31, 2000
Duty Free Tax All Other Adjustment Consolidated
Retail Free And
Retail Elimination
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Segment Information US $ US $ US $ US $ US $
- -------------------
Revenue from external customers 19,700 7,864 - (30) 27,534
- - Cost of merchandise sold 9,743 3,392 - (30) 13,105
- - Concession fees 3,364 2,802 - - 6,166
- - Gross profit 6,593 1,670 - - 8,263
- - Interest Income 45 9 8 - 62
- - Interest expense 255 9 - - 264
- - Segment net income (loss) 2,282 (234) 1,898 (1,933) 2,013
- - Segment total assets 33,772 15,055 13,216 (19,948) 42,095
- - Expenditures for segment assets 28 8 - - 36
- - Depreciation 272 96 - - 368
- - Unrealized gain (loss) on
exchange (12) 17 2 - 7
- - Allowance for doubtful account - - - - -
- - Deferred tax 2,762 1,628 24 - 4,414
Revenue Long-lived
Assets
----------- -----------
Geographical Information US$ US $
------------------------
Bangkok 26,435 4,952
Northern Thailand region 140 52
Southern Thailand region 959 127
----------- -----------
Total 27,534 5,131
=========== ===========
21
<PAGE>
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
For the three month ended March 31, 1999
Adjustment
Duty Free Tax Free All Other And Consolidated
Retail Retail Elimination
----------- ----------- ----------- ----------- -----------
Segment Information US $ US $ US $ US $ US $
- -------------------
- - Revenue from external customers 16,368 7,441 - - 23,809
- - Inter segment revenue - 1,126 - (1,126) -
- - Cost of merchandise sold 7,852 3,345 - - 11,197
- - Concession fees 3,455 3,013 - - 6,468
- - Gross profit 5,061 2,209 - (1,126) 6,144
- - Interest Income 406 59 24 (77) 413
- - Interest expense 371 4 77 (77) 375
- - Segment net income (loss) 933 510 1,128 (1,348) 1,223
- - Segment total assets 42,165 14,859 13,258 (22,084) 48,198
- - Expenditures for segment assets 64 68 6 - 138
- - Deferred tax 2,382 1,600 58 - 4,040
Revenue Long-lived
Assets
----------- -----------
Geographical Information US$ US$
- ------------------------
Bangkok 21,829 6,010
Northern Thailand region 813 66
Southern Thailand region 148 58
----------- -----------
Total 22,790 6,134
=========== ===========
</TABLE>
22
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
(1) Caution Regarding Forward-Looking Information
This report contains certain forward-looking statements and information relating
to the Company that is based on the beliefs of the Company or management as well
as assumptions made by and information currently available to the Company or
management. When used in this document, the words "anticipate", "believe",
"estimate", "expect", and "intend" and similar expressions, as they relate to
the Company or its management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company regarding
future events and are subject to certain risks, uncertainties and assumptions,
including the risks and uncertainties noted. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. In each instance, forward-looking
information should be considered in light of the accompanying meaningful
cautionary statements herein.
(2) Effects on the Change in Foreign Currency Exchange System
On July 2, 1997, the Thai Government announced that the Thai Baht would
thereafter be converted to a "Managed Float" system for the relationship of the
Baht to other international currencies. This change had an immediate impact on
the Company's financial position 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 March 31, 2000:
Realized loss on foreign exchange $0.03 million
Unrealized gain on foreign exchange $0.01 million
The calculation of unrealized foreign exchange gain of $0.01 million is shown in
charts labeled A and B, respectively.
23
<PAGE>
CHART A
-------
The calculation of Unrealized gain on foreign exchange of US$ = 45,705 was
calculated on accumulated basis with quarterly adjustment as shown below:
Accounts receivable in foreign currency as of 3/31/00
- -------------------------------------------------------------------------------
Currency Amount Exchange Rate Total Baht
3/31/00
- ---------------------- ------------------ -------------------- ----------------
Swiss Franc 6,004.40 22.6742 136,145
- ---------------------- ------------------ -------------------- ----------------
German Deutschmark 2,184.00 18.4311 40,254
- ---------------------- ------------------ -------------------- ----------------
Australian Dollar 1,754.73 22.8374 40,073
- ---------------------- ------------------ -------------------- ----------------
British Pound Sterling 7,441.10 60.0080 446,526
- ---------------------- ------------------ -------------------- ----------------
Singapore Dollar 1,039.45 21.8738 22,737
- ---------------------- ------------------ -------------------- ----------------
US Dollar 58,680.26 37.7491 2,215,127
- ---------------------- ------------------ -------------------- ----------------
Total 2,900,862
- ---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 3,159,837
---------
Unrealized gain on account receivable in foreign currency 3/31/00 (258,975)
---------
Unrealized gain on account receivable in foreign currency 1/1/00 1,244,035
---------
Net unrealized gain on account receivable in foreign currency 3/31/00 985,060
---------
Unrealized gain from advanced as of 3/31/00
- -------------------------------------------------------------------------------
Currency Amount Baht Exchange rate Total US Dollars
3/31/00
- ---------------------- ------------------ -------------------- ----------------
Baht Currency 8,124,822.34 37.873 214,528
- ---------------------- ------------------ -------------------- ----------------
Total 214,528
- ---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 216,469
----------------
Unrealized gain on exchange rate in foreign currency 3/31/00 1,941
----------------
24
<PAGE>
Unrealized gain on cash on hand as of 3/31/00
- -------------------------------------------------------------------------------
Currency Amount Exchange rate Total Baht
3/31/00
- ---------------------- ------------------ -------------------- ----------------
Australian Dollar 11,492.69 22.8374 262,463
- ---------------------- ------------------ -------------------- ----------------
Swiss Franc 370.00 22.6742 8,389
- ---------------------- ------------------ -------------------- ----------------
China Renminbi Yuan 37,884.00 4.4832 169,842
- ---------------------- ------------------ -------------------- ----------------
German Deutschmark 8,150.00 18.4311 150,213
- ---------------------- ------------------ -------------------- ----------------
French Franc 6,080.00 5.4937 33,402
- ---------------------- ------------------ -------------------- ----------------
British Pound sterling 51,386.90 60.0080 3,083,625
- ---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 330,161.10 4.8359 1,596,626
- ---------------------- ------------------ -------------------- ----------------
Japanese Yen 12,492,177.00 0.355920 4,446,216
- ---------------------- ------------------ -------------------- ----------------
Korean Won 1,832,000.00 0.0340 62,288
- ---------------------- ------------------ -------------------- ----------------
Malaysian Ringgit 747.00 9.8692 7,372
- ---------------------- ------------------ -------------------- ----------------
Singapore Dollar 4,663.00 21.8738 101,998
- ---------------------- ------------------ -------------------- ----------------
Taiwanese Dollar 982,450.00 1.2365 1,214,799
- ---------------------- ------------------ -------------------- ----------------
Canadian Dollar 4,040.00 25.8612 104,479
- ---------------------- ------------------ -------------------- ----------------
US Dollar 217,774.93 37.7491 8,220,808
- ---------------------- ------------------ -------------------- ----------------
Total 19,462,520
- ---------------------- ------------------ -------------------- ----------------
BALANCE PER GENERAL LEDGER 18,673,941
----------------
Unrealized Gain on cash in hand in foreign currency 3/31/00 788,579
----------------
Unrealized loss on cash in hand in foreign currency 1/1/00 (122,343)
----------------
Net unrealized gain on cash in hand in foreign currency 3/31/00 666,236
----------------
Net unrealized gain on account receivable in foreign
currency 3/31/00 985,059
----------------
Net unrealized gain on exchange rate as at 3/31/00 1,651,295
----------------
US$ = 45,705 (US$1 = 37.7320 Baht)
25
<PAGE>
CHART B
-------
The calculation of Unrealized loss on foreign exchange of US$ = 39,247 was
calculated on accumulated basis with quarterly adjustment as shown below:
Loan from bank (Trust receipt) in foreign currency as of 3/31/00
- -------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
3/31/00 Baht
- ---------------------- ------------------ -------------------- ----------------
Australian Dollar 58,292.74 23.2347 1,354,414
- ---------------------- ------------------ -------------------- ----------------
Swiss Franc 289,416.63 22.9204 6,633,545
- ---------------------- ------------------ -------------------- ----------------
German Deutschmark 160,264.79 18.6848 2,994,516
- ---------------------- ------------------ -------------------- ----------------
Euro 161,152.21 36.5579 5,891,386
- ---------------------- ------------------ -------------------- ----------------
French Franc 629,977.00 5.5752 3,512,248
- ---------------------- ------------------ -------------------- ----------------
British Pound Sterling 4,566.70 60.6426 276,937
- ---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 2,778,460.06 4.8900 13,586,670
- ---------------------- ------------------ -------------------- ----------------
Italian Lire 358,441,000.00 0.0189 6,774,535
- ---------------------- ------------------ -------------------- ----------------
Japanese Yen - - 0
- ---------------------- ------------------ -------------------- ----------------
Singapore Dollar - - 0
- ---------------------- ------------------ -------------------- ----------------
US Dollar 4,103,355.48 37.9628 155,774,863
- ---------------------- ------------------ -------------------- ----------------
Austria Shilling 169,819.69 2.6580 451,381
- ---------------------- ------------------ -------------------- ----------------
Total 197,250,495
----------------
BALANCE PER GENERAL LEDGER 199,257,590
----------------
Unrealized gain on Trust Receipt in foreign currency 3/31/00 2,007,095
----------------
Unrealized loss on trust Receipt in foreign currency 1/1/00 (3,379,893)
---------------
Net unrealized loss on trust Receipt in foreign currency 3/31/00 (1,372,798)
---------------
26
<PAGE>
Account payable in Foreign Currency as of 3/31/00
- -------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
3/31/00 Baht
- ---------------------- ------------------ -------------------- ----------------
German Deutschmark 50,418.89 18.6848 942,067
- ---------------------- ------------------ -------------------- ----------------
French Franc 328,235.81 5.5752 1,829,980
- ---------------------- ------------------ -------------------- ----------------
British Pound Sterling 21,750.00 60.6426 1,318,977
- ---------------------- ------------------ -------------------- ----------------
Hong Kong Dollar 6,806,294.00 4.89 33,282,778
- ---------------------- ------------------ -------------------- ----------------
Italian Lire 18,650,500.00 0.0189 352,494
- ---------------------- ------------------ -------------------- ----------------
Netherland Guilder 177,664.50 16.5842 2,946,424
- ---------------------- ------------------ -------------------- ----------------
Singapore Dollar (3,485.73) 22.1984 (77,378)
- ---------------------- ------------------ -------------------- ----------------
US Dollar 826,539.73 37.9628 31,377,762
- ---------------------- ------------------ -------------------- ----------------
Total 71,973,104
----------------
BALANCE PER GENERAL LEDGER 76,516,763
----------------
Unrealized loss on account payable 3/31/00 4,543,659
----------------
Unrealized loss on account payable 1/1/00 (4,651,712)
----------------
Net unrealized loss on account payable 3/31/00 (108,053)
----------------
Net unrealized loss on Trust receipt in foreign currency 3/31/00 (1,372,797)
----------------
Net realized exchange gain as of 3/31/00 (1,480,850)
----------------
US$ = (39,247) (US$1=37.7320 Baht)
NET FOR UNREALIZED GAIN/LOSS EXCHANGE AS OF 3/31/00
(Baht) (US$)
------------- -------------
Net unrealized exchange gain as of 3/31/00 1,651,295
Net unrealized loss on exchange rate as at 3/31/00 (1,480,850)
-------------
NET UNREALIZED EXCHANGE 170,445 4,517
-------------
Net unrealized exchange GAIN KPG(US) as of 3/31/00 1,941
-------------
NET UNREALIZED EXCHANGE 6,458
-------------
27
<PAGE>
(3) Results of operations, comparing quarters ended March 31, 2000 and 1999
Sales revenue for the three months ended March 31, 2000, was approximately $27.5
million as compared to approximately $23.8 million for 1999. This increase is
directly attributable to the continual growth in the number of tourist entering
into Thailand and the promotional sales discount to attract larger customer
base. Commencing in the last half of 1997, the Thai Government began the
"Amazing Thailand" marketing campaign for the 1998-2000 time period to coincide
with various events occurring in Thailand or other countries closely located
near Thailand. This marketing campaign is international in scope and directly
targeted to attract additional new and repeat visitors to Thailand. The Company
expects that this promotional campaign will continue to directly impact the
Company's operations in a positive manner during and subsequent to this time
period. In addition to the "Amazing Thailand" campaign, during the first quarter
of 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 positively impact the Company's operating profit.
The cost of merchandise sold for the three months ended March 31, 2000 and 1999,
was approximately $13.1 million and $11.2 million, respectively. The principal
factor causing this increase is the current campaign on promotional sales
discount of products sold in both subsidiaries that generated more sales volume
as described above. However, due to the higher sales volume and lower cost of
concession fees, comparing the time period ended March 31, 1999, to the time
period ended March 31, 2000, the ratio of the Company's concession fees to sales
revenue dropped from approximately 27.17% in 1999 to approximately 22.39% in
2000. Furthermore, Management is currently negotiated with the AAT to lower the
fixed concession fees paid by KPT to be more in-line with the size of sales
volume of this subsidiary.
Selling and administrative expenses were approximately $5.2 million for the
three months ended March 31, 2000, and approximately $4.7 million for the same
period in 1999. In terms of percentage of sales, 2000 expenses were
approximately 18.84% of sales and 1999 expenses were approximately 19.85% of
sales. This decrease is in-line with Management's expectation that as the sales
volume increased over break-even point of certain fixed costs in this expense,
the ratio would reduce favorably.
Net income for the three months ended March 31, 2000, was approximately $1.9
million, or $0.09 per share (basic), and approximately $1.2 million, or $0.06
per share (basic), for the three months ended March 31, 1999.
The ratio of inventory divided by revenue for the three months ended March 31,
2000 and 1999, was approximately 56.22% and 69.29%, respectively. This decrease
is a result of the high turnover after the aftermath of Y2K flight cancellation.
(4) Liquidity and Capital Resources
For the quarter ended March 31, 2000, and the year ended December 31, 1999, the
Company had working capital of approximately $8.2 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. Management anticipates that the current positive trend will continue as
sales continue to grow and operations are stabilized.
28
<PAGE>
(5) Monetary Assets and Liabilities Denominated in Thai Baht
As of March 31, 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 954,396
Trade Accounts Receivable 1,332,839
Refundable value-added-tax 1,295,697
Related Parties 4,419,031
Deferred income tax assets 4,413,653
Restricted deposit 5,508,708
Other current assets 2,858,478
Other non-current assets 202,602
TYPE OF MONETARY LIABILITY
Bank overdraft & loan 5,179,909
Current portion of long-term loan 10,673
Accounts Payable 7,862,600
Advance from related companies 97,269
Concession fees 6,245,656
Other current liabilities 2,218,644
Long-term loan - net 10,337
(6) 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.
29
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
30
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned who are duly
authorized.
KING POWER INTERNATIONAL GROUP CO., LTD.
By: /s/ Vichai Raksriaksorn
----------------------------------------------------------------
Vichai Raksriaksorn, President and Chief Executive Officer
May 15, 2000
By: /s/ Viratana Suntaranond
----------------------------------------------------------------
Viratana Suntaranond, Chief Financial Officer
May 15, 2000
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted from Balance
Sheet at 03/31/00, Statement of Operations at 03/31/00
</LEGEND>
<CIK> 0000787690
<NAME> King Power International Group Co., Ltd.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 1,474,745
<SECURITIES> 13,202
<RECEIVABLES> 207,033
<ALLOWANCES> 14,233,633
<INVENTORY> 15,480,847
<CURRENT-ASSETS> 36,865,547
<PP&E> 8,574,430
<DEPRECIATION> 3,647,522
<TOTAL-ASSETS> 41,997,147
<CURRENT-LIABILITIES> 28,645,155
<BONDS> 0
0
0
<COMMON> 20,250
<OTHER-SE> 12,852,016
<TOTAL-LIABILITY-AND-EQUITY> 41,997,147
<SALES> 27,534,099
<TOTAL-REVENUES> 27,534,099
<CGS> 13,105,060
<TOTAL-COSTS> 19,270,671
<OTHER-EXPENSES> 5,187,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263,812
<INCOME-PRETAX> 2,891,624
<INCOME-TAX> 877,829
<INCOME-CONTINUING> 2,013,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,898,659
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
