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FORM 10-Q
- --------------------------------------------------------------------------------
For the quarterly period ended June 30, 2002
(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
------ ----------
(State of incorporation) (IRS Employer ID number)
25th-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: August 9, 2002: 20,250,000
1
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarterly ended June 30, 2002
Table of Contents
Page
Part I - Financial Information
Item 1 Financial statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 25
Part II - Other Information
Item 1 Legal Proceeding 30
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
Independent Accountants' Review Report
The Board of Directors and Shareholders
King Power International Group Co., Ltd. and Subsidiaries
We have reviewed the consolidated balance sheet of King Power International
Group Co., Ltd. and Subsidiaries (a Nevada Corporation) as of June 30, 2002 and
2001, and the related consolidated statements of operations, shareholders'
equity and cash flows for the three months and six months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of King Power International Group Co., Ltd. and Subsidiaries
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principals.
SMITH, GRAY, BOYER & DANIELL
A Professional Limited Liability Company
Dallas, Texas
August 9, 2002
3
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Note 2002 2001
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,057,343 $ 3,955,240
Trade accounts receivable 497,090 676,073
Refundable value added tax 4 1,025,683 626,537
Trade accounts and management fee receivable from related
companies, net 11 602,300 1,455,691
Merchandise inventories, net 35,097,309 21,185,208
Restricted fixed deposits 3 17,108,792 11,650,467
Deferred income tax assets 10 3,863,889 3,541,113
Prepaid expenses 297,780 416,176
Other current assets 538,710 315,409
------------ ------------
Total current assets 64,088,896 43,821,914
Property, plant and equipment, net 5 5,303,556 3,719,476
Loans and accrued interest from related companies and directors, net 11 11,159,542 11,764,840
Investments and other assets 2,168,738 202,590
------------ ------------
TOTAL ASSETS $ 82,720,732 $ 59,508,820
============ ============
The accompanying notes are an integral part of these consolidated
financial statements
See Accountants' Review Report
4
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, December 31,
Note 2002 2001
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and bank loans 6 $ 27,946,189 $ 21,562,684
Current portion of long-term loan 8 427,561 33,275
Trade accounts payable 11,326,444 10,893,026
Accrued concession fees 7 3,698,582 2,737,366
Accrued corporate income tax 4,668,790 1,391,145
Other current liabilities 2,406,212 2,151,468
------------ ------------
Total current liabilities 50,473,778 38,768,964
Long-term loan, net 8 147,883 140,245
------------ ------------
Total liabilities 50,621,661 38,909,209
------------ ------------
MINORITY INTEREST 1,305,723 775,887
Shareholders' equity 9
Common stock, $0.001 par value,
100,000,000 shares authorized,
20,250,000 shares issued and outstanding 20,250 20,250
Additional paid in capital 20,848,145 20,848,145
Retained earnings (deficit) 10,672,890 1,446,618
Legal reserve 82,233 82,233
Translation adjustments (830,170) (2,573,522)
------------ ------------
Total shareholders' equity 30,793,348 19,823,724
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 82,720,732 $ 59,508,820
============ ============
The accompanying notes are an integral part of these consolidated
financial statements
See Accountants' Review Report
5
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
Six months ended June 30, Three months ended June 30,
Note 2002 2001 2002 2001
------------ ------------ ------------ ------------
Sales revenue $ 84,295,164 $ 57,933,581 $ 39,775,853 $ 26,275,319
Cost of sales
Cost of merchandise sold 40,494,959 28,092,054 19,682,729 12,270,917
Concession fees 7 15,917,472 10,963,545 7,548,213 5,173,038
------------ ------------ ------------ ------------
Total cost of sales 56,412,431 39,055,599 27,230,942 17,443,955
------------ ------------ ------------ ------------
Gross profit 27,882,733 18,877,982 12,544,911 8,831,364
Operating expenses
Selling and administrative expenses 13,992,238 14,773,860 7,369,990 7,757,275
Provision for obsolescence stock 305,352 -- 305,352 --
------------ ------------ ------------ ------------
Total operating expenses 14,297,590 14,773,860 7,675,342 7,757,275
------------ ------------ ------------ ------------
Income from operations 13,585,143 4,104,122 4,869,569 1,074,089
Other income (expense)
Interest income 750,979 188,187 350,842 92,529
Interest expense (764,076) (609,422) (413,601) (298,554)
Gain (loss) on foreign exchange, net (50,009) 148,767 (73,717) 95,567
Other income 555,737 273,263 270,494 203,583
------------ ------------ ------------ ------------
Total other income (expense) 492,631 795 134,018 93,125
------------ ------------ ------------ ------------
Net income before income tax 14,077,774 4,104,917 5,003,587 1,167,214
Income tax expense 10 (4,390,079) (1,358,556) (1,590,625) (457,655)
------------ ------------ ------------ ------------
Net income before minority interest 9,687,695 2,746,361 3,412,962 709,559
Minority interest (461,423) (158,910) (173,991) (61,781)
------------ ------------ ------------ ------------
Net income attributed to common shares $ 9,226,272 $ 2,587,451 $ 3,238,971 $ 647,778
============ ============ ============ ============
Weighted average number of common shares outstanding
20,250,000 20,250,000 20,250,000 20,250,000
Basic earnings per share $ 0.46 $ 0.13 $ 0.16 $ 0.03
The accompanying notes are an integral part of these consolidated
financial statements
See Accountants' Review Report
6
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
Six months ended June 30, Three months ended June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income attributed to common shares $ 9,226,272 $ 2,587,451 $ 3,238,971 $ 647,778
Other comprehensive income, net of tax:
Foreign currency translation adjustment 1,743,352 (765,825) 1,351,786 (130,210)
----------- ----------- ----------- -----------
Comprehensive income $10,969,624 $ 1,821,626 $ 4,590,757 $ 517,568
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements
See Accountants' Review Report
7
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
Six months ended June 30, Three months ended June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,226,272 $ 2,587,451 $ 3,238,971 $ 647,778
Adjustments to reconcile net income, to net cash provided
by (used in) operating activities:
Depreciation expense 712,841 692,353 403,154 341,109
Unrealized loss (gain) on foreign exchange (1,736) (94,019) 103,619 (121,712)
Deferred income tax assets (322,776) 111,544 (264,926) (17,917)
Provision for obsolescence stock 305,352 -- 305,352 --
Decrease (increase) in operating assets:
Trade accounts receivable 170,372 52,377 100,254 (2,394)
Refundable valued added tax (399,146) 147,558 (111,757) 8,651
Receivables and loans to related companies and 1,368,948 (2,225,792) 2,454,586 (1,632,499)
directors
Merchandise inventories (14,217,453) (2,467,485) (7,604,488) (2,669,808)
Prepaid expenses and other current assets (104,905) (555,480) 13,197 (190,021)
Other long-term assets (1,966,148) (6,492) (1,954,108) (21,194)
Increase (decrease) in operating liabilities:
Trade accounts payable 558,862 (2,435,169) 1,024,465 547,824
Advances from director -- 1,608,673 -- 1,513,206
Accrued concession fees 961,216 (245,917) (80,996) (198,112)
Other current liabilities 3,531,546 (51,750) 1,090,988 (250,850)
Minority interest 529,836 130,070 227,502 56,632
Translation adjustments 1,743,352 (765,825) 1,351,786 (130,210)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating $ 2,096,433 $ (3,517,903) $ 297,599 $ (2,119,517)
activities
The accompanying notes are an integral part of these consolidated
financial statements
See Accountants' Review Report
8
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
Six months ended June 30, Three months ended June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVES:
Purchases of fixed assets $(2,296,921) $ (5,669) $(1,362,285) $ (48,458)
(Increase) decrease in restricted fixed deposits (5,458,325) (673,759) (2,729,299) (319,767)
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities (7,755,246) (679,428) (4,091,584) (368,225)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) bank overdrafts (597,861) 92,392 (69) 289,748
Proceeds from (repayment of) bank loans 6,986,981 3,896,720 898,650 1,255,604
Proceeds from (repayment of) long-term loan 401,924 (23,961) 407,755 (9,397)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 6,791,044 3,965,151 1,306,336 1,535,955
Effect of exchange rate changes on cash and cash
equivalents (30,128) 2,523 (47,127) (5,145)
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents 1,102,103 (229,657) (2,534,776)
(956,932)
Cash and cash equivalents, beginning of period 3,955,240 2,633,890 7,592,119 3,361,165
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period 5,057,343 2,404,233 5,057,343 2,404,233
=========== =========== =========== ===========
Supplemental cash flow information
Cash paid during the period:
Interest $ 773,932 $ 573,558 $ 400,901 $ 317,225
Income taxes $ 1,436,769 $ 664,933 $ 1,423,674 $ 664,933
The accompanying notes are an integral part of these consolidated
financial statements
See Accountants' Review Report
9
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001 (in US $)
Additional
Common Stock Paid in Comprehensive
Shares Amount Capital Income
-----------------------------------------------------
Balances at January 1, 2001 20,250,000 20,250 20,848,145
Net Income 2,587,451
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (765,825)
-----------
Comprehensive Income 1,821,626
------------------------------------------===========
Balances at June 30, 2001 20,250,000 20,250 20,848,145
=======================================
Balances at January 1, 2002 20,250,000 20,250 20,848,145
Net Income 9,226,272
Other comprehensive income,
net of tax
Foreign currency translation
adjustment 1,743,352
-----------
Comprehensive Income 10,969,624
------------------------------------------===========
Balances at June 30, 2002 20,250,000 20,250 20,848,145
=======================================
The accompanying notes are an integral part of these consolidated
financial statements
See Accountants' Review Report
10
(UNAUDITED)
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY CONTINUED
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001 (in US $)
Accumulated
Other
Retained Legal Comprehensive
Earnings Reserve Income Total
-----------------------------------------------------
Balances at January 1, 2001 (3,018,454) (2,250,195) 15,599,746
Net Income 2,587,451 2,587,451
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (765,825) (765,825)
Comprehensive Income
-----------------------------------------------------
Balances at June 30, 2001 (431,003) (3,016,020) 17,421,372
=====================================================
Balances at January 1, 2002 1,446,618 82,233 (2,573,522) 19,823,724
Net Income 9,226,272 9,226,272
Other comprehensive income,
net of tax
Foreign currency translation
adjustment 1,743,352 1,743,352
Comprehensive Income
-----------------------------------------------------
Balances at June 30, 2002 10,672,890 82,233 (830,170) 30,793,348
=====================================================
The accompanying notes are an integral part of these consolidated
financial statements
See Accountants' Review Report
11
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
1. BASIS OF PRESENTATION
King Power International Group Co., Ltd. (formerly Immune America,
Inc.) (here in 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 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.
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, an exclusive
license to operate duty free stores for all stores of this specific nature.
Prior to January 1, 2002, KPD held a non-exclusive license to operate duty free
stores of this specific nature (see Note 7). 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 to the general public in the international and
domestic terminals of the various airports located throughout Thailand. KPT
holds the 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 for shops within Bangkok International
Airport's departure halls.
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, 2001 and 2000,
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 a provision for the total
receivable and accrued interest outstanding.
12
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
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
transactions are recognized as incurred in the consolidated statements of
income. Differences between the forward rate and the spot rate in forward
exchange contracts are amortized as revenue and expense over the period of the
contract.
The exchange rates at June 30, 2002 and December 31, 2001 were $1= Baht
41.558 and Baht 44.227, respectively. The average exchange rates for the six
months ended June 30, 2002 and 2001 were $1= Baht 43.2317, Baht 44.2589,
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 expense 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 the
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
defined in the concession agreement. According to the concession agreement with
the Airports Authority of Thailand, KPD is required to pay concession fees at a
fixed percentage of sales, greater than or equal to the fixed charges as defined
in the concession 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. In addition, see Note 11 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 fluctuate 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 basis 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.
13
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
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 amounts in the 2001 financial statements and
related footnotes have been reclassified to conform with 2002 presentation.
3. RESTRICTED FIXED DEPOSITS
June 30, 2002 December 31, 2001
--------------- -----------------
Restricted fixed deposits $ 17,108,792 $ 11,650,467
Interest rates 0.75%-3.50% 1.00%-4.00%
As of June 30, 2002 and December 31, 2001, the restricted fixed
deposits with maturities from three to twelve months were pledged as 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 August 16, 1997. The Minister
of Finance, however, declared a new value added tax at the rate 7% commencing
April 1, 1999, in order to stimulate the domestic economy.
5. PROPERTY, PLANT AND EQUIPMENT, NET
June 30, 2002 December 31, 2001
----------------- -----------------
Land $ 632,369 $ 594,207
Building 395,740 116,844
Leasehold improvements 6,082,438 4,627,983
Office equipment and fixtures 3,389,605 2,663,704
Vehicles 1,000,226 788,678
Work in progress 248,881 338,498
----------------- -----------------
Total cost 11,749,259 9,129,914
Less: accumulated depreciation (6,445,703) (5,410,438)
----------------- -----------------
Net book value $ 5,303,556 $ 3,719,476
================= =================
6. BANK OVERDRAFT AND LOANS FROM BANKS
June 30, 2002 December 31, 2001
----------------- -----------------
Bank overdraft $ -- $ 597,861
Trust receipts 22,411,755 13,955,530
Short-term loan 5,534,434 7,009,293
----------------- -----------------
$ 27,946,189 $ 21,562,684
================= =================
14
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
As of June 30, 2002 and December 31, 2001, the Company has an overdraft
facility with commercial banks in Thailand totaling Baht 80.74 million ($
1,942,827) and Baht 80.74 million ($ 1,825,582), respectively, bearing interest
at the Minimum Overdraft Rate ("MOR") plus 1.00% - 1.50% per annum. For the six
months ended June 30, the average rate of MOR was 3.00% - 8.00% per annum, and
for the year ended December 31, 2001 the average rate MOR was 3.00% - 8.25% per
annum. Available lines of credit for the bank overdrafts are guaranteed by
certain directors and collateralized by fixed deposits. (Note 3)
As of June 30, 2002 and December 31, 2001, trust receipts incurred by
KPD and KPT bear interest at the rates varying from 4.00% - 8.75% and 4.56% -
9.00% per annum, respectively, and are collateralized by fixed deposits, KPD's
land, and guaranteed by two directors of KPD, together with a related company.
As of June 30, 2002 and December 31, 2001, the Company has a short-term
loan with various commercial banks in Thailand, bearing interest at rates of
2.56% - 7.50% and 2.875% - 8.75%per annum, respectively, and are collateralized
by fixed deposits and guaranteed by a director.
Trust receipts at June 30, 2002
Foreign currency borrowing by subsidiaries in Thailand Currencies Amount Interest rate (%)
-Under forward contract and T/R
Forward contract BAHT 416,387,731 $ 10,019,436 4.74 - 7.50
Trust receipt BAHT 461,455,858 11,103,900 4.00 - 8.75
-Without forward contract USD 529,148 530,575 4.74 - 7.50
CHF 161,618 109,193 5.00 - 7.00
GBP 12,056 18,530 7.00
AUD 30,342 17,310 7.00
JPY 2,596,150 21,877 7.75
HKD 2,665,380 343,355 7.00
SGD 27,062 15,436 7.75
EUR 233,110 232,143 5.00 - 7.37
------------
$ 22,411,755
============
Trust receipts at December 31, 2001
Foreign currency borrowing by subsidiaries in Thailand Currencies Amount Interest rate (%)
-Under forward contract and T/R
Forward contract BAHT 233,728,932 $ 5,284,757 4.56 - 9.00
Trust receipt BAHT 327,100,775 7,395,952 5.50 - 9.00
-Without forward contract USD 833,074 835,574 4.56 - 9.00
CHF 219,305 131,561 6.00 - 9.00
GBP 15,081 21,998 7.25 - 9.00
HKD 1,277,545 164,662 5.625 - 9.00
SGD 25,816 14,035 5.67 - 9.00
EUR 120,179 106,991 6.50 - 9.00
------------
$ 13,955,530
============
As of June 30, 2002 and December 31, 2001, land and building are
pledged as collateral for credit lines, trust receipts, and a long-term loan
from a bank. (Notes 6 and 8)
15
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
Accrued concession fees to the Airport Authority of Thailand were
$3,698,582 and $2,737,366 as of June 30, 2002 and December 31, 2001,
respectively. Concession fee expense for the six months ended June 30, 2002 and
2001 was $15,917,472 and $10,963,545, respectively.
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 included 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
local commercial bank letter of guarantee, as collateral under the
aforementioned agreements with the Airports Authority of Thailand.
A summary of the concession and rental fees payable and the value of collateral
for the remaining period of the agreement (as amended) are as follows (see Notes
11 and 12):
KPT (in 000's) KPD (in 000's)
- ---------------------------------------------------------- -----------------------------------------------------
Year Airport Rental, Service & Airport Rental, Service &
Concession Fees Other Expenses Collateral Concession Fees Other Expenses Collateral
- ---------------------------------------------------------- -----------------------------------------------------
2002 $ 5,001 $ 257 $ 4,912 $12,681 $ 749 $ 11,859
2003 2,415 110 4,438 25,159 1,651 12,246
2004 28 3 18 27,140 1,651 12,696
2005 -- -- -- 28,748 -- 13,067
2006 -- -- -- 30,043 -- 13,646
On March 20, 2001, the Airports Authority of Thailand awarded the
Company a contract, beginning January 1, 2002, to operate the duty free retail
space of other operator.
8. LONG-TERM LOANS, NET
Long-term liabilities as of June 30, 2002 and December 31, 2001 consist of the
following:
June 30, 2002 December 31, 2001
----------------- -----------------
Long-term loans $ 573,461 $ 168,861
Installment purchase payable 1,983 4,659
----------------- -----------------
575,444 173,520
Less: current portion of long-term debt (427,561) (33,275)
----------------- -----------------
Total $ 147,883 $ 140,245
================= =================
As of June 30, 2002 and December 31, 2001, long-term loans consist of loans from
banks carrying interest rates of 7.00% - 7.25% per annum,The long-term loans are
secured by the Company's land and building and guaranteed by a director of the
Company. (See Note 5)
16
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
Loans are due as follows:
June 30, 2002 December31, 2001
---------------- ----------------
Installment purchase obligation
2002 $ 1,983 $ 4,659
---------------- ----------------
Total $ 1,983 $ 4,659
================ ================
Long-term loan installment payments
2002 $ 12,475 $ 28,616
2003 346,166 30,915
2004 36,154 33,395
Thereafter 78,666 75,935
---------------- ----------------
Total $ 573,461 $ 168,861
================ ================
9. SHAREHOLDERS'EQUITY
(a) Per the reverse acquisition agreement, the two Thailand-based companies
together received a total of 18,800,000 shares of common stock of
Immune America, Inc. which represented 94% of equity interest as of the
date the reverse acquisition agreement was effective. Therefore, the
18,800,000 shares were assumed to be issued and outstanding as of
January 1, 1996, for the purpose of presenting comparative financial
statements.
(b) Per the reverse acquisition agreement, 752,000 shares out of the total
18,800,000 shares were put in escrow subject to certain requirements
including that the Company shall have financial statements prepared in
accordance with U.S. GAAP and shall have reached certain criteria of
financial performance as of December 31, 1997. If, as of December 31,
1997, the Company failed to satisfy any of these conditions, the
752,000 shares were to be released to a financial consultant 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:
Additional
Common Stock paid-in Retained Treasury
Shares Amount capital earnings stock Total
---------- ---------- ---------- ---------- ---------- ----------
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) $ -- $ --
========== ========== ========== ========== ========== ==========
17
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
(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.
(e) Dividend Declaration and Legal Reserve
At its ordinary shareholders' meeting held on August 1, 2001, KPD
passed a resolution to pay a dividend at the rate of Baht 40 per share
for a total of Baht 80,000,000 ($1.8 million), based on the results of
its operations for 1999. Further, in accordance with Thai law, a legal
reserve was created, equal to 5% of the total net profit for the year
on which the dividend is based. The 5% net profit reserve is required
by Thai law each time dividend is declared; until such reserve reaches
10% of the Company's authorized share capital.
10. INCOME TAX
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 provision for income taxes consists of the following:
June 30, 2002 June 30, 2001
------------- -------------
Current income tax (payable)
United States $ -- --
Foreign (4,067,303) $ (1,247,012)
------------- -------------
(4,067,303) (1,247,012)
Deferred income tax
United States -- --
Foreign (322,776) (111,544)
------------- -------------
(322,776) (111,544)
------------- -------------
Net income tax expense $ (4,390,079) $ (1,358,556)
============= =============
Pre-tax income for foreign companies for the quarters ended June 30,
2002, was $14,633,231. Current taxes payable are included in current
liabilities.
The components of deferred income tax assets and liabilities were:
June 30, 2002 December 31, 2001
----------------- -----------------
Provision for doubtful accounts and investment obsolescence $ 4,117,192 $ 3,795,411
Net operating loss carried forward 217,027 21,081
----------------- -----------------
4,334,219 3,816,492
Less: valuation allowance (470,330) (275,379)
----------------- -----------------
Deferred income tax assets $ 3,863,889 $ 3,541,113
================= =================
18
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
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 six months ended June 30,
2002 2001
----------- -----------
Standard income tax rate 35.00% 35.00%
Foreign tax rate difference (5.20%) (5.28%)
Less: valuation allowance 1.38% 1.95%
----------- -----------
Effective income tax rate 31.18% 31.67%
=========== ===========
As of June 30, 2002, and December 31, 2001, the Company has deferred
income tax assets relating to net operating loss carry forwards for income tax
purposes of $194,476 and $21,081, respectively, that expire in years 2001
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.
19
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
11. RELATED PARTY AND DIRECTOR TRANSACTIONS
The Company and its subsidiaries have business transactions with and
have advanced funds to various entities affiliated by common ownership and
control and to its officers, directors and shareholders. Where management has
considered it necessary, reserves have been provided for losses on collection of
these balances. In certain instances, advances to affiliated companies have
been, in turn, advanced to other related parties, including directors and
shareholders of the company. Of the $10,047,298 and $12,105,524 shown in the
following schedule as receivable from King Power International Co., Ltd. (KPI),
as of June 30, 2002, and December 31, 2001, respectively, reserves have been
provided for $1,317,645 and $1,293,470, respectively. Of the $3,848,578 and
$3,455,458 shown on the following schedule as receivable from King Power On
Board Sales and Services Co., Ltd. (KPO), as of June 30, 2002, and December 31,
2001, respectively, reserves have been provided for $1,107,669 and $1,090,540,
respectively. KPO's operating license expires in April, 2002, and its
application for renewal is pending. If not renewed, its management intends to
cease operations. The payment of the net, unreserved receivables from KPI and
KPO are personally guaranteed by two officer/director/ shareholders of the
Company who have collateralized their guarantee by the pledge of 9,373,000
shares of the Company's stock.
Balances at June 30, 2002, and December 31, 2001, with related companies and
directors are as follows (in $000s)
------------------------------------------------------------------------------
Loans to and receivables from related
Companies and Directors
As of June 30, 2002 Accounts Interest & other Management Fee Accounts
Receivable Loans receivables Receivables Total Payable
------------------------------------------------------------------------------
King Power International Co., Ltd. 447 8,389 1,107 105 10,048 --
Forty Seven Co., Ltd. -- 2,507 613 -- 3,120 --
Downtown D.F.S. (Thailand) Co., Ltd. 407 2,311 319 2,220 5,257 --
Top China Group Co., Ltd. -- 241 12 -- 253 --
Lengle (Thailand) Co., Ltd. -- 866 88 -- 954 --
Lengle TAT Phnom Penh Duty Free Co., Ltd. 50 -- -- -- 50 --
King Power On Board Sales and Services Co., Ltd. -- 3,542 307 -- 3,849 101
Thai Nishigawa International Co., Ltd. -- -- -- -- -- 131
Niji (Thailand) Co., Ltd. -- -- -- -- -- 160
------------------------------------------------------------------------------
904 17,856 2,446 2,325 23,531 392
Less: provision for doubtful accounts:
Related companies (407) (7,919) (1,464) (2,220) (12,010) --
------------------------------------------------------------------------------
Total 497 9,937 982 105 11,521 392
==============================================================================
Director - to/(from) -- 241 -- -- 241 --
==============================================================================
20
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
------------------------------------------------------------------------------
Loans to and receivables from related
Companies and Directors
As of June 30, 2001 Accounts Interest & other Management Fee Accounts
Receivable Loans receivables Receivables Total Payable
------------------------------------------------------------------------------
King Power International Co., Ltd. 1,196 10,233 599 75 12,103 --
Forty Seven Co., Ltd. -- 2,356 553 -- 2,909 --
Downtown D.F.S. (Thailand) Co., Ltd. 382 2,171 278 2,086 4,917 --
Top China Group Co., Ltd. -- 226 9 -- 235 --
Lengle (Thailand) Co., Ltd. -- 814 74 -- 888 --
Lengle TAT Phnom Penh Duty Free Co., Ltd. 50 -- -- -- 50 --
King Power On Board Sales and Services Co., Ltd. 136 3,147 168 -- 3,451 --
Thai Nishigawa International Co., Ltd. -- -- -- -- -- 43
Niji (Thailand) Co., Ltd. -- -- -- -- -- 94
------------------------------------------------------------------------------
1,764 18,947 1,681 2,161 24,553 137
Less: provision for doubtful accounts:
Related companies (382) (7,659) (1,205) (2,086) (11,332) --
------------------------------------------------------------------------------
Total 1,382 11,288 476 75 13,221 137
==============================================================================
Director - to/(from) -- -- -- -- -- --
==============================================================================
Additionally, the Airports Authority of Thailand owns 5% of KPD common shares.
As of June 30, 2002, and December 31, 2001, KPD has accrued concession fees
amounting to $3,698,078 and $2,737,366, respectively.
21
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
Effective July 1, 2001, KPD and KPT increased the interest rate charged
for new loans to related companies from a range of 2%-2.50% to 8.45%, reflecting
the increase in borrowing costs to KPD and KPT. The new rates apply to total
loans outstanding of each related company that borrowed additional funds from
KPD or KPT during 2001 and 2002. For related companies that did not require
additional loans from KPD and KPT, the interest rate charged to them did not
change. The Company had operating transactions with related parties and
directors as follows (in $000s):
For the six months ended June 30,
2002 2001
------------ ------------
Related Companies
Sales $ 389 $ 381
Interest income 648 92
Management fee income 262 --
Purchases 4,142 689
Concession fees 11,229 6,639
Purchases - assets 9 --
Service $ 191 $ --
12. COMMITMENTS AND CONTINGENT LIABILITIES (see Note 7)
Lease commitments
As of June 30, 2002, KPD and KPT had leasing commitments for office
space under non-cancelable operating lease agreements in excess of one year. The
obligations of the subsidiary companies under these lease agreements are set
forth as follows:
KPT KPD
--------- ---------
2002 $ 25,988 $ 211,167
2003 51,976 362,943
2004 12,994 --
Thereafter $ -- $ --
Letters of guarantee
As of June 30, 2002, and December 31, 2001, KPT and KPD were
contingently liable for bank guarantees totaling $17.75 million and $16.95
million, respectively, issued in favor of the Excise Department and the Airports
Authority of Thailand as a performance bond.
Unused letters of credit
As of June 30, 2002, and December 31, 2001, KPD and KPT have unused
letters of credit totaling $1.41 million and $7.99 million, respectively.
Land Acquisition
On June 17, 2002, KPD contracted to acquire two tracts of land for a
total price of 311.34 million Baht ($7,491,698 at June 30, 2002, exchange
rates), of which 80.63 million Baht ($1,940,277) has been paid directly to the
seller or deposited with KPD's agent for payment in September and is included in
Investments and Other Assets in the accompanying balance sheet. Under the terms
of the contract, KPD will owe the balance of 39.6 million Baht ($952,885 at June
30, 2002 exchange rates) on the first tract on December 14, 2002. The balance of
191.11 million Baht ($4,598,731 at June 30, 2002 exchange rates) due on the
second tract is payable 21.23 million Baht ($510,950) on October 14, 2002, and
169.88 million Baht ($4,087,781) between the first and second anniversaries of
the contract, respectively.
22
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
13. ACQUISITION OF MINORITY INTERESTS
On October 24, 2001, the Company announced its intent to file a proxy
statement for the purpose of obtaining shareholders approval of an offer to
acquire all of the outstanding minority interest shares and merge the Company
into a newly formed Nevada corporation to be owned by the Majority shareholders.
A preliminary proxy statement was filed on November 1, 2001. The date of the
shareholders' meeting has not been set, nor has the final proxy statement been
filed.
14. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for 2002 and 2001 are disclosed
in accordance with Statement of Financial Accounting Standard No.131 ("SFAS
131"). Each legal entity is classified as a reportable segment under SFAS 131
because each entity is reported separately by management (in $000s).
Adjustment
Quarters Ended June 30, 2002 Duty Free Tax Free All and
Retail Retail Others Elimination Consolidated
------------ ------------ ------------ ------------ ------------
Segment Information
Revenue from external customers 69,588 14,707 -- -- 84,295
Cost of merchandise sold 34,390 6,105 -- -- 40,495
Concession fees 11,229 4,688 -- -- 15,917
Gross profit 23,969 3,914 -- -- 27,883
Interest Income 675 144 16 (84) 751
Interest expense 754 49 45 (84) 764
Segment net income (loss) 9,216 1,028 9,226 (9,782) 9,688
Segment total assets 72,109 12,293 32,789 (34,471) 82,720
Expenditures for segment assets 2,223 74 -- -- 2,297
Depreciation expense 567 146 -- -- 713
Unrealized gain (loss) on exchange 95 (2) (91) -- 2
Deferred income tax assets 2,605 1,237 22 -- 3,864
Long-lived
Revenue Assets
------------ ------------
Geographic Information
Bangkok 80,419 5,200
Northern Thailand region 1,052 152
Southern Thailand region 2,824 180
------------ ------------
Total 84,295 5,532
============ ============
23
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
See Accountants' Review Report
Adjustment
Quarters Ended June 30, 2001 Duty Free Tax Free All and
Retail Retail Others Elimination Consolidated
------------ ------------ ------------ ------------ ------------
Segment Information
Revenue from external customers 44,623 13,320 -- (9) 57,934
Cost of merchandise sold 22,703 5,398 -- (9) 28,092
Concession fees 6,639 4,325 -- -- 10,964
Gross profit 15,280 3,598 -- -- 18,878
Interest Income 154 17 16 -- 187
Interest expense 587 22 -- -- 609
Segment net income (loss) 3,149 (173) 2,587 (2,817) 2,746
Segment total assets 43,402 11,323 18,252 (20,562) 52,415
Expenditures for segment assets 6 -- -- -- 6
Depreciation expense 541 151 -- -- 692
Unrealized gain (loss) on exchange 76 (3) 21 -- 94
Deferred income tax assets 2,311 1,176 20 -- 3,507
Long-lived
Revenue Assets
------------ ------------
Geographic Information
Bangkok 55,661 3,584
Northern Thailand region 250 51
Southern Thailand region 2,023 71
------------ ------------
Total 57,934 3,706
============ ============
24
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 June 30, 2002:
Loss on foreign exchange, net $(50,009)
The calculation of loss on foreign exchange, net of $(50,009) is shown in charts
labeled A and B, respectively.
25
CHART A
The calculation of unrealized gain on foreign exchange of US$131,059 was
calculated on an accumulated basis with quarterly adjustment on financial
obligations, receivable and cash on hand in foreign currency as shown below:
Account payable in foreign currency as of 30/6/02
- ------------------------- ----------------- ---------------------- -----------------
Currency Amount Exchange Rate Total
30/06/02
- ------------------------- ----------------- ---------------------- -----------------
Austria Shilling (43) 23.7088 (1,021)
- ------------------------- ----------------- ---------------------- -----------------
Swiss Franc 33,329.21 28.0776 935,804
- ------------------------- ----------------- ---------------------- -----------------
German Deutschmark 40,046.46 19.6642 787,482
- ------------------------- ----------------- ---------------------- -----------------
Europe 524,004.68 41.3857 21,686,300
- ------------------------- ----------------- ---------------------- -----------------
French Franc 50,615.16 5.9052 298,893
- ------------------------- ----------------- ---------------------- -----------------
British Pound Sterling 18,138.82 63.8757 1,158,630
- ------------------------- ----------------- ---------------------- -----------------
Hong Kong Dollar 461,735.15 5.3535 2,471,899
- ------------------------- ----------------- ---------------------- -----------------
Italian Lire 18,274,812.00 0.0200 365,496
- ------------------------- ----------------- ---------------------- -----------------
Netherlands Guilder 1,217.33 17.4462 21,238
- ------------------------- ----------------- ---------------------- -----------------
Singapore Dollar 11,590.04 23.7048 274,740
- ------------------------- ----------------- ---------------------- -----------------
US Dollar 2,580,690.66 41.6701 107,537,638
- ------------------------- ----------------- ---------------------- -----------------
Total 135,537,099
- ------------------------- ----------------- ---------------------- -----------------
BALANCE PER GENERAL LEDGER 138,037,529
-----------------
Unrealized gain on account payable in foreign currency 30/06/02 2,500,430
-----------------
Unrealized gain on account payable in foreign currency 01/01/02 2,922,719
-----------------
Net unrealized gain on account payable in foreign currency 30/06/02 5,423,149
-----------------
Loan from bank (Trust receipt) in foreign currency as of 30/6/02
- ------------------------- ----------------- ---------------------- -----------------
Currency Amount Exchange Rate Total
30/06/02
- ------------------------- ----------------- ---------------------- -----------------
Australia Dollar 30,342.46 23.7088 719,383
- ------------------------- ----------------- ---------------------- -----------------
Swiss Franc 161,618.40 28.0776 4,537,857
- ------------------------- ----------------- ---------------------- -----------------
Europe 233,109.55 41.3857 9,647,402
- ------------------------- ----------------- ---------------------- -----------------
British Pound Sterling 12,055.97 63.8757 770,084
- ------------------------- ----------------- ---------------------- -----------------
Hong Kong Dollar 2,665,380.40 5.3535 14,269,114
- ------------------------- ----------------- ---------------------- -----------------
Japanese Yen 2,596,150.00 0.35020 909,172
- ------------------------- ----------------- ---------------------- -----------------
Singapore Dollar 27,062.03 23.7048 641,500
- ------------------------- ----------------- ---------------------- -----------------
US Dollar 529,147.58 41.6701 22,049,633
- ------------------------- ----------------- ---------------------- -----------------
Total 53,544,145
- ------------------------- ----------------- ---------------------- -----------------
BALANCE PER GENERAL LEDGER 3,832,993
-----------------
Unrealized gain on Trust Receipt in foreign currency 30/6/02 288,848
-----------------
Unrealized loss on Trust Receipt in foreign currency 01/01/02 (46,087)
-----------------
Net unrealized gain on Trust Receipt in foreign currency 30/6/02 242,761
-----------------
Net unrealized gain on accounts payable in foreign currency 30/6/02 5,423,149
-----------------
Net unrealized gain on exchange rate as at 30/6/02 5,665,910
-----------------
US$ = 131,059 (US$1 = 43.2317 Baht)
26
CHART B
The calculation of unrealized loss on foreign exchange of US$129,324 was
calculated on accumulated basis with quarterly adjustment on financial
receivable and cash on hand in foreign currency as shown below:
Unrealized loss on Cash on hand as at 30/06/02
- ------------------------- ----------------- ---------------------- -----------------
Currency Amount Exchange Rate Total
30/06/02
- ------------------------- ----------------- ---------------------- -----------------
Australian Dollar 24,571.04 23.2740 571,866
- ------------------------- ---------------- ---------------------- -----------------
Canadian Dollar 520.00 27.3705 14,233
- ------------------------- ----------------- ---------------------- -----------------
Swiss Franc 190.00 27.7729 5,277
- ------------------------- ----------------- ---------------------- -----------------
China Renminbi Yuan 234,025.00 5.0118 1,172,887
- ------------------------- ----------------- ---------------------- -----------------
Europe 133,515.00 40.8558 5,454,862
- ------------------------- ----------------- ---------------------- -----------------
British Pound Sterling 296,515.53 63.22910 18,748,410
- ------------------------- ----------------- ---------------------- -----------------
Hong Kong Dollar 861,580.10 5.3117 4,576,455
- ------------------------- ----------------- ---------------------- -----------------
Japanese Yen 26,678,571.00 0.3457 9,223,316
- ------------------------- ----------------- ---------------------- -----------------
Korean Won 17,316,000.00 0.0348 602,597
- ------------------------- ----------------- ---------------------- -----------------
Singapore Dollar 29,016.00 23.4149 679,407
- ------------------------- ----------------- ---------------------- -----------------
Taiwanese Dollar 176,550.00 1.2390 218,745
- ------------------------- ----------------- ---------------------- -----------------
US Dollar 2,022,485.97 41.4789 83,890,493
- ------------------------- ----------------- ---------------------- -----------------
Total 125,158,548
- ------------------------- ----------------- ---------------------- ------------------
BALANCE PER GENERAL LEDGER 124,786,212
------------------
Unrealized gain from cash on hand in foreign currency 30/6/02 372,336
------------------
Unrealized loss from cash on hand in foreign currency 01/01/02 (1,674,813)
------------------
Net unrealized loss from loss on hand in foreign currency 30/06/02 (1,302,477)
------------------
Unrealized Loss on Account receivable as of 30/06/02
- ------------------------- ----------------- ---------------------- -----------------
Currency Amount Exchange Rate Total
30/06/02
- ------------------------- ----------------- ---------------------- -----------------
Swiss Franc 7,535.60 27.7729 209,286
- ------------------------- ----------------- ----------------------- ----------------
Europe 3,917.00 40.8558 160,032
- ------------------------- ----------------- ----------------------- ----------------
British Pound Sterling 628.59 63.2291 39,745
- ------------------------- ----------------- ----------------------- ----------------
Hong Kong Dollar 6,288.00 5.3117 33,400
- ------------------------- ----------------- ----------------------- ----------------
Singapore Dollar 1,299.80 23.4149 30,435
- ------------------------- ----------------- ----------------------- ----------------
US Dollar 202,900.59 41.4789 8,416,093
- ------------------------- ----------------- ----------------------- ----------------
Total 8,888,991
- ------------------------- ----------------- ----------------------- ----------------
BALANCE PER GENERAL LEDGER 9,179,931
----------------
Unrealized loss from account receivable 30/6/02 (290,940)
----------------
Unrealized loss from account receivable 01/01/02 (81,342)
----------------
Net unrealized loss from account receivable in foreign currency 30/06/02 (372,282)
----------------
Net unrealized loss from cash on hand in foreign currency 30/06/02 (1,302,477)
----------------
Net unrealized exchange loss as of 30/06/02 (1,674,759)
----------------
Unrealized Loss From advanced from companies as at 30/06/02
- --------------------- ------------------ ------------------------ --------------------
Currency Amount Baht Exchange rate Total
30/06/02 US$
- --------------------- ------------------ ------------------------ --------------------
Baht Currency 71,062,000.91 41.558 1,709,948
- --------------------- ------------------ ------------------------ --------------------
BALANCE PER GENERAL LEDGER 1,619,363
--------------------
Net unrealized loss on advanced 30/06/02 (90,584)
--------------------
US$ = (129,324) (US$1 = 43.2317 Baht)
27
NET FOR UNREALIZED GAIN / (LOSS) EXCHANGE OF 30/06/02
- -----------------------------------------------------
(BAHT) (US)
---------- ----------
Net unrealized exchange gain as of 30/06/02 5,665,910
Net unrealized loss on exchange rate as at 30/06/02 (1,674,759)
----------
NET UNREALIZED EXCHANGE 3,991,152 92,320
----------
Net unrealized exchange GAIN KPG (US) as of 30/06/02 (90,584)
----------
NET UNREALIZED EXCHANGE 1,736
NET FOR REALIZED GAIN/(LOSS) EXCHANGE OF 30/06/02
Net realized loss on exchange rate of KPT as at 30/06/02 (9,677,577)
Net realized gain on exchange rate of KPD as at 30/06/02 7,440,578
----------
NET REALIZED EXCHANGE (2,236,999) (51,745)
----------
Net realized gain on exchange rate of KPG (US) as at 30/06/02 0
----------
NET REALIZED EXCHANGE (51,745)
----------
TOTAL NET REALIZED /UNREALIZED EXCHANGE RATE (50,009)
(3) Results of operations, comparing six months ended June 30, 2002 and
2001
Sales revenue for the six months ended June 30, 2002, was approximately $84.3
million compared to approximately $57.9 million for 2001. This increase is
directly attributable to the Company's ability to obtain additional space from
the AAT to operate the Duty Free business throughout international airports in
Thailand, starting from January 1, 2002. Furthermore, according to the
statistical compilation provided by the Bangkok International Airport, the
number of international passengers traveling through its premises from January
to June, 2002 has increased 4.36% from the same period last year.
The cost of merchandise sold for the six months ended June 31, 2002 and 2001,
was approximately $40.5 million and $28.1 million, respectively. The principal
factor causing this increase is directly related to the increase in merchandise
sold. The ratio of the concession fees paid to the AAT, comparing the six months
ended June 30, 2002, to the same period in 2001, increased from 18.87% in 2001
to 18.88% in 2002. This slight increase is due to concession fee structure of
KPT is being based on fixed amount with additional annual increment. The volume
of sales generated from KPT for the six months ended June 30, 2002 has not kept
up with such increment thus caused the increase in the ratio of the concession
fees paid to the AAT. However, due to the increase in sales volume generated
from the KPD's operation, such percentage increase of concession fee has been
kept at minimal. Management anticipates that possible reduction in the ratio of
these fees may result from the continuing increase in sales volume generated
from the KPD's operation.
Selling and administrative expenses were approximately $14.0 million for the six
months ended June 30, 2002, and approximately $14.8 million for the same period
in 2001. In terms of percentage of sales, 2002 expenses were approximately
16.60% of sales and 2001 expenses were approximately 25.50% of sales. This
decrease is associated with decrease in sales promotional campaign which are
in-line with Management's expectation as the competition has been lessen due to
the Company's ability to expand the shopping space at the international airports
in Thailand.
Net income for the six months ended June 30, 2002, was approximately $9.2
million, or $0.46 per share (basic), and approximately $2.6 million, or $0.13
per share (basic), for the six months ended June 30, 2001.
28
The ratio of inventory divided by revenue for the six months ended June 30, 2002
and 2001, was approximately 41.64% and 35.47%, respectively. This increase is
caused by the larger volume of merchandised orders required by the Company's
suppliers for their financial viability to support the new and improved lines of
products developed and initiated by the Company.
(4) Results of operations, comparing three months ended June 30, 2002 and
2001
Sales revenue for the three months ended June 30, 2002 was approximately $39.8
million compared to approximately $26.3 million for 2001. This increase is
directly attributable to the Company's ability to obtain additional space from
the AAT to operate the Duty Free business throughout international airports in
Thailand, starting from January 1, 2002. Furthermore, according to the
statistical compilation provided by the Bangkok International Airport, the
number of international passengers traveling through its premises from April to
June, 2002 has increased 4.28% from the same period last year.
The cost of merchandise sold for the three months ended June 30, 2002, and 2001,
was approximately $19.7 million and $12.3 million, respectively. The principal
factor causing this increase is directly related to the increase in merchandise
sold. The ratio of the concession fees paid to the AAT, comparing the three
months ended June 30, 2002, to the same period in 2001, reduced from 19.69% in
2001 to 18.98% in 2002. This decrease is due to concession fee structure of KPT
is being based on fixed amount. Management anticipates that a further reduction
in the ratio of these fees may result from the increase in sales volume
generated from the upcoming high seasons during the last half of the year.
Selling and administrative expenses were approximately $7.4 million for the
three months ended June 30, 2002, and approximately $7.8 million for the same
period in 2001. In terms of percentage of sales, 2002 expenses were
approximately 18.53% of sales and 2001 expenses were approximately 29.52% of
sales. This decrease is associated with decrease in sales promotional campaign
which are in-line with Management's expectation as the competition has been
lessen due to the Company's ability to expand the shopping space at the
international airports in Thailand.
Net income for the three months ended June 30, 2002, was approximately $3.2
million, or $0.16 per share (basic), and approximately $0.6 million, or $0.03
per share (basic), for the three months ended June 30, 2001.
(5) Liquidity and Capital Resources
For the quarter ended June 30, 2002, and the year ended December 31, 2001, the
Company had working capital of approximately $15.6 million and $5.1 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.
29
(6) Monetary Assets and Liabilities Denominated in Thai Baht
As of June 30, 2002, the amount of monetary assets and liabilities which are
denominated in Thai Baht are as follows:
TYPE OF MONETARY ASSET US DOLLARS
Cash and equivalents 2,018,813
Trade Accounts Receivable 890,979
Refundable value-added-tax 1,025,683
Advance to related companies 10,177,688
Deferred income tax assets 3,863,889
Restricted deposit 17,108,791
Other current assets 3,592,626
Other non-current assets 226,224
TYPE OF MONETARY LIABILITY US DOLLARS
Bank overdraft & loan 26,657,770
Current portion of long-term debt 427,561
Accounts Payable 8,072,329
Concession fees 3,698,582
Other current liabilities 6,845,052
Long-term loan - net 147,883
(7) Recently Issued Accounting Principles
New Accounting Standards Not Yet Adopted - NONE
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June, 2002.
30
The following seven persons were elected as Directors to serve for a year.
NAME VOTES FOR VOTES AGAINST
Vichai Raksriaksorn 19,523,506 112
Viratana Suntaranond 19,523,506 112
Aimon Boonkhundha 19,523,506 112
Suwan Panyapas 19,523,506 112
Dharmnoon Prachuabmoh 19,523,506 112
Chulchit Bunyaketu 19,523,506 112
Preeyaporn Thavornun 19,523,506 112
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
31
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned who are duly
authorized.
KING POWER INTERNATIONAL GROUP CO., LTD.
By: /s/ Vichai Raksriaksorn
----------------------------------------------------------
Vichai Raksriaksorn, President and Chief Executive Officer
August 9th, 2002
By: /s/ Viratana Suntaranond
----------------------------------------------------------
Viratana Suntaranond, Chief Financial Officer
August 9th, 2002
32