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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the fiscal year ended December 31, 2002
OR
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) (I.R.S. Employer Identification No.)
25th - 27th Floors, Siam Tower, 989 Rama I Road,
Patumwan, Bangkok 10330 Thailand
(Address of principal executive offices)
Registrant's telephone number, including area code: 011 (662) 658-0090
www.kingpowerinternational.com
------------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, $.001 par value per share
Name of exchange on which registered: American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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 preceding 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation 8-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No
--- ---
Number of shares of Common Stock of the registrant outstanding as of February
24, 2003: 20,250,000 shares.
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant based upon the closing price of $4.00 per share
for the registrant's common stock as reported by the American Stock Exchange as
of June 28, 2002, was approximately $31,014,000.
1
TABLE OF CONTENTS
Item Number Page
----
Part I
1. Business 4
2. Properties 8
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
Part II
5. Market for the Company's Common Stock and Related Stockholder Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition
And Results of Operations 12
7A. Quantitative and Qualitative Disclosures of Market Risk 14
7B Recently Issued Accounting Principles 18
8. Financial Statements 18
9. Changes In and Disagreements with Accountants on Accounting
And Financial Disclosure 42
Part III
10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 42
11. Executive Compensation 45
12. Security Ownership of Certain Beneficial Owners and Management 46
13. Certain Relationships and Related Transactions 47
14. Controls and Procedures 48
Part IV
15. Exhibits, and Reports on Form 8-K 49
2
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements and information relating
to the Company that are based on the beliefs of the Company or its management as
well as assumptions made by and information currently available to the Company
or its 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.
3
PART I
ITEM 1 BUSINESS
General
- -------
The global airport duty and tax free business is a multi-billion dollar
industry in which luxury and brand name merchandise such as perfumes and
cosmetics, liquor and tobacco and general merchandise products are sold to
travelers exempt from import duties and taxes, within certain allowances, at
their respective destinations. As stated in Raven Fox Report of the Duty-Free &
Travel-Retail 2002/2003, in 2001, global airport duty free sales decreased by
0.7% reaching US$8.89 billion. Europe accounts for 50% of airport duty-free
sales, the same proportion as in 2000. The Americas' share is down from 17.5% in
2000 to 15.9% in 2001, reflecting the sharp downturn in travel in the region
since September 11, 2001.
The travel-retail industry, which is defined as all of the business
activities involved in the duty free and tax free businesses, including selling
merchandise at traveling ports (principally airports) and on airplanes, at
tourist centers, at resorts and in major cities, etc., began to develop in Asia
in 1964 when Japanese retailers began establishing duty free shops around the
region. As trade among the countries within the region increased, the Asian duty
free business began to grow. The Asian travel-retail industry was given
additional impetus when trade between Asian countries and the United States and
European countries began to grow further. This increase in trade resulted in an
increase in tourism by travelers from the United States and Europe. From this
trend, Thailand emerged as the most popular travel destination among Southeast
Asia's countries, welcoming more than 36 million passengers traveling through
the International and Domestic Airports in Thailand during 2000. The number of
passengers has increased at a compounded average growth rate of 6% from 19
million in 1990 to 39 million passengers in 2002, according to the Airports
Authority of Thailand (AAT). The AAT is anticipating that the number of
passengers will increase to 50 million by the year 2007.
King Power International Group Co., Ltd. (the "Company") is currently
the leading travel-retail operator in Thailand. At the end of 2002, the Company
operates and manages 52 duty free and 20 tax free stores, via two concession
agreements with the Airports Authority of Thailand, throughout all of Thailand's
major airports. The Company has approximately 66,990 square feet of retail space
at the Bangkok and Provincial International and Domestic Airports.
News releases and other information on the Company, excluding SEC
filings, can be accessed at WWW.KINGPOWERINTERNATIONAL.COM on the Internet.
Background and Organization of the Company
- ------------------------------------------
The Company (formerly known as Immune America, Inc.) was incorporated
under the laws of the State of Nevada in 1985. Until June 12, 1997, this Company
was inactive and was regarded as a development stage company.
On June 12, 1997, the Company engaged in a reverse merger transaction
with the shareholders of J.M.T. Group Company Limited and J.M.T. Duty Free
Company Limited, whereby an aggregate 18,800,000 shares of restricted,
unregistered common stock was exchanged for 99.94% of the issued and outstanding
shares of J.M.T Group Company Limited and 94.95% of the issued and outstanding
shares of J.M.T. Duty Free Company Limited.
The reverse merger was treated as a re-capitalization of the Company.
Accordingly, the assets, liabilities and business operations of J.M.T. Group
Company Limited and J.M.T. Duty Free Company Limited were recognized at
historical cost. The consolidated historical financial statements of J.M.T.
Group Company Limited and J.M.T. Duty Free Company Limited became the historical
financial statements of the Company.
Concurrent with the reverse merger, the Company changed its corporate
name from Immune America, Inc. to King Power International Group Co., Ltd.
Subsequently, on September 9, 1997, J.M.T. Duty Free Company Limited changed its
corporate name to King Power Duty Free Company Limited and on October 10, 1997,
J.M.T. Group Company Limited changed its corporate name to King Power Tax Free
Company Limited.
The Company operates its current businesses through two divisions: the
Tax Free Division and the Duty Free Division.
Tax Free Division
- -----------------
King Power Tax Free Company Limited (the "Tax Free Division" or,
sometimes, "KPT") is a Thai corporation engaged in selling various souvenirs and
consumer products in the International and Domestic terminals of all the major
airports located in Thailand to international and local travelers. The Tax Free
Division holds the operating license granted by the Airports Authority of
Thailand ("AAT") for shops of this specific nature.
4
At the end of 2002, the Tax Free Division operated 20 stores within
Thailand's major international and domestic airports, totaling 15,805 square
feet of retail space compared to 6,181 square feet in 1993 when it first began
operations. There are now 12 shops located in the various terminals that
comprise the Bangkok International Airport. The Tax Free Division sells
domestically manufactured general merchandise including Thai silk, pewter,
Benjarong porcelain, Thai dolls, jewelry, watches, pens, lighters, leather goods
and confectionery, free of Thailand's value-added-tax at Bangkok International
Airport's departure hall.
There are eight shops, selling indigenous general merchandise of
Thailand, together with local specialty goods, located in the domestic terminals
at the Bangkok and Phuket domestic and international airport.
The Company is an active participant in the promotional campaign known
as "Thailand Brand", including the Company's in-house brand, "VR", for the years
2000 to 2002. The five shops were opened in joint operations with AAT, the
Tourism Authority of Thailand ("TAT"), and the Department of Industrial
Promotion from the Ministry of Commerce and dedicated to the "Thailand Brand"
promotion.
Duty Free Division
- ------------------
King Power Duty Free Company Limited (the "Duty Free Division" or,
sometimes, "KPD") is a Thai corporation engaged in selling duty free merchandise
to the traveling public under the supervision of Thai customs in duty free shops
located in the international terminals of all of the major airports in Thailand.
From January 1, 2002, the Duty Free Division obtained additional 19,171 square
feet to operate duty free shops from the AAT for shops of this specific nature
until December, 2006, or until the new Bangkok international airport is in
operation.
At December 31, 2002, The Duty Free Division operates 52 duty free
stores, with approximately 51,186 square feet of retail space, in Thailand's
International Airports at Bangkok, Chiang Mai, Hatyai and Phuket. The Duty Free
Division's merchandise mix consists of top quality brand name liquor and tobacco
products, luxury goods such as watches, perfumes, cosmetics, fashion
accessories, gourmet food and chocolates. In Thailand, all imported merchandise
is subject to import duties and governmental taxes. However, the Duty Free
Division's goods are sold exclusively to departing passengers and are free of
all import duties, excise taxes and the value-added-tax imposed by the Thai
government.
The Duty Free Division started its operation on January 1, 1997. Since
inception, the Duty Free Division successfully introduced Harrods of
Knightsbridge, U.K, into both Terminals of the Bangkok International Airport as
the first duty free Harrods in Asia. Additionally, the Company has also
introduced specialty stores focusing on well known fashion designers, such as
Ferragamo, Versace, Cartier, Dunhill, Hermes, Burberry, Fendi, Bally, and
Givenchy located in the Terminal I of the Bangkok International Airport.
Both the Duty Free Division's and the Tax Free Division's sales and
their overall performance and results are subject to the influence of external
factors, some of which are beyond the Company's control. These include the
distribution of airlines at particular terminals, the routes that are serviced
by those airlines, loading levels of airline passengers, and economic and other
conditions affecting the airlines servicing Thailand in general. The Company
strategically manages those factors within its control in order to maximize its
performance and minimize the effect of those that it cannot control. The Company
believes that the devaluation of the Thai Baht, relative to the U.S. dollar,
will continue to attract a greater number of tourists and travelers to Thailand
in the future, which should have a significant positive effect on the Company's
business, both as to sales and profits.
King Power International Group (Thailand) Co., Ltd.
- ---------------------------------------------------
King Power International Group (Thailand) Co., Ltd. was principally
formed to lease the Company's Head Office in the Siam Tower in Bangkok in 1997.
The rental expenses for this facility are allocated according to the actual
usage by each of the Company's subsidiaries. Management has decided to have the
subsidiaries lease their premises directly from the lessor effective as of
January, 1999, in order to prevent unnecessary repetitive payment of corporate
income taxes among the Company's subsidiaries.
5
Regulation
- ----------
The Duty Free operations are subject to the regulated supervision of
the Customs Department of Thailand ("Customs"). All imported merchandise is
received and stored in the Company's bonded warehouses in Thailand where it is
exempt from all import duties, excise taxes and value-added-taxes of Thailand.
Since the merchandise is sold without duties or taxes, it must remain within the
bonded warehouses until it is requested to transfer to the respective Duty Free
stores for sales.
The Company has three bonded warehouses, located in Bangkok, Chiang
Mai, and Phuket, serving all of the Duty Free Division's shops in Thailand.
Transfer of any bonded merchandise must be documented and approved by Customs
before these products are transferred for sale to the traveling public at the
various retail stores. Customs makes regular inspections of the inventory in the
bonded warehouses and shop premises. With this tightly regulated control from
Customs, customers are assured that all products sold by the Company are genuine
and of the highest quality.
Suppliers, Distribution and Inventory Control
- ---------------------------------------------
The Company purchases both local and imported merchandise from more
than 550 vendors worldwide. This supplier base gives the Company the ability to
selectively purchase the highest quality products and to negotiate with vendors
for the lowest cost, in order for the Company to supply its customers with the
best possible value for their money. Currently, the Company does not have any
long-term purchase commitments.
Through the Company's historically strong relationships with many of
its suppliers, the Company has secured exclusive agreements from numerous
suppliers to be the sole agent for the sale of their products in duty free shops
in Thailand. Furthermore, the Company receives significant sales support from
these vendors. This support includes in-store displays, gift-with-purchase
items, sales incentives, advertisements, staff training, signage and sales
personnel.
Merchandise is generally shipped directly from vendors to the Company's
bonded warehouses for the Duty Free Division and delivered to the Company's
warehouses at the airport. The Company's inventories are strictly controlled to
comply with Customs' regulations. Detailed records documenting the receipt, the
transfer and sale of all merchandise are kept by the Company to certify the
authenticity and excellence of the products sold by the Company.
The Company uses an outside shipping contractor to provide the services
of customs clearing for the imported merchandise into Thailand and directly to
the Company's bonded warehouses.
In order to control inventory levels, the Company uses automated
replenishment systems. Transfers are made to stores in accordance with demands
identified by respective store managers. The Company maintains the overall
control of stock displays in respective stores and repurchasing point of
inventory level in respective warehouses.
The Company's computerized inventory control system allows the Company
to: (1) identify the merchandise needs at each store, (2) promptly reorder
merchandise from vendors, and (3) comply with Customs' record-keeping
requirements. Through the Company's automated system, appropriate product mixes
are maintained to maximize merchandise turnover.
Employees
- ---------
The Company's business as conducted in it shops is labor intensive. The
Company currently employs 3,320 employees. Each member of the sales staff is
equipped with special selling skills geared to the Travel-Retail business; that
is, they are fluent in many languages and have extensive product knowledge in
order to handle sales discussions with foreign customers. Management promotes
job enhancement at every level of the staff to ensure maximum job satisfaction
in return for the highest productivity by each employee. For example, the
Company maintains a Training Center to encourage the learning of managerial
skills, languages, product knowledge, etc. and has implemented the ISO 9001 year
2000 standards of operation. Employee turnover continues to be very low and
Management foresees no problems in maintaining its capable staff of employees as
long as the Company sustains its market share and the growth of its businesses.
6
Competition
- -----------
The Company foresees a less competitive environment for the Tax Free Division
and Duty Free Division. During 1997, the AAT granted an extension of the Tax
Free Division's license to operate and sell gifts and general merchandise at the
Bangkok International Airport, for a further five year term extending from 1998
to 2003, with recent extension to 2006 or until the new Bangkonk international
airport is in operation. Furthermore, starting from January 1, 2002, the Company
was granted additional retail space by the AAT of the Duty Free Division's
license to operate and sell gifts and general merchandise at the Bangkok, Chiang
Mai, Phuket, and Hatyai International Airports, for a further five year term
extending from 2002 to 2006 or until the new Bangkok international airport is in
operation.
In Thailand, there are several barriers to entry into the airport duty
free business. Any new entrant company must be owned by Thais who have proven
Asian regional duty free experience, particularly with regard to serving
international passengers and Thai Nationals. A new entrant must reach a minimum
turnover in duty free business and must possess bonded warehouse facilities
located in Thailand. It should already be carrying all major international
brands in its portfolio of merchandise.
Economic Conditions and Exchange Rates
- --------------------------------------
The principal customers of the Company are the traveling public
utilizing the International and Domestic Airports at Bangkok, Chiang Mai, and
Phuket. The Company's businesses are closely tied to the economic conditions of
the countries from which the travelers come. Additional concerns about terrorism
and regional conflicts, such as the US-led Iraq war, impact tourism and the
Companies' operations. The Company has strategically confronted these conditions
with decisive actions to minimize the adverse effects on its operations.
The Tax Free Division was able to maintain its operational trends
because most of its merchandise consists of products purchased in Thai Baht.
Additionally, the Tax Free Division has always been able to sell its merchandise
in U.S. dollars. Although Thai Baht was floated, there was a minimal impact on
this division's operations because there was very little difference in the
purchasing power of the customers.
The Duty Free Division imports all of its products from suppliers
across the world whereas the purchasing commitments are tied to either U.S.
dollars or currencies of the originating countries. The Company partially offset
the impact of the weak Thai Baht by adjusting, as often as daily, both the
Company's pricing policy and point of sale exchange rates reflecting the current
exchange rate of the Thai banks. By this policy, the Company is able to minimize
the realized and unrealized exchange losses when purchasing activities are
denominated in foreign currencies.
BUSINESS STRATEGIES
- -------------------
The Company began operating its Tax Free Division in 1993 after obtaining the
five-year sole license to operate its business from the AAT. This license was
renewed in 1998, extending for a period of five additional years (until 2003),
with recent extension until 2006 or until the new Bangkok international airport
is in operation, the Division's license to operate in Thailand. In 1997, the
Company obtained its five-year duty free license. Since that time, the Duty Free
Division has become the principal contributor of profits to the Company's
operations. Even though merchandise sold by the Tax Free Division generally
carries a higher profit margin compared to the profit margin for merchandise
sold by the Duty Free Division, the value of each item (measured by its selling
price) is much less. Thus, the profitability of the Tax Free Division has been
generally lower. Management has concentrated on improving the profitability of
the Tax Free Division during previous years, principally through reducing
concession fees and rental cost, selecting higher value merchandise, and
lowering operating costs. However, in the future, the strategy will emphasize
increasing the volume of sales via altering product mix that would suit each
group of travelers. For the Duty Free Division, the Company will continue to
increase sales volumes and maintain higher margins. The Company has successfully
extended the existing concession that was scheduled to expire at the end of 2001
until 2006 or until the new Bangkok international airport is in operation.
Furthermore, effective January 1, 2002, the Company obtained additional space
from the AAT to operate the Duty Free business throughout international airports
in Thailand covering the period of 2002 until 2006 or until the new Bangkok
international airport is in operation. These events position the Company to
currently be the sizable operator of general merchandise duty free stores at
Thailand's international airports.
7
Improving profitability for the Tax Free Division
- -------------------------------------------------
The Company has on-going negotiations with the AAT to lower the concession fees
charged by the AAT, to exchange spaces between the Tax Free and the Duty Free
Divisions, and to discontinue some of the shops to lessen losses which are
caused by increased concession fees. The Tax Free Division is continuing the
process of re-engineering its entire operation to be more compatible with new
international trends for this business. Starting in 2000, it has implemented
some phases and will continue to implement additional process improvement. The
main components of this re-engineering are:
(1) expanding non-concession points of sales, i.e., through
e-commerce where the Company can act as an intermediary for
local products catering to international consumers;
(2) jointly promoting merchandise with several airlines through
its frequent flyer programs and credit-card firms; (3)
increased efficiency in selecting the merchandise to be sold
and emphasizing the potential for increased sales volumes and
the profitability of each item of merchandise selected;
(4) downsizing the amount and types of merchandise displayed from
the concept of "something for everyone" to becoming more
selective in types of merchandise displayed at different
locations;
(5) developing premium brands in order to create brand awareness,
uniqueness of product availability, to upgrade quality and
design, and to improve packaging and marketing; and
(6) utilizing the Company's overall resources more efficiently
through the implementation of ISO 9001.
Ensure adequate supplies and variety of products of the Duty Free Division
- --------------------------------------------------------------------------
Since the current trend for the Duty Free Division's products is
continued high demand driven by the increased number of Asian tourists who have
made plans or arrangements to visit Thailand in 2003 and beyond, as announced by
the Tourism Authorities of Thailand (TAT), this Division will focus on ensuring
adequate supplies of, and more variety in, the merchandise it offers for sale in
order to cater to these customers. Furthermore, in 2002, the Thai Government has
introduced, for the first time, the Ministry of Tourism and Sports, to
administer and synchronize tourism activities on a national scale. There will
continue to be several campaigns by the Government's agencies under such
Ministry to support the growth of this industry. Thus, the Company will dedicate
its resources to plan out product campaign that would be in-line with the
Ministry's campaigns.
ITEM 2 PROPERTIES
The Company's principal office is located at the 25th, 26th and 27th floors of
the Siam Tower, at 989 Rama I Road, Patumwan, Bangkok 10330 Thailand. The
telephone number is +662-658-0090. This office contains 36,902 square feet of
space and is leased from Bangkok Intercontinental Hotels Co., Ltd. under a lease
expiring in October, 2003, at an annual rental cost of $175,994 using an average
exchange rate of 43.0850 Thai Baht to 1 US Dollar for 2002.
At the end of 2002, the Company operates 72 retail stores with retail space
totaling 66,990 square feet, located in the international and domestic airports
of Thailand located in Bangkok, Chiang Mai, Hatyai, and Phuket. All of the
stores are leased from the Airports Authority of Thailand (the "AAT") under
varying lease agreements involving the Company's two subsidiaries, KPT and KPD,
and require a monthly rental fee (excluding duty charges and other expenses) for
the space actually utilized. During the 2002 fiscal year, the Company paid a
total of $1,287,247 to the AAT under these lease agreements. The Company
anticipates that the total for the 2003 fiscal year under these lease agreements
will be approximately $1,331,919 using an exchange rate of 43.0850 Thai Baht to
1 US Dollar for 2002.
The Company leases six warehouses containing approximately 44,900 square feet
from the AAT. The three bonded warehouses located in Bangkok, Chiang Mai, and
Phuket containing approximately 37,240 square feet for the Duty Free Division
and three warehouses located in Bangkok, Chiang Mai, and Phuket containing
approximately 7,660 square feet for the Tax Free Division.
All payments with regards to these properties are made in Thai Baht. The Company
used an average exchange rate of 43.0850 Thai Baht to 1 US Dollar to translate
these expenses into US Dollars during 2002.
8
ITEM 3 LEGAL PROCEEDINGS
On August 19, 2002, the Company announced in a press release that its management
intended to continue to pursue a merger transaction in which the Company will be
taken private by shareholders Vichai Raksriaksorn, Viratana Suntaranond, Aimon
Raksriaksorn and Niphon Raksriaksorn (collectively, the "Controlling
Shareholders") and certain other shareholders who, together with the Controlling
Shareholders, hold approximately 88.6% of the Company's common shares
(collectively, together with the Controlling Shareholders, the "Majority
Shareholders"); the Controlling Shareholders have proposed a merger
consideration of US$2.52 per share; and the proposed merger consideration will
be subject to negotiations between the Special Committee and the Controlling
Shareholders.
On August 30, 2002, the Company announced in a press release that the Special
Committee and the Controlling Shareholders met on August 22, 2002, to discuss
and negotiate the proposed merger consideration and the terms of the merger, and
that, as a result of the on-going negotiations between the Special Committee and
the Controlling Shareholders on the price and other terms, on August 28, 2002,
the Controlling Shareholders adjusted their proposed merger consideration to
$3.27 per share as the merger consideration. The press release also stated that
the foregoing price proposal would be subject to further negotiations between
the Special Committee and the Controlling Shareholders.
On August 27, 2002, the Company was served with a complaint brought in the
District Court of Clark County, Nevada, by Pennsylvania Avenue Partners, LLC,
against the Company and each of its directors and which seeks class action
status. The complaint alleged, among other things, that the directors of the
Company had breached their fiduciary duties in pursuing the proposed merger
transaction in which the Company would be taken private by certain shareholders
and in allegedly failing to obtain the highest price per share. The lawsuit
seeks to enjoin the proposed merger transaction and seeks payment of fees of
plaintiff's counsel and experts.
On September 16, 2002, the Company was served with a complaint brought in the
District Court of Clark County, Nevada, by Sean Collins against the Company and
each of its directors and which seeks class action status. The complaint
alleged, among other things, that the directors of the Company had breached
their fiduciary duties in pursuing the proposed merger transaction in which the
Company would be taken private by certain shareholders and in allegedly failing
to obtain the highest price per share. The lawsuit seeks to enjoin the proposed
merger transaction, damages not in excess of $75,000, and payment of fees of
plaintiff's counsel and experts.
On September 26, 2002, the Company was served with a complaint brought in the
District Court of Clark County, Nevada, by Byron Mikalson against the Company
and each of its directors and which seeks class action status. The complaint
alleged, among other things, that the directors of the Company had breached
their fiduciary duties in pursuing the proposed merger transaction in which the
Company would be taken private by certain shareholders and in allegedly failing
to obtain the highest price per share. The complaint also alleged that the
defendants and companies related to the defendants obtained loans from the
Company that were later forgiven. The lawsuit seeks to enjoin the proposed
merger transaction and seeks payment of fees of plaintiff's counsel and experts.
The Company believes that each of the lawsuits is without merit, and intends to
vigorously defend each suit. With respect to the first complaint brought by
Pennsylvania Avenue Partners, LLC, on October 30, 2002, the Company filed a
motion to dismiss for failure to state a claim.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 1, 2001, the Company filed a preliminary proxy statement for
purposes of calling a meeting of shareholders to vote on a Plan of Merger which
would result in all of the outstanding shares of the Company being acquired by a
newly formed corporation to be owned by the shareholders presently comprising
the Company's management. Should the plan of merger be approved and the
transaction concluded, the Company would cease to exist. A final proxy statement
has not been filed and the shareholders' meeting has not been scheduled.
9
PART II
ITEM 5 MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the American Stock Exchange under the
ticker symbol "KPG". The approximate number of holders of record of shares of
common stock, excluding the number of beneficial owners whose securities are
held in street name, was 346 as of February 24, 2003. The Company believes that
approximately 427 stockholders currently own and hold the stock in street name.
The following table sets forth the high and low closing quotations for the
common stocks as reported by the American Stock Exchange for each full quarterly
period within the two most recent fiscal years:
High Low
First Quarter of 2003 (Through February 24) $3.35 $2.30
Fourth Quarter of 2002 $3.40 $2.71
Third Quarter of 2002 $3.90 $2.15
Second Quarter of 2002 $4.00 $1.32
First Quarter of 2002 $1.48 $1.26
Fourth Quarter of 2001 $1.50 $0.85
Third Quarter of 2001 $1.90 $1.26
Second Quarter of 2001 $2.15 $0.90
First Quarter of 2001 $1.34 $0.87
The Company has not paid any cash dividends since the listing of its Common
Shares on the American Stock Exchange.
10
ITEM 6 SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following data should be read in conjunction with "the Company,"
"Management's Discussion and analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto and the
Unaudited Pro Forma Information and notes thereto included elsewhere in this
Prospectus.
Year Ended December 31,
1998 1999 2000 2001 2002
Consolidated Statement of Income data :
Sales Revenue ......................... $ 91,125 $ 89,483 $ 108,914 $ 116,329 $ 172,439
Gross Profit .......................... 27,051 23,859 34,214 36,347 53,411
Operating Expenses .................... 31,931 20,753 23,357 28,794 35,931
--------- --------- --------- --------- ---------
Operating Income ( Loss) .............. (4,880) 3,106 10,857 7,553 17,480
Other Income (Expenses), net .......... 541 197 (952) 401 1,065
Income (loss) before minority interest
and income tax ..................... (4,339) 3,303 9,905 7,954 18,545
Net Income (loss) ..................... $ (4,287) $ 2,413 $ 6,485 $ 4,548 $ 12,100
========= ========= ========= ========= =========
Net Income (loss) per share :
Basic .............................. $ (0.21) $ 0.12 $ 0.32 $ 0.22 $ 0.60
Diluted ............................ $ -- $ -- $ -- $ -- $ --
Weighted Average Share Outstanding :
Basic .............................. 20,250 20,250 20,250 20,250 20,250
Diluted ............................ -- -- -- -- --
Consolidated Balance Sheet Data :
Working Capital ..................... $ 2,793 $ 2,899 $ 3,664 $ 5,054 $ 28,067
Total Assets ........................ 48,076 42,213 47,691 59,508 95,343
Total Long - Term Debt .............. 403 254 178 140 13,908
Stockholders' Equity ................ 8,751 11,065 15,600 19,825 32,357
11
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
Caution Regarding Forward-Looking Information
- ---------------------------------------------
This annual report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or its management as well as assumptions made by and information currently
available to the Company or its 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.
Results of operations, comparing fiscal years ended December 31, 2002 and 2001
- ------------------------------------------------------------------------------
Sales revenue for the year ended December 31, 2002, was approximately
$172.4 million, compared to approximately $116.3 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, beginning January 1, 2002. Furthermore, according to the
statistical compilation provided by the Bangkok International & Domestic
Airport, the number of passengers traveling through its premises from January to
December, 2002, has increased 3% from the same period last year or from 37.3
million passengers in 2001 to 38.6 million passengers in 2002.
The cost of merchandise sold for the years ended December 31, 2002 and
2001, was approximately $86.9 million and $56.7 million, respectively. This
increase is directly related to the increase in sales volume. The ratio of
concession fees paid to the Airports Authority of Thailand (AAT) to sales
revenue decreased from 20.05% in 2001 to 18.65% in 2002. This decrease from the
restructure of KPT's concession fees to a fixed amount with an additional annual
increment. The volume of sales generated from KPT during the last quarter of the
year 2002 has been favorable, thus the fixed amount decreased the ratio of the
concession fees paid to the AAT to sales. Management anticipates that a further
reduction in the ratio of these fees may result from the increase in sales
volume generated from the product mix targeted precisely various groups of
travelers.
Selling and administrative expenses were approximately $35.9 million
and $28.8 million, respectively, for the years ended December 31, 2002 and 2001.
The 2002 expenses were approximately 20.84% of sales and 2001 expenses were
approximately 24.75% of sales. This decrease is associated with a decrease in
sales promotional campaign, which is in-line with Management's expectation as
the competition has been lessened due to the Company's ability to expand the
shopping space at the international airports in Thailand.
Net income for the year ended December 31, 2002, was approximately
$12.1 million, or $0.60 per share (basic), compared to the net income of
approximately $4.5 million, or $0.22 per share (basic), for the year ended
December 31, 2001.
The ratio of inventory divided by sales revenue for the years ended
December 31, 2002 and 2001, was approximately 18.57% and 18.21%, 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.
Results of operations, comparing fiscal years ended December 31, 2001 and 2000
- ------------------------------------------------------------------------------
Sales revenue for the year ended December 31, 2001, was approximately
$116.3 million compared to approximately $108.9 million for 2000. This increase
is directly attributable to the continual growth in the number of tourists
entering Thailand and the Company's change in its product mix to target
precisely various groups of travelers. According to the statistical compilation
provided by the Bangkok International Airport (BIA), the number of passengers
traveling through its premises from January to December, 2001, has increased to
31.0 million passengers or 6.65% increase from the same period last year.
However, due to the adverse impact by the events of September 11, 2001, in
United States, numbers of travelers traveling through BIA has dropped
significantly during the month of September, 2001, but still with the increase
of 1.88% from the same period last year.
12
The cost of merchandise sold for the years ended December 31, 2001 and
2000, was approximately $56.7 million and $53.2 million, respectively. The
principal factor causing this increase is directly related to the increase in
sales volume. The concession fees paid to the Airports Authority of Thailand
(AAT), comparing the year ended December 31, 2001, to the same period in 2000,
the ratio of concession fees paid to sales revenue increased from 19.75% in 2000
to 20.05% in 2001. This increase is due to the concession fee structure of KPT
being based on a fixed amount with an additional annual increment. The volume of
sales generated from KPT during the year 2001 has not kept up with such
increment, thus causing the increase in the ratio of the concession fees paid to
the AAT. Management anticipates that a further reduction in the ratio of these
fees may result from the increase in sales volume generated from the product mix
to target precisely various groups of travelers.
Selling and administrative expenses were approximately $28.8 million
for the year ended December 31, 2001, and approximately $23.4 million for the
same period in 2000. In terms of percentage of sales, 2001 expenses were
approximately 24.75% of sales and 2000 expenses were approximately 21.44% of
sales. This increase was associated with the research and development cost
incurred in developing new lines of merchandise, coupled with the continuing
sales promotional campaign, and was in line with Management's expectations.
Furthermore, the Company has expanded employees with 630 more personnel to
support the additional space the Company obtained from the AAT effective January
1, 2002, as mentioned above. The Management anticipates that the ratio will come
down favorably once the new space is fully operational.
Net income for the year ended December 31, 2001, was approximately $4.5
million, or $0.22 per share (basic), compared to the net income of approximately
$6.5 million, or $0.32 per share (basic), for the year ended December 31, 2000.
The ratio of inventory divided by sales revenue for the years ended
December 31, 2001 and 2000, was approximately 18.21% and 16.60%, respectively.
This increase resulted from the inventory expansion initiated to support the
additional space the Company had obtained from the AAT effective January 1,
2002, as mentioned above.
Results of operations, comparing fiscal years ended December 31, 2000 and 1999
- ------------------------------------------------------------------------------
Sales revenue for the year ended December 31, 2000, was approximately
$108.9 million compared to approximately $89.5 million for 1999. This increase
is directly attributable to the continued growth in the number of tourists
entering into Thailand and the promotional sales discount to attract larger
customer base. Commencing in the last half of 1997, the Thai Government began
the "Amazing Thailand" marketing campaign to coincide with various events
occurring in Thailand or other countries closely located near Thailand. This
marketing campaign is international in scope and directly targeted to attract
additional new and repeat visitors to Thailand. The Company expects that this
promotional campaign will continue to directly impact the Company's operations
in a positive manner during and subsequent to this time period. In addition to
the "Amazing Thailand" campaign, during the first half of 2000, the Company
launched promotional sales discount in order to capture new and larger base
customer groups who are price sensitive. By implementing this strategy,
Management believes that the sales volume will continue to grow and positively
impact the Company's operating profit.
The cost of merchandise sold for the year ended December 31, 2000, and
1999, was approximately $53.2 million and $43.3 million, respectively. The
principal factor causing this increase is directly related to the increase in
sales volume. However, due to the lower concession fees paid to the Airports
Authority of Thailand (AAT), comparing the year ended December 31, 2000, to the
same period in 1999, the ratio of concession fees paid to sales revenue fell
from 24.97% in 1999 to 19.75% in 2000. This decrease is a result of successful
negotiations with the AAT to lower the fixed concession fees paid by KPT to be
more closely in line with the current sales of this subsidiary. Management
anticipates a further reduction in these fees may result from continued
negotiations with the AAT.
Selling and administrative expenses were approximately $23.4 million
for the year ended December 31, 2000, and approximately $21.8 million for the
same period in 1999. In terms of percentage of sales, 2000 expenses were
approximately 21.44% of sales and 1999 expenses were approximately 24.4% of
sales. This decrease is in-line with Management's expectation as the result of
increasing efficiency among business units.
Net income for the year ended December 31, 2000, was approximately $6.5
million, or $0.32 per share (basic), compared to the net income of approximately
$2.4 million, or $0.12 per share (basic), for the year ended December 31, 1999.
The ratio of inventory divided by sales revenue for the years ended
December 31, 2000 and 1999, was approximately 16.60% and 18.44%, respectively.
This decrease is the result of an unscheduled increase in number of tourists who
shop at the Company's stores causing faster turnover of merchandise.
13
Liquidity and Capital Resources
- -------------------------------
For the years ended December 31, 2002 and 2001, the Company had working
capital of approximately $28.1 million and $5.1 million, respectively. The
improvement in this figure was due to the Company's ability to significantly
expand operations, thereby increasing current assets while replacing part of
current liabilities with long-term loans. The Company experienced a positive
cash flow from operations of approximately $14.3 million at December 31, 2002,
compared to a negative cash flow of $1.9 million during the same period of 2001.
This increase is mainly due to the significant increase in net income and
increase in accrued liabilities with a material reduction in loans to related
companies and directors.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
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 year ended December 31, 2002:
Gain on foreign exchange, net $29,024
The calculation of gain on foreign exchange, net of $29,024 is shown in
charts labeled A and B, respectively.
14
CHART A
The calculation of Unrealized gain on foreign exchange of US$240,925 was
calculated on 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 December 31, 2002
- ----------------------------- --------------------------- -------------------------- ---------------------------
Exchange Rate Total
Currency Amount 12/31/02 Thai Baht
- ----------------------------- --------------------------- -------------------------- ---------------------------
Australian Dollar -66.50 24.5708 (1,634)
Swiss Franc 465,467.39 31.0113 14,434,750
Europe 659,949.66 45.1035 29,766,039
French Franc 68,444.78 5.9052 404,180
British Pound Sterling 16,213.79 69.5959 1,128,413
Hong Kong Dollar 1,657,450.25 5.5642 9,222,385
Italian Lire -433,688.00 0.0200 (8,674)
Singapore Dollar 87,671.29 25.0227 2,193,772
US Dollar 2,901,483.16 43.3039 125,645,537
- ----------------------------- --------------------------- -------------------------- ---------------------------
Total 182,784,768
- ----------------------------- --------------------------- -------------------------- ---------------------------
BALANCE PER GENERAL LEDGER 182,659,678
---------------------------
Unrealized gain on accounts payable in foreign currency 12/31/02 (125,090)
---------------------------
Unrealized gain on accounts payable in foreign currency 01/01/02 2,922,719
---------------------------
Net unrealized gain on account payable in foreign currency 12/31/02 2,797,629
---------------------------
Unrealized gain on cash on hand as of December 31, 2002
- ----------------------------- --------------------------- -------------------------- ---------------------------
Exchange Rate Total
Currency Amount 12/31/02 Thai Baht
- ----------------------------- --------------------------- -------------------------- ---------------------------
Australian Dollar 38,166 24.1489 921,668
Canadian Dollar 1,925 27.5129 52,962
Swiss Franc 920 30.6729 28,219
China Renminbi Yuan 903,827 5.2078 4,706,950
Europe 199,738 44.5589 8,900,106
British Pound Sterling 378,652 68.8681 26,077,038
Hong Kong Dollar 621,035 5.5138 3,424,263
Korean Won 11,138,000 0.0358 398,741
Singapore Dollar 20,056 24.7029 495,441
Taiwanese Dollar 260,300 1.2385 322,382
Japanese Yen 23,195,950 0.35734 8,288,841
US Dollar 4,484,201 43.0947 193,245,288
- ----------------------------- --------------------------- -------------------------- ---------------------------
Total 246,861,899
- ----------------------------- --------------------------- -------------------------- ---------------------------
BALANCE PER GENERAL LEDGER 237,604,462
---------------------------
Unrealized gain on cash in hand in foreign currency 12/31/02 9,257,437
---------------------------
Unrealized gain on cash in hand in foreign currency 01/01/02 (1,674,813)
---------------------------
Net unrealized gain on cash in hand in foreign currency 12/31/02 7,582,624
---------------------------
Net unrealized gain on accounts payable in foreign currency 12/31/02 2,797,629
---------------------------
Net unrealized gain on exchange rate as at 12/31/02 10,380,253
---------------------------
US$240,925 (US$1 = Baht 43.085)
15
CHART B
The calculation of Unrealized loss on foreign exchange of US$24,050 was
calculated on accumulated basis with quarterly adjustment on financial
receivable and cash on hand in foreign currency as shown below:
Unrealized loss on account receivable as of December 31, 2002
- ----------------------------- --------------------------- -------------------------- ---------------------------
Exchange Rate Total
Currency Amount 12/31/02 Baht
- ----------------------------- --------------------------- -------------------------- ---------------------------
US Dollar 69,453.42 43.0947 2,993,074
- ----------------------------- --------------------------- -------------------------- ---------------------------
Total 2,993,074
- ----------------------------- --------------------------- -------------------------- ---------------------------
BALANCE PER GENERAL LEDGER 3,084,265
---------------------------
Unrealized loss from account receivable as of 12/31/02 (91,191)
---------------------------
Unrealized loss from account receivable as of 01/01/02 (81,342)
---------------------------
Net unrealized loss from account receivable as of 12/31/02 (172,533)
---------------------------
Unrealized loss from loan from bank (trust receipt) as of December 31, 2002
- ----------------------------- --------------------------- -------------------------- ---------------------------
Exchange Rate Total
Currency Amount 12/31/02 Baht
- ----------------------------- --------------------------- -------------------------- ---------------------------
Euro 62,147.13 45.1035 2,803,053
British Pound Sterling 8,600.00 69.5959 598,525
Hong Kong Dollar 530,625.00 5.5642 2,952,503
Singapore Dollar 97,977.82 25.0227 2,451,670
US Dollar 27,048.90 43.3039 1,171,323
- ----------------------------- --------------------------- -------------------------- ---------------------------
Total 9,977,074
- ----------------------------- --------------------------- -------------------------- ---------------------------
BALANCE PER GENERAL LEDGER 9,887,328
---------------------------
Unrealized loss from loan from bank in foreign currency 12/31/02 (89,746)
---------------------------
Unrealized loss from loan from bank in foreign currency 01/01/02 (46,087)
---------------------------
Net unrealized loss from loan from bank in foreign currency 12/31/02 (135,833)
---------------------------
Unrealized loss from advanced from companies as of December 31, 2002
- ----------------------------- --------------------------- -------------------------- ---------------------------
Exchange Rate Total
Currency Amount Baht 12/31/02 US$
- ----------------------------- --------------------------- -------------------------- ---------------------------
Baht Currency 61,116,066.58 43.24 1,413,415
- ----------------------------- --------------------------- -------------------------- ---------------------------
BALANCE PER GENERAL LEDGER 1,396,522
---------------------------
Net unrealized loss on advanced 12/31/02 (16,893)
---------------------------
US$24,050 (US$1 = Baht 43.0850)
16
NET FOR UNREALIZED GAIN/ (LOSS) EXCHANGE AS OF December 31, 2002
Thai Baht US Dollar
----------- -----------
Net Unrealized exchange gain as of 12/31/02 10,380,254
Net Unrealized loss on exchange rate as at 12/31/02 (308,366)
-----------
NET UNREALIZED EXCHANGE 10,071,888 233,768
-----------
Net Unrealized exchange GAIN (16,893)
-----------
NET UNREALIZED EXCHANGE 216,875
===========
NET FOR REALIZED GAIN/ (LOSS) EXCHANGE AS OF December 31, 2002
Thai Baht US Dollar
----------- -----------
Net realized loss on exchange rate of KPT as of 12/31/02 (16,153,869)
Net Unrealized gain on exchange rate of KPD as at 12/31/02 8,060,301
-----------
NET REALIZED EXCHANGE (8,093,568) (187,851)
-----------
NET REALIZED EXCHANGE (187,851)
-----------
Total net realized / unrealized exchange rate 29,024
===========
Monetary Assets and Liabilities Denominated in Thai Baht
As of December 31, 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 9,994,145
Trade Accounts Receivable 1,572,506
Refundable value-added-tax 833,291
Advance to Related Companies 8,431,006
Deferred income tax assets 3,745,025
Restricted deposit 19,729,589
Other current assets 3,313,087
Other non-current assets 3,624,499
TYPE OF MONETARY LIABILITY US DOLLARS
Bank overdraft & loan 16,965,182
Current portion of long-term debt 36,926
Accounts payable 8,293,716
Concession fees 4,864,882
Other current liabilities 12,397,767
Long-term loan - net 13,908,201
17
ITEM 7B Recently Issued Accounting Principles
New Accounting Standards Not Yet Adopted - NONE
ITEM 8 FINANCIAL STATEMENTS
Consolidated Financial Statements of the Company (Audited)
Report of Independent Auditors - Smith, Gray, Boyer & Daniell, PLLC
dated March 28, 2003
Balance Sheets as of December 31, 2002 and 2001
Statements of Income for the Years ended December 31, 2002, 2001
and 2000
Statements of Cash Flows for the Years ended December 31, 2002, 2001
and 2000
Statements of Changes in Shareholders' Equity for the Years ended
December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
Financial Statement Schedules
18
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
KING POWER INTERNATIONAL GROUP CO., LTD.
We have audited the consolidated balance sheets of King Power International
Group Co., Ltd. (the "Company"), as of December 31, 2002 and 2001, and the
related consolidated statements of income, comprehensive income, cash flows and
changes in shareholders' equity for the years ended December 31, 2002, 2001, and
2000. Our audits also included the financial statement schedule listed in the
Index at Item 15. These financial statements are the responsibility of the
Company's Management. Our responsibility is to express an opinions on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance as to whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of King Power
International Group Co., Ltd. and subsidiaries as of December 31, 2002 and 2001,
and the results of their consolidated operations, cash flows and changes in
shareholders' equity for the years ended December 31, 2002, 2001, and 2000, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ SMITH, GRAY, BOYER & DANIELL, PLLC
---------------------------------------
SMITH, GRAY, BOYER & DANIELL, PLLC
March 28, 2003
Dallas, Texas
19
Audit Committee Report
The Audit Committee of the Board of Directors of King Power International Group
Co., Ltd. (the Committee) is composed of three directors and operates under a
written charter adopted by the Board of Directors. The members of the Committee
are Dharmnoon Prachuabmoh (Chair), Chulchit Bunyaketu, and Preeyaporn Thavornun.
The Committee recommends to the Board of Directors, subject to stockholder
ratification, the selection of the Corporation's independent accountants.
Management is responsible for the Company's internal controls and the financial
reporting process. The independent accountants are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards in the United States of
America and to issue a report thereon. The Committee's responsibility is to
monitor and oversee these processes.
In this context, the Committee has met and held discussions with management and
the independent accountants. Management represented to the Committee that the
Company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles in the United States of America, and
the Committee has reviewed and discussed the consolidated financial statements
with management and the independent accountants. The Committee discussed with
the independent accountants matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees) as amended by
statement on Auditing Standard No. 90.
The Company's independent accountants also provided to the Committee the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee discussed
with the independent accountants that firm's independence.
Based upon the Committee's discussion with management and the independent
accountants and the Committee's review of the representation of management and
the report of the independent accountants to the Committee, the Committee
recommended that the Board of Directors include the audited consolidated
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, filed with the Securities and Exchange Commission.
/s/ Dharmnoon Prachuabmoh /s/ Chulchit Bunyaketu
- ----------------------------- -----------------------
Dharmnoon Prachuabmoh (Chair) Chulchit Bunyaketu
/s/ Preeyaporn Thavornun
- -------------------------
Preeyaporn Thavornun
20
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2001
Note 2002 2001
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,509,155 $ 3,955,240
Trade accounts receivable 1,488,965 676,073
Refundable value added tax 4 833,291 626,537
Trade accounts and management fee receivable from related
companies, net
11 154,870 1,455,691
Merchandise inventories, net 32,022,091 21,185,208
Restricted fixed deposits 3 19,729,589 11,650,467
Deferred income tax assets 10 3,745,025 3,541,113
Prepaid expenses 1,850,981 416,176
Other current assets 421,663 315,409
------------ ------------
Total current assets 75,755,630 43,821,914
Property, plant and equipment, net 5 6,374,932 3,719,476
Loans and accrued interest from related companies and directors, net 11 9,586,184 11,764,840
Investments and other assets 3,626,698 202,590
------------ ------------
TOTAL ASSETS $ 95,343,444 $ 59,508,820
============ ============
The accompanying footnotes are an integral part of these consolidated financial
statements
21
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF DECEMBER 31, 2002 AND 2001
Note 2002 2001
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and bank loans 6 $ 17,193,843 $ 21,562,684
Current portion of long-term loan 8 36,926 33,275
Trade accounts payable 12,518,038 10,893,026
Accrued concession fees 7 4,864,882 2,737,366
Accrued corporate income tax 4,222,302 1,391,145
Other current liabilities 8,852,914 2,151,468
------------ ------------
Total current liabilities 47,688,905 38,768,964
Long-term loan, net 8 13,908,201 140,245
------------ ------------
Total liabilities 61,597,106 38,909,209
------------ ------------
Minority interest 1,389,075 775,887
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) 13,546,681 1,446,618
Legal reserve 82,233 82,233
Translation adjustments (2,140,046) (2,573,522)
------------ ------------
Total shareholders' equity 32,357,263 19,823,724
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 95,343,444 $ 59,508,820
============ ============
The accompanying footnotes are an integral part of these consolidated financial
statements
22
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
Note 2002 2001 2000
------------- ------------- -------------
Sales revenue $ 172,439,155 $ 116,329,249 $ 108,914,156
Cost of sales
Cost of merchandise sold 86,877,920 56,659,185 53,188,627
Concession fees 7 32,150,450 23,322,685 21,511,202
------------- ------------- -------------
Total cost of sales 119,028,370 79,981,870 74,699,829
------------- ------------- -------------
Gross profit 53,410,785 36,347,379 34,214,327
Operating expenses
Selling and administrative expenses 35,931,087 28,794,351 23,356,573
------------- ------------- -------------
Total operating expenses 35,931,087 28,794,351 23,356,573
------------- ------------- -------------
Income from operations 17,479,698 7,553,028 10,857,754
Other income (expense)
Interest income 1,326,826 811,745 332,631
Interest expense (1,384,406) (1,344,988) (1,074,709)
Gain (loss) on foreign exchange, net 29,024 159,134 (420,523)
Gain on investment in other companies 1,932 381 (4,123)
Other income 1,092,080 774,365 214,452
------------- ------------- -------------
Total other income (expense) 1,065,456, 400,637 (952,272)
------------- ------------- -------------
Net income before income tax 18,545,154 7,953,665 9,905,482
Income tax expense 10 (5,847,469) (3,127,659) (3,121,690)
------------- ------------- -------------
Net income before minority interest 12,697,685 4,826,006 6,783,792
Minority interest (597,622) (278,701) (298,330)
------------- ------------- -------------
Net income attributed to common shares $ 12,100,063 $ 4,547,305 $ 6,485,462
============= ============= =============
Weighted average number of common shares outstanding
20,250,000 20,250,000 20,250,000
Basic earnings per share $ 0.60 $ 0.22 $ 0.32
The accompanying footnotes are an integral part of these consolidated financial
statements
23
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
2002 2001 2000
----------- ----------- -----------
Net income attributed to common shares $12,100,063 $ 4,547,305 $ 6,485,462
Other comprehensive income, net of tax:
Foreign currency translation adjustment 433,476 (323,327) (1,950,362)
----------- ----------- -----------
Comprehensive income $12,533,539 $ 4,223,978 $ 4,535,100
=========== =========== ===========
The accompanying footnotes are an integral part of these consolidated financial
statements
24
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2002 2001 2000
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,100,063 $ 4,547,305 $ 6,485,462
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation expense 1,635,535 1,425,992 1,466,472
Unrealized loss (gain) on foreign exchange (216,875) (42,550) 206,629
Deferred income tax assets (203,912) 77,820 735,199
Decrease (increase) in operating assets:
Trade accounts receivable (816,896) (394,452) (69,285)
Refundable valued added tax (206,754) 165,196 388,703
Receivables and loans to related companies and directors 3,462,583 (4,042,419) (4,166,005)
Merchandise inventories (10,836,883) (3,103,318) (1,583,136)
Prepaid expenses and other current assets (1,541,059) (63,186) 2,606,772
Other long-term assets (3,424,108) 5,698 (3,427)
Increase (decrease) in operating liabilities:
Trade accounts payable 1,689,945 (843,199) 1,782,888
Advances from director -- (446,186) 446,186
Accrued concession fees 2,127,516 1,563,376 (7,293,038)
Other current liabilities 9,532,603 (628,466) 2,212,991
Minority interest 613,188 170,176 227,254
Translation adjustments 433,476 (323,327) (1,950,362)
------------ ------------ ------------
Net cash provided by (used in) operating activities $ 14,348,422 $ (1,931,540) $ 1,493,303
The accompanying footnotes are an integral part of these consolidated financial
statements
25
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31,
2002 2001 2000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets $ (4,290,991) $ (965,973) $ (388,019)
Increase in restricted fixed deposits (8,079,122) (3,902,486) (3,902,352)
------------ ------------ ------------
Net cash used in investing activities (12,370,113) (4,868,459) (4,290,371)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) bank overdrafts (597,861) (727,856) 841,319
Proceeds from (repayment of) bank loans (3,774,133) 8,927,743 2,384,194
Proceeds from (repayment of) long-term loans 13,771,607 (35,930) (72,640)
------------ ------------ ------------
Net cash provided by financing activities 9,399,613 8,163,957 3,152,873
Effect of exchange rate changes on cash and cash equivalents 175,993 (42,608) 85,575
------------ ------------ ------------
Net increase in cash and cash equivalents 11,553,915 1,321,350 441,380
------------ ------------ ------------
Cash and cash equivalents, beginning of period 3,955,240 2,633,890 2,192,510
------------ ------------ ------------
Cash and cash equivalents, end of period 15,509,155 3,955,240 $ 2,633,890
============ ============ ============
Supplemental cash flow information Cash paid during the period:
Interest $ 1,686,194 $ 1,300,636 $ 1,057,338
Income taxes $ 3,161,347 $ 3,949,025 $ 1,142,649
The accompanying footnotes are an integral part of these consolidated financial
statements
26
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 and 2000 (in US$)
Common Stock Additional Comprehensive
Shares Amount Paid in Capital Income
--------------------------------------------------------
Balances at January 1, 2000 20,250,000 20,250 20,848,145
Net Income 6,485,462
Other comprehensive income, net of tax
Foreign currency translation adjustment (1,950,362)
-----------
Comprehensive Income 4,535,100
---------------------------------------------===========
Balances at December 31, 2000 20,250,000 20,250 20,848,145
=========================================
Balances at January 1, 2001 20,250,000 20,250 20,848,145
Net Income 4,547,305
Other comprehensive income, net of tax
Legal Reserve
Foreign currency translation adjustment (323,327)
-----------
Comprehensive Income 4,223,978
---------------------------------------------===========
Balances at December 31, 2001 20,250,000 20,250 20,848,145
=========================================
Balances at January 1, 2002 20,250,000 20,250 20,848,145
Net Income 12,100,063
Other comprehensive income, net of tax
Foreign currency translation adjustment 433,476
-----------
Comprehensive Income 12,533,539
---------------------------------------------===========
Balances at December 31, 2002 20,250,000 20,250 20,848,145
=========================================
Accumulated
Other
Retained Legal Comprehensive
Earnings Reserve Income Total
--------------------------------------------------------
Balances at January 1, 2000 (9,503,916) (299,833) 11,064,646
Net Income 6,485,462 6,485,462
Other comprehensive income, net of tax
Foreign currency translation adjustment (1,950,362) (1,950,362)
Comprehensive Income
--------------------------------------------------------
Balances at December 31, 2000 (3,018,454) (2,250,195) 15,599,746
========================================================
Balances at January 1, 2001 (3,018,454) (2,250,195) 15,599,746
Net Income 4,547,305 4,547,305
Other comprehensive income, net of tax
Legal Reserve (82,233) 82,233 --
Foreign currency translation adjustment (323,327) (323,327)
Comprehensive Income
--------------------------------------------------------
Balances at December 31, 2001 1,446,618 82,233 (2,573,522) 19,823,724
========================================================
Balances at January 1, 2002 1,446,618 82,233 (2,573,522) 19,823,724
Net Income 12,100,063 12,100,063
Other comprehensive income, net of tax
Foreign currency translation adjustment 433,476 433,476
Comprehensive Income
--------------------------------------------------------
Balances at December 31, 2002 13,546,681 82,233 (2,140,046) 32,357,263
========================================================
The accompanying footnotes are an integral part of these consolidated financial
statements
27
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
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 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, 2002 and 2001,
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.
Marketable Securities - Securities held for trading are marked to market at
year-end with the resulting gain or loss being included in current income.
28
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
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 December 31, 2002 and 2001 were $1 = Baht 43.240 and Baht
44.227, respectively. The average exchange rates during the years ended December
31, 2002, 2001 and 2000 were $1 = Baht 43.085, Baht 44.3812 and Baht 40.2391,
respectively.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Maintenance, repairs and minor renewals are charged directly to expense as
incurred. 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
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.
The Company does not provide for United States income taxes on unrepatriated
earnings of its Thailand-based subsidiaries since the Company's intention is to
reinvest these earnings in their operations and the amount of such taxes has not
been determined.
29
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
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 2000 financial statements and related
footnotes have been reclassified to conform with 2002 and 2001 presentation.
3. RESTRICTED FIXED DEPOSITS
2002 2001
-------------- --------------
Restricted fixed deposits $ 19,729,589 $ 11,650,467
Interest rates 0.75% - 3.00% 1.00% - 4.00%
As of December 31, 2002 and 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 7% effective August 16, 1999.
5. PROPERTY, PLANT AND EQUIPMENT, NET
2002 2001
------------ ------------
Land $ 607,770 $ 594,207
Building 380,346 116,844
Leasehold improvements 7,613,367 4,627,983
Office equipment and fixtures 3,475,607 2,663,704
Vehicles 1,045,927 788,678
Work in progress 109,351 338,498
------------ ------------
Total cost 13,232,368 9,129,914
Less: accumulated depreciation (6,857,436) (5,410,438)
------------ ------------
Net book value $ 6,374,932 $ 3,719,476
============ ============
6. BANK OVERDRAFT AND LOANS FROM BANKS
2002 2001
------------ ------------
Bank overdraft $ -- $ 597,861
Trust receipts 542,594 13,955,530
Short-term loan 16,651,249 7,009,293
------------ ------------
$ 17,193,843 $ 21,562,684
============ ============
As of December 31, 2002 and 2001, the Company has an overdraft facility with
commercial banks in Thailand totaling Baht 75.74 million ($ 1,751,619) 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 2002 and 2001, the
average rate of MOR was 6.50% - 8.75% and 7.75% - 8.25% per annum, respectively.
Available lines of credit for the bank overdrafts are guaranteed by certain
directors and collateralized by fixed deposits (see Note 3).
As of December 31, 2002 and 2001, trust receipts incurred by KPD and KPT bear
interest at the rates varying from 6.00% - 7.75% 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 December 31, 2002 and 2001, the Company has a short-term loan with various
commercial banks in Thailand, bearing interest at rates of 2.25% - 5.65% and
2.875% - 8.75%per annum, respectively, and are collateralized by fixed deposits
and guaranteed by a director.
31
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Trust receipts at December 31, 2002
Foreign currency borrowing by subsidiaries in Thailand Currencies Amount Interest rate (%)
-----------------------------------------------
Under forward contract and T/R BAHT 4,321,767 $ 99,948 7.75
Without forward contract BAHT 9,162,936 211,909 7.75
USD 27,049 27,089 7.00
GBP 8,600 13,842 7.00
HKD 530,625 68,282 6.00
SGD 97,978 56,699 6.00 - 7.25
EUR 62,147 64,825 6.00 - 7.00
------------
$ 542,594
============
Trust receipts at December 31, 2001:
Foreign currency borrowing by subsidiaries in Thailand Currencies Amount Interest rate (%)
-----------------------------------------------
Under forward contract and T/R BAHT 233,728,932 $ 5,284,757 4.56 - 9.00
Without forward contract BAHT 327,100,775 7,395,952 5.50 - 9.00
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 December 31, 2002 and 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)
7. CONCESSION FEES
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. Under the aforementioned
agreements with the Airports Authority of Thailand and the Customs Department of
Thailand, both KPD and KPT are required to pay concession fees, rental fees,
service fees, property tax, and other expenses, and to pledge cash or obtain a
local commercial bank letter of guarantee, as collateral.
Accrued concession fees to the Airport Authority of Thailand were $4,864,882 and
$2,737,366 as of December 31, 2002 and 2001, respectively. Concession fee
expense for 2002, 2001and 2000 was $32,150,450, $23,322,685 and $21,511,202,
respectively.
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
- --------------------------------------------------------- --------------------------------------------------
2003 11,025 394 8,287 24,265 1,665 13,556
2004 11,584 333 7,760 24,908 1,665 13,764
2005 12,713 330 7,743 26,368 -- 14,503
2006 4,480 75 6,743 27,550 -- 15,153
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 as
the only competitor in Thailand's International airports. Coupled with the
extension of its other concession, the Company is positioned as the principal
operator of tax free and duty free stores in Thailand.
32
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
8. LONG-TERM LOANS, NET
Long-term liabilities as of December 31, 2002 and 2001 consist of the following:
2002 2001
------------ ------------
Long-term loans $ 13,900,906 $ 168,861
Installment purchase payable 44,221 4,659
------------ ------------
13,945,127 173,520
Less: current portion of long-term debt (36,926) (33,275)
------------ ------------
Total $ 13,908,201 $ 140,245
============ ============
As of December 31, 2002 and 2001, long-term loans consist of loans from banks
carrying interest rates of 3.60% - 7.25% and 7.75% per annum, respectively. The
long-term loans are secured by the Company's land and building and guaranteed by
a director of the Company.
Long term loans as of December 31, 2002 are due as follows:
2002
-------------
Installment purchase obligation
2002 $ --
2003 12,060
2004 12,060
2005 12,060
2006 8,041
------------
Total $ 44,221
============
Long-term loan installment payments
2002 $ --
2003 36,926
2004 --
2005 13,863,980
-------------
Total $ 13,900,906
=============
33
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
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 Capital Retained Treasury
Shares Amount Paid-in 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) $ -- $ --
-----------------------------------------------------------------------
(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 share 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.
34
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
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:
2002 2001 2000
----------- ----------- -----------
Current income tax (payable)
United States $ -- $ (6,552) --
Foreign (5,643,557) (2,871,446) (2,386,491)
----------- ----------- -----------
(5,643,557) (2,877,998) (2,386,491)
Deferred income tax
United States -- (171,841) --
Foreign (203,912) (77,820) (735,199)
----------- ----------- -----------
(203,912) (249,661) (735,199)
----------- ----------- -----------
Net income tax expense $(5,847,469) $(3,127,659) $(3,121,690)
=========== =========== ===========
Pre-tax income for foreign companies for the year ended December 31, 2002, was
$19,301,933. Current taxes payable are included in current liabilities.
The components of deferred income tax assets and liabilities were:
2002 2001 2000
----------- ----------- -----------
Provision for doubtful accounts and obsolescence $ 3,766,980 $ 3,795,411 $ 3,873,561
Net operating loss carry forward 519,372 21,081 274,659
----------- ----------- -----------
4,286,352 3,816,492 4,148,220
Less: valuation allowance (541,327) (275,379) (529,287)
----------- ----------- -----------
Deferred income tax assets $ 3,745,025 $ 3,541,113 $ 3,618,933
=========== =========== ===========
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.
2002 2001 2000
--------------------------------------------
Standard income tax rate 35.00% 35.00% 35.00%
Foreign tax rate difference (5.25%) (4.25%) (5.23%)
Less: valuation allowance 1.43% -- 0.92%
Non deductible expenses (0.30%) (2.37%) 0.70%
Prior year tax -- 4.53% --
--------------------------------------------
Effective income tax rate 30.88% 32.91% 31.39%
============================================
As of December 31, 2002, and, 2001, the Company has deferred income tax assets
relating to net operating loss carry forwards for income tax purposes of
$519,372 and $21,081, respectively, which expire in years 2003 through 2017. 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.
35
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
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 $7,677,049 and $12.1 million shown in the following schedule
as receivable from King Power International Co., Ltd. (KPI), as of December 31,
2002, and 2001, respectively, reserves have been provided for $627,821and
$1,293,470, respectively. Of the $3,691,148 and $3.45 million shown on the
following schedule as receivable from King Power On Board Sales and Services
Co., Ltd. (KPO), as of December 31, 2002, and 2001, respectively, reserves have
been provided for $999,321 and $1,090,540, respectively. 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. KPI's
operations have improved and it has reduced in debt to the Companies. KPO's
operating license expired in April, 2002, its ceased operations. As of December
31, 2002, the guarantors have begun making payments against the KPO debt in the
amount of 5,000,000 Baht ($115,634) per month, including interest.
Balances at December 31, 2002, and, 2001, with related companies and directors
are as follows (in $000s)
---------------------------------------------------------------------------------
Loans to and receivables from related Companies and Directors
As of December 31, 2002 Accounts Interest & other Management Fee Accounts
Receivable Loans receivables Receivables Total Payable
---------------------------------------------------------------------------------
King Power International Co., Ltd. -- 6,362 1,279 36 7,677 646
Forty Seven Co., Ltd. -- 2,409 614 -- 3,023 --
Downtown D.F.S. (Thailand) Co., Ltd. 391 2,221 329 2,134 5,075 --
Top China Group Co., Ltd. -- 231 14 -- 245 --
Lengle (Thailand) Co., Ltd. -- 833 93 -- 926 --
Lengle TAT Phnom Penh Duty Free Co., Ltd. -- -- -- -- -- --
King Power On Board Sales and Services Co., Ltd. 119 3,176 396 -- 3,691 --
Thai Nishigawa International Co., Ltd. -- -- -- -- -- 135
Niji (Thailand) Co., Ltd. -- -- -- -- -- 173
---------------------------------------------------------------------------------
510 15,232 2,725 2,170 20,637 954
Less: provision for doubtful accounts:
Related companies (391) (6,801) (1,570) (2,134) (10,896) --
---------------------------------------------------------------------------------
Total 119 8,431 1,155 36 9,741 954
=================================================================================
Director - to (from) -- -- -- -- -- --
=================================================================================
36
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
---------------------------------------------------------------------------------
Loans to and receivables from related Companies and Directors
As of December 31, 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 December 31, 2002, and 2001, KPD has accrued concession fees amounting to
$4,864,882 and $2,737,366, respectively.
37
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Effective July 1, 2001, KPD and KPT increased the interest rate charged for new
loans to related companies from a range of 2.00%-2.50% to 5.94% - 8.65%,
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.
During the years ended December 31, 2002, 2001 and 2000 the Company had
operating transactions with related parties and directors as follows (in $000s):
2002 2001 2000
---------- ---------- ----------
Related Companies
Sales $ 1,015 $ 926 $ 1,342
Interest income 1,075 610 212
Management fee income 450 500 --
Purchases 22,755 2,067 1,590
Concession fees 22,619 14,624 12,629
Purchases - assets 31
Service $ 2,155 $ -- $ --
Directors
Interest and income $ -- $ -- $ --
12. COMMITMENTS AND CONTINGENT LIABILITIES (see also Note 7)
Lease commitments As of December 31, 2002, KPD and KPT had leasing commitments
for office space under non-cancelable operating lease agreements expiring in
2003. The obligations of the subsidiary companies under these lease agreements
are set forth as follows:
KPT KPD
---------- ----------
2003 $ 48,566 $ 348,825
Letters of guarantee
As of December 31, 2002 and 2001, KPT and KPD were contingently liable for bank
guarantees totaling $21.17 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 December 31, 2002, and 2001, KPD and KPT have unused letters of credit
totaling $0.98 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 ($7.2 million at December 31, 2002 exchange rates). As of
December 31, 2002 the Company has paid in full (99 million Baht or $2.3
million), for the purchase of the first tract of land and 42.47 million Baht
($982,193) of the 212.34 million Baht purchase price of the second tract of
land. The total $3.3 million in deposits are included in Investments and Other
Assets in the accompanying balance sheet. Under the terms of the contract, the
remaining balance in the amount of 169.87 million Baht ($3.9 million) will be
paid within 730 days of the effective date of the contract. Furthermore, if KPD
fails to complete the payments, all amounts deposited by KPD will be forfeited.
If the seller cannot complete the transfer of the land, all amounts deposited
will be refunded.
Loan Commitments
KPD is a co-maker and cross guarantor of a credit facility with one of its
affiliates. At December 31, 2002 the affiliate had made no borrowings on this
facility.
38
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
13. ACQUISITION OF MINORITY INTERESTS
On November 1, 2001, the Company filed a preliminary proxy statement for
purposes of calling a meeting of shareholders to vote on a Plan of Merger which
would result in all of the outstanding shares of the Company being acquired by a
newly formed corporation to be owned by the shareholders presently comprising
the Company's management. Should the plan of merger be approved and the
transaction concluded, the Company would cease to exist. In August and
September, 2002, three separate class action lawsuits were filed against the
Company and its directors alleging, among other things, that the directors of
the Company had breached their fiduciary duties in pursuing the proposed merger
transaction in which the Company would be taken private by certain shareholders
and in allegedly failing to obtain the highest price per share. Management
denies all allegations in the lawsuits and intends to vigorously defend its
position. However, the final outcome of the litigation cannot be predicted with
certainty. No liability relative to this matter has been recorded in the
accompanying financial statements. A final proxy statement has not been filed
and the shareholders' meeting has not been scheduled.
14. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for 2002, 2001 and 2000 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).
Year Ended December 31, 2002 Duty Free Tax Free All Elimination
Retail Retail Others Adjustments Consolidated
------------ ------------ ------------ ------------ ------------
Segment Information
Revenue from external customers 143,436 29,003 -- (42) 172,439
Cost of merchandise sold 74,624 12,254 -- (42) 86,878
Concession fees 22,619 9,531 -- -- 32,150
Gross profit 46,193 7,218 -- -- 53,411
Interest Income 1,130 272 25 (134) 1,327
Interest expense 1,367 17 -- (134) 1,384
Segment net income (loss) 11,242 2,133 (677) (12,866) 12,698
Segment total assets 82,644 12,489 211 (35,848) 95,343
Expenditures for segment assets 4,191 100 -- -- 4,291
Depreciation expense 1,339 296 -- -- 1,635
Unrealized gain (loss) on exchange 229 5 (17) -- 217
Deferred income tax assets 2,530 1,193 22 -- 3,745
Long-lived
Revenue Assets
------------ ------------
Geographic Information
Bangkok 164,745 9,470
Northern Thailand region 1,047 204
Southern Thailand region 6,647 327
------------ ------------
Total 172,439 10,001
============ ============
39
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Year Ended December 31, 2001 Duty Free Tax Free All
Retail Retail Others Consolidated
------------ ------------ ------------ ------------
Segment Information
Revenue from external customers 90,094 26,235 -- 116,329
Cost of merchandise sold 45,833 10,826 -- 56,659
Concession fees 14,625 8,698 -- 23,323
Gross profit 29,617 6,730 -- 36,347
Interest Income 626 153 33 812
Interest expense 1,258 69 26 1,345
Segment net income (loss) 4,802 838 (814) 4,826
Segment total assets 49,069 10,187 253 59,509
Expenditures for segment assets 871 95 -- 966
Depreciation expense 1,127 299 -- 1,426
Unrealized gain (loss) on exchange 51 (9) -- 42
Deferred income tax assets 2,365 1,155 21 3,541
Long-lived
Revenue Assets
------------ ------------
Geographic Information
Bangkok 111,767 3,728
Northern Thailand region 525 127
Southern Thailand region 4,037 67
------------ ------------
Total 116,329 3,922
============ ============
Year Ended December 31, 2000 Duty Free Tax Free All
Retail Retail Others Consolidated
------------ ------------ ------------ ------------
Segment Information
Revenue from external customers 81,058 27,856 -- 108,914
Cost of merchandise sold 41,501 11,688 -- 53,189
Concession fees 12,629 8,882 -- 21,511
Gross profit 26,908 7,306 -- 34,214
Interest Income 262 38 33 333
Interest expense 1,039 36 -- 1,075
Segment net income (loss) 6,809 236 (261) 6,784
Segment total assets 37,146 10,320 226 47,692
Expenditures for segment assets 374 14 -- 388
Depreciation expense 1,106 360 -- 1,466
Unrealized gain (loss) on exchange (272) 26 39 (207)
Deferred income tax assets 2,418 1,180 21 3,619
Geographic Information
Bangkok 104,951 4,253
Northern Thailand region 531 44
Southern Thailand region 3,432 91
------------ ------------
Total 108,914 4,388
============ ============
40
SCHEDULE 2 - ALLOWANCES
Additions Additions
Balance at charged charged Balance
beginning to costs and to other at end
of year expenses accounts Deductions of year
------------------------------------------------------------------
For the Year Ended December 31, 2002
Allowances Deducted from Assets
Trade accounts receivable 969,279 13,616 22,076 -- 1,004,971
Accounts receivable - related companies 382,486 -- 8,731 -- 391,217
Loans to and receivable from related company and directors 8,863,764 (677,082) 184,391 -- 8,371,073
Merchandise inventories -- 420,608 45,673 -- 466,281
Deferred tax 275,379 -- 265,948 -- 541,327
Management fees (other current assets) 2,086,373 -- 47,623 -- 2,133,996
Investments in other companies 174,061 (1,932) 3,980 -- 176,109
------------------------------------------------------------------
Total Allowances Deducted from Assets 12,751,342 (244,790) 578,422 -- 13,084,974
==================================================================
For the Year Ended December 31, 2001
Allowances Deducted from Assets
Trade accounts receivable 977,339 -- 13,365 (21,325) 969,279
Accounts receivable - related companies 1,075,256 -- (669,308) (23,462) 382,486
Loans to and receivable from related company and directors 8,373,229 -- 656,043 (165,508) 8,863,764
Deferred tax 529,287 -- -- (253,908) 275,379
Management fees (other current assets) 2,132,911 -- -- (46,538) 2,086,373
Investments in other companies 178,334 (381) -- (3,892) 174,061
------------------------------------------------------------------
Total allowances Deducted from Assets 13,266,356 (381) -- (514,633) 12,751,342
==================================================================
For the Year Ended December 31, 2000
Allowances Deducted from Assets
Trade accounts receivable 280,198 -- 697,141 -- 977,339
Accounts receivable - related companies 1,239,811 -- -- (164,555) 1,075,256
Loans to and receivable from related company and directors 10,380,798 -- (697,141) (1,310,428) 8,373,229
Deferred tax 438,691 -- 90,596 -- 529,287
Management fees (other current assets) 2,459,328 -- -- (326,417) 2,132,911
Investments in other companies 201,205 -- -- (22,871) 178,334
------------------------------------------------------------------
Total allowances Deducted from Assets 15,000,031 -- 90,596 (1,824,271) 13,266,356
==================================================================
41
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Name Age Position
- ---- --- --------
Vichai Raksriaksorn 44 Group Chairman, Chief Executive Officer
and Director
Viratana Suntaranond 61 Chief Financial Officer, Secretary,
Treasurer and Director
Aimon Raksriaksorn 45 Group Deputy Managing Director and
Director
Suwan Panyapas 58 Group Senior Advisor and Director
Dharmnoon Prachuabmoh 68 Independent Director
Chulchit Bunyaketu 59 Independent Director
Preeyaporn Thavornun 50 Independent Director
Sombat Dechapanichkul 40 Group Assistant Managing Director
Set forth below is a backgrounds of the executive officers and directors of the
Company and a listing of their principal occupations for the past five years.
Vichai Raksriaksorn
1999-Present Acting Group Managing Director of King Power International
Group Co., Ltd.
1997-Present Group Chairman, Chief Executive Officer and Director of King
Power International Group Co., Ltd.
Managing Director of King Power Duty Free Co., Ltd.
Chairman of King Power On Board
Sales & Services Co., Ltd.
1994-Present Chairman of King Power International Co., Ltd.
1993-Present Chairman of King Power Tax Free Co., Ltd.
1991-Present Chairman of Lengle TAT Phnom Penh Duty Free Co., Ltd.
1989-1999 Managing Director of Downtown D.F.S. (Thailand) Co., Ltd.
Viratana Suntaranond
1997-Present Chief Financial Officer, Secretary and Director of King Power
International Group Co., Ltd.
Co-Managing Director of King Power Duty Free Co., Ltd.
1994-1997 Director of Big Hand Co., Ltd.
1993-Present Managing Director of King Power Tax Free Co., Ltd.
1992-Present President of U.M.P. Commercial Co., Ltd.
1996-Present Director of King Power International Co., Ltd.
1985-Present President of Niji (Thailand) Co., Ltd.
1984-Present Managing Director of Thai-Tai International Trading Co., Ltd.
Aimon Raksriaksorn
1997-Present Group Deputy Managing Director and Director of King Power
International Group Co., Ltd.
Director of King Power International Group (Thailand) Co.,
Ltd.
1998-2002 Executive Director of King Power On Board Sales & Services
Co., Ltd.
1997-Present Director of King Power Duty Free Co., Ltd.
1997-Present Executive Director of King Power International Co., Ltd.
1994-2002 Managing Director of Thai Nishikawa International Co., Ltd.
42
Suwan Panyapas
2002-Present Executive Director of King Power International Co., Ltd.
Executive Director of King Power On Board Sales & Services
Co., Ltd.
2001-Present Director of Infotel Communication (Thailand) Co., Ltd.
Executive Director of Lengle (Thailand) Co., Ltd.
Executive Director of Lengle TAT (Phnom Penh) Duty Free Co.,
Ltd.
2000-Present Director of V.R.J. International Co., Ltd.
1997-Present Director and Group Senior Advisor of King Power International
Group Co., Ltd.
1996-2000 Senator of Thai National Assembly
1991-Present Advisor to TAT Duty Free Co., Ltd.
1989-Present Advisor to Downtown D.F.S. (Thailand) Co., Ltd.
1989-1991 Managing Director of TAT Duty Free Co., Ltd.
Some Special Positions Held:
o Member of Committee Training Successful Candidates appointed
to Juvenile Court.
o Member of Sub-Committee on the Development of Judicial and
Ministerial System.
o Member of Committee/Secretary on Selection Test for Judicial
Officer
o Senior Judge of Thonburi Court
o Chief Judge of Udon Thanee District Court
o Chief Judge attached to the Ministry of Justice
Dharmnoon Prachuabmoh
1997-Present Director of King Power International Group Co., Ltd.
Life Member of Pacific Asia Travel Association (PATA)
1995-1996 Member of the Thai Parliament, House of Representatives
Advisor to Deputy Minister of Ministry of Communications and
Transport
Vice Chairman of Tourism Committee (House of Representatives)
1988-1995 President of Thailand Incentive and Convention Association
(TICA)
1988-1989 President of Pacific Asia Travel Association
1986-1994 Governor of Tourism Authority of Thailand (TAT)
Chulchit Bunyaketu
2001-Present Director of King Power International Group Co., Ltd.
2000 Director of Total Access Communication Co., Ltd.
1998-Present Managing Director of Thai Oil Company Limited
Director of Thai Lube Blending Co., Ltd.
1998-2002 Director of the Petroleum Authority of Thailand
1998 Managing Director, Thaioil Power Company Limited
1997 Advisor to Board Director of Broadcasting Director Board,
Royal Thai Army Radio & Television
1996 Director of the Population & Community Development Association
Director of Thai Army Television Channel 5 & 7
Chairman of Thai Paraxylene Company Limited
Director of Thaioil Power Company Limited
Director of Independent Power (Thailand) Company Limited
1994 Deputy Managing Director of Thai Oil Company Limited
1993 Director of Thai Lube Base Public Company Limited
1992 Director of Bangkok Mass Transit System Corp. Ltd.
Preeyaporn Thavornun
2001-Present Director of King Power International Group Co., Ltd.
1997-Present Direct Distributor of Amway (Thailand) Co., Ltd.
1985-1997 Vice President of Provident Fund Management Department at Asia
Credit Ltd.
1975-1985 Accounting Manager at Cathay Trust Finance and Securities Co.,
Ltd.
43
Sombat Dechapanichkul
2000-Present Group Assistant Managing Director of King Power International
Group Co., Ltd.
1996 General Manager of King Power Duty Free Co., Ltd.
1995 General Manager of King Power Tax Free Co., Ltd.
1994-1995 Marketing Director of Downtown D.F.S. (Thailand) Co., Ltd.
1991-1994 Shop Operation, Sales and Promotions and Planning Manager of
TAT Duty Free Co., Ltd.
1990 Assistant Market Manager of Siam Steel Service Center Co.,
Ltd. (Thailand)
1989 Total Control Manager of Aoyama Thai Co., Ltd.
Directors of the Company hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified. Vichai
Raksriaksorn and Aimon Raksriaksorn are husband and wife. None of the other
directors or executive officers are related.
The Company's bylaws provide that directors may be paid their expenses, if any.
Directors were not paid an annual retainer but they were each paid approximately
$6,731 - $11,002 per annum to attend meetings of the Board of Directors, Board
of Executive Officers, and Audit committee meeting held during 2002.
Committees of the Board of Directors
The Board of Directors has two committees: the Audit Committee and Compensation
Committee. The Audit Committee is composed of Dharmnoon Prachuabmoh, Chulchit
Bunyaketu, and Preeyaporn Thavornun with Mr. Prachuabmoh serving as Chairman.
The Audit Committee is responsible for recommending the annual appointment of
the Company's auditors, with whom the Audit Committee will review the scope of
audit and non-audit assignments and related fees, accounting principles used by
the Company in financial reporting, internal auditing procedures and the
adequacy of the Company's internal control procedures. The Compensation
Committee is composed of Vichai Raksriaksorn, Suwan Panyapas, and Dharmnoon
Prachuabmoh with Mr. Raksriaksorn being the Chairman. The Compensation Committee
is responsible for reviewing and making recommendations to the Board of
Directors concerning all forms of compensation paid to the Company's executive
officers.
On September 11, 2001, the Board of Directors appointed a Special Committee
consisting of directors Dharmnoon Prachuabmoh, Chulchit Bunyaketu and Preeyaporn
Thavornun, who are not, nor were they previously officers or employees of the
Company or any of its affiliates and are not associates or affiliates of the
Majority Shareholders. The Board authorized and empowered the Special Committee,
acting in the interest of minority interest shareholders, to review and
negotiate the terms of the proposed merger of the Company and make a
recommendation to the full Board of Directors and the Company's shareholders.
Compliance with Section 16(a) of the securities Exchange Act of 1934
Based solely on the review of Forms 3, 4 and 5 and amendments thereto provided
to the Company pursuant to Rule 16a-3(e), no individuals have failed to file on
a timely basis the reports required to be filed under that rule or as required
by Section 16(a) of the 1934 Act during the 2002 fiscal year.
44
ITEM 11 EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
about the cash and non-cash compensation paid by the Company to its Executive
Officers for the fiscal year ended December 31, 1998, 1999, 2000, 2001 and 2002.
Summary Compensation Table
- ----------------- -------------------------------------------- -------------------------------------- ----------------
Long Term
Compensation
Annual Compensation Awards Payouts
- ----------------- -------------------------------------------- -------------------------------------- ----------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ----------------- ------- ---------- -------- ---------------- ------------- ---------- ------------- ----------------
Name and (*) Other Restricted
Principal Annual Stock Option / LTIP All Other
Position Year Salary Bonus Compensation Awards SARs Payouts Compensation
- ----------------- ------- ---------- -------- ---------------- ------------- ---------- ------------- ----------------
Vichai 2002 724,150 - 10,166 - - - -
Raksriaksorn 2001 304,724 - 9,328 - - - -
Group Chairman 2000 74,554 - 7,256 - - - -
& CEO 1999 79,317 - 5,000 - - - -
1998 - - 5,000 - - - -
- ----------------- ------- ---------- -------- ---------------- ------------- ---------- ------------- ----------------
Viratana 2002 376,000 - 10,862 - - - -
Suntaranond 2001 283,228 - 8,923 - - - -
Group Executive 2000 59,643 - 6,262 - - - -
Director & CFO 1999 63,454 - 5,000 - - - -
1998 - - 5,000 - - - -
- ----------------- ------- ---------- -------- ---------------- ------------- ---------- ------------- ----------------
Aimon 2002 181,037 - 9,609 - - - -
Raksriaksorn 2001 111,588 - 8,743 - - - -
Group Deputy 2000 59,643 - 5,517 - - - -
Managing 1999 63,454 - 2,000 - - - -
Director 1998 53,000 - 2,000 - - - -
- ----------------- ------- ---------- -------- ---------------- ------------- ---------- ------------- ----------------
Suwan Panyapas 2002 97,482 - 11,002 - - - -
Group Senior 2001 54,077 - 9,374 - - - -
Advisor
- ----------------- ------- ---------- -------- ---------------- ------------- ---------- ------------- ----------------
* Vichai Raksriaksorn, Viratana Suntaranond, Aimon Raksriaksorn, and
Suwan Panyapas received meeting compensation for the Board of
Directors' Meeting and the Board of Executive Officers' Meeting.
The Company has no employment agreements with any of its executive officers or
directors.
45
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 24, 2003, with
regard to the beneficial ownership of the Common Stock: (i) by each person known
to the Company to a be beneficial owner of 5% or more of its outstanding Common
Stock; (ii) by the officers, directors and key employees of the Company
individually; and (iii) by the officers and directors as a group. Unless
otherwise indicated, the address of the persons listed below are in care of King
Power International Group Co., Ltd.
Name Number of Shares Beneficially Owned Percentage
- ---- ------------------------------------ -----------
Vichai Raksriaksorn (1) 6,386,500 (1) 31.54%
Viratana Suntaranond (2) 3,013,500 (2) 14.88%
Aimon Raksriaksorn (3) 3,625,000 (3) 17.90%
Suwan Panyapas -0- -0-
Dharmnoon Prachuabmoh -0- -0-
Chulchit Bunkaketu (4) 100,000 (4) 0.49%
Preeyaporn Thavornun -0- -0-
Niphon Raksriaksorn (5) 1,037,883 (5) 5.13%
Sombat Dechapanichkul 10,000 0.05%
All current directors and executive
Officers as a group (eight persons) 12,496,500 (6) 61.71%
(1) This excludes 3,000,000 shares owned by his wife, Aimon Raksriaksorn, as
well as 1,037,883 shares owned by his nephew, Niphon Raksriaksorn, as their
separate properties. Mr. Raksriaksorn disclaims all beneficial interest in those
shares, as well as any right to vote or control the disposition of those shares.
However, this includes (a) 13,500 shares held by Capitalux Co., Ltd., with
respect to which Mr. Raksriaksorn and Mr. Viratana Suntaranond have voting and
investment power over by virtue of their shareholding and directorship in such
company; and (b) 625,000 shares held by V&A Holding Co., Ltd., with respect to
which Mr. Raksriaksorn and his wife, Aimon Raksriaksorn, have voting and
investment power over by virtue of their shareholding and directorship in such
company.
(2) This excludes 1,000,000 shares owned by his wife, Umaratana Suntaranond, as
her separate property, as well as 200,000 shares in the aggregate owned by his
four children, as their separate properties. Mr. Suntaranond disclaims all
beneficial interest in those shares, as well as any right to vote or control the
disposition of those shares. However, this includes 13,500 shares held by
Capitalux Co., Ltd., with respect to which Mr. Vichai Raksriaksorn and Mr.
Viratana Suntaranond have voting and investment power over by virtue of their
shareholding and directorship in such company.
(3) This excludes 5,748,000 shares owned by her husband, Vichai Raksriaksorn,
1,037,883 shares owned by his nephew, Niphon Raksriaksorn, as well as 5,000
shares owned by her mother, Auemporn Boonkhundha, as their separate properties.
Ms. Raksriaksorn disclaims all beneficial interest in those shares, as well as
any right to vote or control the disposition of those shares. However, this
includes 625,000 shares held by V&A Holding Co., Ltd., with respect to which Ms.
Raksriaksorn and her husband, Vichai Raksriaksorn, have voting and investment
power over by virtue of their shareholding and directorship in such company.
(4) Mr. Bunyaketu's business address at Thai Oil Company Limited is 123 Sun
Tower Building B, 12th Floor, Vipavadee Rangsit Road, Ladyao, Jatujuk, Bangkok
10900, Thailand.
(5) This excludes 5,748,000 shares owned by his uncle, Vichai Raksriaksorn, as
his separate property. Mr. Niphon Raksriaksorn disclaims all beneficial interest
in those shares, as well as any right to vote or control the disposition of
those shares.
Mr. Niphon Raksriaksorn has been employed at King Power since 1996, when he
joined as a Project Coordinator. He was promoted to Executive Secretary,
Management's Office, in 1997, and to Manager - CEO's Office, in 1999, a position
he currently holds.
(6) This includes the 13,500 shares held by Capitalux Co., Ltd. and 625,000
shares held by V&A Holding Co., Ltd., but excludes such number of shares from
the shareholdings of Vichai Raksriaksorn, Viratana Suntaranond, and Aimon
Raksriaksorn to avoid counting such numbers of shares more than once. This does
not include the 1,037,883 shares held by Niphon Raksriaksorn, as Mr. Niphon
Raksriaksorn is not a director or executive officer of the Company.
46
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following companies, which are owned or controlled by one or more
of the directors of the Company, had transactions with the Company during the
2002 fiscal year and are likely to have similar transactions with the Company in
the future. The related amounts are disclosed in Note 11 "Related Party and
Director Transactions" in Notes To Consolidated Financial Statements. As
discussed in Note 11, certain advances to affiliates have been advanced by those
entities to individuals who are officers, directors and shareholders of the
Company. Subsequent to December 31, 2001, Vichai Raksriaksorn and Viratana
Suntaranond personally guaranteed all amounts receivable by the Company. All
transactions were on terms and conditions and at prices substantially similar to
those that these companies would have negotiated with unrelated third parties
for the same goods and services.
Thai Nishikawa International Co., Ltd.
Ms. Aimon Raksriaksorn was a Director and Executive Officer of this
company until August 1st, 2002 when she resigned, whose main business is a
manufacturer of costume jewelry for exporting.
Lengle (Thailand) Co., Ltd.
Mr. Suwan Panyapas is the Director, Executive Officer, and Stockholder of this
company. Along with Mr. Vichai Raksiaksorn, Mr. Viratana Suntaranond, and Ms.
Aimon Raksriaksorn, they are also stockholders of this company, whose main
business was the Central Buying Office for local merchandise sold to KPT. Other
than the existing loan outstanding owed to KPG's subsidiary, the Company
currently has no business activities. The Company has been dormant since the end
of 1997.
Niji (Thailand) Co., Ltd.
Mr. Viratana Suntaranond is the Director and Shareholder of this company, whose
main business is the manufacture of ballpoint and plastic-tip pens under the
brand name "Niji". Since 1998, when other suppliers raised the cost of shopping
bags to an unacceptable level, KPG's subsidiaries purchased shopping bags from
Niji at a much lower price than offered generally in the market.
Forty Seven Co., Ltd.
Mr. Vichai Raksriaksorn and Mr. Viratana Suntaranond are the shareholders of
this company, whose main business is to act as the holding company for an
Airport duty free operation in Hong Kong. This company's operations are
currently being liquidated and it is in the process of recovering the owners'
investment in this business.
Top (China) Group Co., Ltd.
Mr. Vichai Raksriaksorn and Mr. Viratana Suntaranond are the shareholders of
this company, whose main business is acting as the holding company for a
souvenir shop operation in Mainland China. The business of this company was
transferred to the Forest Ministry of the People's Republic of China in 1998
King Power International Co., Ltd.
Mr. Vichai Raksriaksorn, Mr. Viratana Suntaranond, and Ms. Aimon Raksriaksorn
are Directors and shareholders of this Company. Mr. Raksriaksorn resigned from
Directorship on May 13th 2002 and was replaced by Mr. Suwan Panyapas. Mr.
Raksriaksorn still serves as Chairman of the Company, whose main business is the
operation of a duty free store in downtown Bangkok where merchandise is sold to
international travelers.
Downtown D.F.S. (Thailand) Co., Ltd.
Mr. Vichai Raksriaksorn is the shareholders of this company. The main business
of this company is the operation of a duty free store in downtown Bangkok.
During the year 1998, this company has transferred its operation to King Power
International Co., Ltd. (KPI) and is in the process of settling proceeds from
sales of this business with KPI.
47
Airports Authority of Thailand (AAT)
AAT is a governmental agency and it owns five percent of the stock of King Power
Duty Free Co., Ltd.
King Power on Board Sale and Services Co., Ltd.
Mr. Vichai Raksriaksorn and Ms. Aimon Raksriaksorn were the Directors of this
company, until May 13th, 2002 when they both resigned and were replaced by Mr.
Suwan Panyapas. Mr. & Ms. Raksiraksorn and Mr. Viratana Suntaranond are the
shareholders of this company. The main business of this company was the
operation of duty free sales on board the airplanes under contract with Thai
Airways International Public Co., Ltd. In April 2002, the company's license
expired and it ceased operations.
Lengle TAT (Phnom Penh) Duty Free Co., Ltd.
Mr. Suwan Panyapas is the Director and Executive Officer of this company,
together with Mr. Vichai Raksriaksorn and Ms. Aimon Raksriaksorn are the
shareholders of this company. The main business is operating the duty free
retail in Phnom Penh, Cambodia.
Infotel Communication (Thailand) Co., Ltd.
Mr. Suwan Panyapas is the Director, Executive Officer and Shareholder of this
company, together with Ms. Aimon Raksriaksorn is also the shareholder of this
company. The main business of this company, which holds the appropriate license
from the Telecommunications Authorities in Thailand, is to operate an
information providing service to the public.
ITEM 14 CONTROLS AND PROCEDURES
Within ninety days prior to the date of this report, our Chief Executive Officer
and Chief Financial Officer performed an evaluation of our disclosure controls
and procedures, which have been designed so that the information required to be
disclosed in the reports we file or submit under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
time periods specified by the Commission. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective. We have made no significant changes in
our internal controls or in other factors that could significantly affect our
internal controls since the date of that evaluation.
48
PART IV
ITEM 15 EXHIBITS AND REPORTS ON FORM 8-K
There follows a list of all exhibits filed with Form 10-K, including those
incorporated by reference.
Exhibit
No. Name or Description
- ------- -------------------
3.1 Articles of Incorporation of King Power International Group Co., Ltd.
(1)
3.2 By-Laws of King Power International Group Co., Ltd. (1)
3.3 Certification Document of King Power Duty Free Co., Ltd. (1)
3.4 Certification Document of King Power Tax Free Co., Ltd. (1)
3.5 Memorandum of Association of King Power International Group Co., Ltd.
(1)
10.4 Contract - Permission to Sell- Bangkok Airport with AAT dated 10/02/97
(was 10.21) (2)
10.5 Maintenance & Repairs Agreement with Logic Company Limited, dated
09/01/98 for King Power Tax Free Co., Ltd. (was 10.29) (2)
10.6 Maintenance & Repairs Agreement with Logic Company Limited, dated
09/01/98 for King Power Duty Free Co., Ltd. (was 10.31) (2)
10.7 Memorandum with Thai Military Bank dated 08/21/98 (was 10.33) (2)
10.8 Guarantee for Thai Military Bank dated 08/21/98 (was 10.34) (2)
10.9 Guarantee for Thai Military Bank dated 08/21/98 (was 10.35) (2)
10.10 Guarantee for Thai Military Bank dated 08/21/98 (was 10.36) (2)
10.11 Memorandum with Thai Military Bank dated 11/19/98 (was 10.37) (2)
10.12 Memorandum with Thai Military Bank dated 11/19/98 (was 10.38) (2)
10.13 Guarantee for Thai Military Bank dated 11/19//98 (was 10.39) (2)
10.14 Guarantee for Thai Military Bank dated 11/19//98 (was 10.40) (2)
10.15 Guarantee for Thai Military Bank dated 11/19//98 (was 10.41) (2)
10.16 Guarantee for Thai Military Bank dated 11/19//98 (was 10.42) (2)
10.17 Notice for Deduction with Thai Military Bank dated 11/25/98 (was 10.43)
(2)
10.18 Pledge for Thai Military Bank dated 12/03/98 (was 10.44) (2)
10.19 Letter of Consent with Thai Military Bank dated 12/03/98 (was 10.45)
(2)
10.20 Letter of Consent with Thai Military Bank dated 12/03/98 (was 10.46)
(2)
10.24 Guarantee for Siam City Bank dated 11/12/98 (was 10.50) (2)
10.25 Letter of Consent with Siam City Bank dated 11/27/98 (was 10.51) (2)
10.26 Pledge for Siam City Bank dated 11/27/98 (was 10.52) (2)
10.27 Letter of Consent with Siam City Bank dated 12/30/98 (was 10.53) (2)
10.28 Pledge for Siam City Bank dated 12/30/98 (was 10.54) (2)
10.29 Contract of Permission for Operating Business Selling Photo
Developing-Duplicating-Enlarging Services at Bangkok International
Airport KPT#1 Contract No. 6-22/2542 (was 10.56) (3)
10.30 Contract of Permission for Operating Business Selling Medicines,
Medical Supplies and Health Products at Bangkok International Airport
KPT#3 Contract No. 6-61/2544 (was 10.57) (3)
10.34 Memorandum Attached to Contract of Permission for Operating Business of
Selling Merchandize and Souvenirs at Bangkok International Airport No.
6-01/2541 dated 2 October 1997 Amendment 1 KPT#10 (was 10.63) (3)
10.38 Pledge Agreement of Debenture dated 6/17/99 FN#2 SCC (Siam City Bank)
(was 10.77) (3)
10.39 Letter of Consent for Bank Deposits Deduction dated 6/17/99 FN#3 SCC
(was 10.78) (3)
10.40 Contract of Permission for Operating Business Selling Merchandise and
Souvenirs in Transit Lounge International Passenger Terminal Bangkok
International Airport dated 9 June 2000 Contract no. 6-16/2543 (4)
10.41 Lease Agreement for Space in Building Bangkok International Airport
dated 1-16/2543 (4)
10.44 Contract of Permission for Operating Business Selling Souvenirs and
Miscellaneous Items in Domestic Passenger Terminal Bangkok
International Airport dated 9 November 2000 Contract no. 6-10/2543 (4)
10.45 Lease Agreement for Space in Building of Bangkok Domestic Airport
Contract no.1-10/2543 (4)
10.46 Contract of Permission for Operating Business Selling Books, Magazines,
Printed Materials, Cards, Stationery; Selling and Renting Tapes, VDO,
CD; Providing Services for printing Name Cards, Making Rubber Stamps,
Graphic, Advertising Stickers & Photo Copies at Bangkok International
Airport dated 21 January 2000 Contract no. 6-03/2543 (4)
10.47 Lease Agreement for Space in Building Bangkok International Airport
dated 21 January 2000 Contract no. 1-03/2543 (4)
10.52 Memorandum of Amendment Contract of Permission for Operating Business
Selling Duty Free Merchandise and Leasing Spaces for Operation Bangkok
International Airport, and Reginal Airports Contract No. 6-04/2539
dated 6 March 1996 (Amendment 1) dated 7-11-00 (4)
49
Exhibit
No. Name or Description
- ------- -------------------
10.53 Memorandum of Amendment Contract of Permission for Operating Business
Selling Duty Free Merchandise and Leasing Spaces for Operation Bangkok
International Airport, and Regional Airports Contract No. 6-04/2539
dated 6 March 1996 (Amendment 2) dated 11-10-00 (4)
10.54 Lease Agreement for Space in Building 305 Bangkok International
Airport, Agreement No.2-01/2545 (4)
10.57 Merchandise and Souvenir Business Operation at the Chiang Mai Airport
Contract no. Chor.Mor.1-27/2543 (4)
10.58 Agreement for Pledge of Instrument Issued to person by Name dated
12-28-00 (4)
10.59 Guarantee Contract: Siam Commercial Bank (Baht 125 million) dated
7-20-00 (4)
10.60 Guarantee Contract: Siam Commercial Bank (Baht 385 million) dated
7-20-00 (4)
10.61 Guarantee Contract: Siam Commercial Bank (Baht 125 million) dated
7-20-00 (4)
10.62 Guarantee Contract: SICCO (4)
10.63 Guarantee Contract: Siam City Bank dated 8-23-00 (4)
10.64 Letter of Consent: Siam City Bank dated 8-23-00 (4)
10.65 Letter of Consent for Deduction of Bank Deposit dated 12-28-00 (4)
10.66 Agreement for Pledge of Bank Deposit dated 11-10-00 (4)
10.67 Overdraft Agreement dated 6-20-00 (4)
10.68 Guarantee Contract dated 6-20-00 (4)
10.69 Agreement for pledge of Rights under Deposit dated 6-20-00 (4)
10.70 Loan Facility Agreement dated 11-15-00 (4)
10.71 Letter of Consent & Overdraft Facility Agreement dated 11-15-00 (4)
10.72 Form A: Agreement for Pledge of Rights under Deposit Instrument dated
11-27-00 (4)
10.73 Continuing Commercial Credit Agreement dated 11-15-00 (4)
10.74 Guarantee to Citibank, N.A./Citicorp Leasing (Thailand) Ltd. (4)
10.75 Siam Tower Lease Agreement dated 4-30-01 (5)
10.76 Lease Agreement for Space in Bangkok International Airport, Agreement
No. 7- 21/2544 (5)
10.77 Lease Agreement for Rooms in Bangkok International Airport, Agreement
No. 1- 79/2544 (5)
10.78 Lease Agreement for Space in Bangkok International Airport, Agreement
No. 7- 40/2544 (5)
10.79 Lease Agreement for Space in Bangkok International Airport, Agreement
No. 7- 32/2544 (5)
10.80 Contract of Permission for Operating Business of Selling Thailand's
Brand Merchandise and Souvenirs at Bangkok International Airport,
Contract No. 6-34/2544 (5)
10.81 Contract of Permission for Operating Business of Selling Thailand's
Brand Merchandise and Souvenirs at Bangkok International Airport,
Contract No. 6-53/2544 (5)
10.82 Contract of Permission of Operating Business of Selling Medicines,
Medical Supplies and Equipment at Bangkok International Airport,
Contract No. 6-61/2544 (5)
10.83 Lease Agreement for Space in Chiang Mai Airport, Agreement No.
Chor.Mor.1- 28/2543 (5)
10.84 Contract of permission for Operating Business of Selling Merchandise
and Souvenirs at Chiang Mai Airport, Contract No. Chor.Mor.1-27/2543
(5)
10.85 Memorandum of Amendment Contract of Permission for Operating Business
of Selling Merchandise and Souvenirs at Chiang Mai Airport (No.
Chor.Mor.1-27/2543 dated 19 March 2001) Amendment 1 dated 6-05-01 (5)
10.86 Memorandum of Amendment Lease Agreement for Space in Chiang Mai Airport
(No. Chor.Mor.1-28/2543 dated 19 March 2001) Amendment 1 dated 6-05-01
(5)
10.87 Krung Thai Bank / Application for Credit Facilities: Letter of Credit
and trust Receipt dated 9-13-01 (5)
10.88 Krung Thai Bank / Application for credit Facilities: Forward Contract
dated 9-13-01 (5)
10.89 Siam City Bank / Pledge Agreement of Financial Instrument dated
10-18-01 (5)
10.90 Export-Import Bank of Thailand / Guarantee Contract dated 11-01-01 (5)
10.91 Bangkok First Investment & Trust / Application for Credit Facilities
dated 11-20-01 (5)
10.92 Thai Military Bank / Bank Deposit Pledge Agreement dated 12-11-01 (5)
10.93 UOB Radanasin Bank / Guarantee Contract dated 3-27-01 (5)
10.94 Siam City Bank / Guarantee Contract dated 5-21-01 (5)
10.95 SICCO / Guarantee Contract dated 12-24-01 (5)
10.96 Siam Commercial Bank / Loan Agreement (5)
10.97 UOB Radanasin Bank / Guarantee Contract dated 3-27-01 (5)
10.98 Siam Commercial Bank / Application for Credit Facilities dated 10-16-01
(5)
10.99 Siam Commercial bank / Guarantee Contract dated 10-16-01 (5)
10.100 Building 305 Space Lease Agreement, Bangkok International Airport,
Agreement No. 2-01/2545 (6)
50
Exhibit
No. Name or Description
- ------- -------------------
10.101 Building Space Lease Agreement, Bangkok International Airport,
Agreement No. 1-01/2545 (6)
10.102 Agreement of Permission for Selling Duty-Free Merchandise, Bangkok
International Airport & Regional Airports, Agreement No. 1/2545 (6)
10.103 Agreement of Permission for Selling Duty-Free Merchandise, Bangkok
International Airport & Regional Airports, Agreement No. 3/2545 (6)
10.104 Building Space Lease Agreement, Bangkok International Airport &
Regional Airports, Agreement No. 2/2545 (6)
10.105 Building Space Lease Agreement, Bangkok International Airport &
Regional Airports, Agreement No. 4/2545 (6)
10.106 Building Space Lease Agreement, Phuket Airport, Agreement No. PK.1/2545
(6)
10.107 Cargo Building Space Lease Agreement, Chiang Mai Airport, Agreement No.
CM.1/2545 (6)
10.108 Building Space Lease Agreement, Hat Yai Airport, Agreement No.
HY.9/2545 (6)
10.109 Cargo Building Space Lease Agreement, Chiang Mai Airport, Agreement No.
CM.2/2545 (6)
10.110 Memorandum of Amendment Attached to the Building Space Lease Agreement,
Bangkok International Airport (Agreement No. 1-01/2545, dated November
20, 2001), 1st Amendment (6)
10.111 Memorandum of Amendment Attached to the Building Space Lease Agreement,
Bangkok International Airport & Regional Airports (Agreement No.
4/2545, dated February 12, 2001), 1st Amendment (6)
10.112 Application for Credit Facilities & Related Documents, Bangkok First
Investment & Trust Public Company Limited (6)
10.113 Application for Credit Facilities & related Documents, Krung Thai Bank,
dated October 9, 2002 (6)
10.114 Application for Credit Facilities & Related Documents, Krung Thai Bank,
dated October 29, 2002 (6)
10.115 Letter of Guarantee, Thai Military Bank, dated August 30, 2002 (6)
10.116 Memorandum of Understanding on Pledge of Deposit, Thai Military Bank,
dated July 29, 2002 (6)
10.117 Attachment to Bill of Exchange dated October 1, 2002 (6)
21.1 Significant Subsidiaries and Jurisdictions of Incorporation
(1) As filed with the Company's Form 10-KSB/A on May 7, 1998
(2) As filed with the Company's Form 10-KSB on April 9, 1999
(3) As filed with the Company's Form 10-KSB/A on April 30, 2000
(4) As filed with the Company's Form 10-KSB March 30, 2001
(5) As filed with the Company's Form 10-KSB/A on April 2, 2002
(6) As file herewith
Reports on Form 8-K
None
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 28th day of March,
2003.
KING POWER INTERNATIONAL GROUP CO., LTD.
By: /s/ Vichai Raksriaksorn
------------------------
Vichai Raksriaksorn
Group Chairman, Chief Executive Officer and Director
By: /s/ Viratana Suntaranond
-------------------------
Viratana Suntaranond
Group Chief Financial Officer, Secretary, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Vichai Raksriaksorn Group Chairman, Chief Executive March 28, 2003
- ------------------------ Officer and Director
Vichai Raksriaksorn
/s/ Viratana Suntaranond Group Chief Financial Officer, March 28, 2003
- ------------------------- Secretary and Director
Viratana Suntaranond
/s/ Aimon Raksriaksorn Group Deputy Managing Director March 28, 2003
- ----------------------- and Director
Aimon Raksriaksorn
/s/ Suwan Panyapas Director March 28, 2003
- -------------------
Suwan Panyapas
/s/ Dharmnoon Prachuabmoh Director March 28, 2003
- --------------------------
Dharmnoon Prachuabmoh
/s/ Chulchit Bunyaketu Director March 28,2003
- ----------------------
Chulchit Bunyaketu
/s/ Preeyaporn Thavornun Director March 28,2003
- ------------------------
Preeyaporn Thavornun
52
Section 302
CERTIFICATION
I, Vichai Raksriaksorn, certify that:
1. I have reviewed this annual report on Form 10-K of King Power
International Group Co., Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 28th 2003
/s/ Vichai Raksriaksorn
-----------------------
Vichai Raksriaksorn
Chief Executive Officer
53
Section 302
CERTIFICATION
I, Viratana Suntaranond, certify that:
1. I have reviewed this annual report on Form 10-K of King Power
International Group Co., Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 28th, 2003
/s/ Viratana Suntaranond
------------------------
Viratana Suntaranond
Chief Financial Officer
54
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of King Power International Group Co., Ltd.
(the "Company") on Form 10-K for the period ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Vichai Raksrikasorn, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Vichai Raksriaksorn
-----------------------
Vichai Raksriaksorn
Chief Executive Officer
March 28th, 2003
55
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of King Power International Group Co., Ltd.
(the "Company") on Form 10-K for the period ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Viratana Suntaranond, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Viratana Suntaranond
------------------------
Viratana Suntaranond
Chief Financial Officer
March 28th, 2003
56