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FORM 10-Q
- --------------------------------------------------------------------------------
For the quarterly period ended June 30, 2003
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT 0F 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the transition period from _____to ______
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Commission File Number: 1-13205
KING POWER INTERNATIONAL GROUP CO., LTD.
(Exact name of registrant as specified in its charter)
Nevada 75-2641513
(State of incorporation) (IRS Employer ID number)
25th-27th Floor, Siam Tower, 989 Rama 1 Road, Patumwan, Bangkok 10330 Thailand
(Address of principal executive offices)
011 (662) 658-0090
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the proceeding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: August 4, 2003: 20,250,000
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarterly ended June 30, 2003
Table of Contents
Page
Part I - Financial Information
Item 1 Financial statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 23
Item 4 Controls and Procedures 39
Part II - Other Information
Item 1 Legal Proceeding 29
Item 2 Changes in Securities 29
Item 3 Defaults Upon Senior Securities 29
Item 4 Submission of Matters to a Vote of Securities Holders 29
Item 5 Other Information 30
Item 6 Exhibits and Reports on Form 8-K 30
2
Part I - Financial Information
Item I - Financial Statement
Independent Accountants' Review Report
The Board of Directors and Shareholders
King Power International Group Co., Ltd. and Subsidiaries
We have reviewed the consolidated balance sheet of King Power International
Group Co., Ltd. and Subsidiaries (a Nevada Corporation) as of June 30, 2003 and
2002, and the related consolidated statements of operations, shareholders'
equity and cash flows for the three months and six months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of King Power International Group Co., Ltd. and Subsidiaries
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principals.
/s/ Smith, Gray, Boyer & Daniell PLLC
SMITH, GRAY, BOYER & DANIELL
A Professional Limited Liability Company
Dallas, Texas
August 14, 2003
3
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Note 2003 2002
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,752,626 $ 15,509,155
Trade accounts receivable 408,896 1,488,965
Refundable value added tax 4 946,501 833,291
Trade accounts and management fee receivable from related
companies, net 11 1,048,333 154,870
Merchandise inventories, net 38,783,434 32,022,091
Restricted fixed deposits 3 20,507,516 19,729,589
Deferred income tax assets 10 4,160,568 3,745,025
Prepaid expenses 2,070,792 1,850,981
Other current assets 426,558 421,663
------------ ------------
Total current assets 82,105,224 75,755,630
Property, plant and equipment, net 5 6,871,774 6,374,932
Loans and accrued interest from related companies and directors, net 11 8,963,189 9,586,184
Investments and other assets 3,765,293 3,626,698
------------ ------------
TOTAL ASSETS $101,705,480 $ 95,343,444
============ ============
See accountants' review report
The accompanying footnotes are an integral part of these financial statements
4
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, December 31,
Note 2003 2002
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and bank loans 6 $ 21,653,287 $ 17,193,843
Current portion of long-term loan 8 17,159 36,926
Trade accounts payable 7,919,629 12,518,038
Accrued concession fees 7 4,472,881 4,864,882
Accrued corporate income tax 1,227,643 4,222,302
Other current liabilities 4,005,277 8,852,914
------------- -------------
Total current liabilities 39,295,876 47,688,905
Long-term loan, net 8 26,188,073 13,908,201
------------- -------------
Total liabilities 65,483,949 61,597,106
------------- -------------
Minority interest 1,564,832 1,389,075
Shareholders' equity 9
Common stock, $0.001 par value, 100,000,000
shares authorized, 20,250,000 shares issued 20,250 20,250
and outstanding
Additional paid in capital 20,848,145 20,848,145
Retained earnings 14,847,432 13,546,681
Legal reserve 82,233 82,233
Translation adjustments (1,141,361) (2,140,046)
------------- -------------
Total shareholders' equity 34,656,699 32,357,263
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 101,705,480 $ 95,343,444
============= =============
See accountants' review report
The accompanying footnotes are an integral part of these financial statements
5
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED JUNE 30,
Six months ended June 30, Three months ended June 30,
Note 2003 2002 2003 2002
------------ ------------ ------------ ------------
Sales revenue $ 84,498,377 $ 84,295,164 $ 29,984,383 $ 39,775,853
Cost of sales
Cost of merchandise sold 45,882,603 40,494,959 17,105,041 19,682,729
Concession fees 7 17,082,675 15,917,472 7,144,608 7,548,213
------------ ------------ ------------ ------------
Total cost of sales 62,965,278 56,412,431 24,249,649 27,230,942
------------ ------------ ------------ ------------
Gross profit 21,533,099 27,882,733 5,734,734 12,544,911
Operating expenses
Selling and administrative expenses 19,154,949 14,297,590 9,909,180 7,675,342
------------ ------------ ------------ ------------
Total operating expenses 19,154,949 14,297,590 9,909,180 7,675,342
------------ ------------ ------------ ------------
Income (loss) from operations 2,378,150 13,585,143 (4,174,446) 4,869,569
Other income (expense)
Interest income 506,468 750,979 266,351 350,842
Interest expense (837,896) (764,076) (443,219) (413,601)
Gain (loss) on foreign exchange, net (116,249) (50,009) (57,847) (73,717)
Other income 411,562 555,737 150,040 270,494
------------ ------------ ------------ ------------
Total other income (expense) (36,115) 492,631 (84,675) 134,018
------------ ------------ ------------ ------------
Net income (loss) before income tax 2,342,035 14,077,774 (4,259,121) 5,003,587
Income tax (expense) benefit 10 (906,705) (4,390,079) 1,104,624 (1,590,625)
------------ ------------ ------------ ------------
Net income (loss) before minority interest 1,435,330 9,687,695 (3,154,497) 3,412,962
Minority interest (134,579) (461,423) 70,258 (173,991)
------------ ------------ ------------ ------------
Net income (loss) attributable to common
shares $ 1,300,751 $ 9,226,272 $ (3,084,239) $ 3,238,971
============ ============ ============ ============
Weighted average number of common shares
outstanding 20,250,000 20,250,000 20,250,000 20,250,000
Basic earnings per share $ 0.06 $ 0.46 $ (0.15) $ 0.16
See accountants' review report
The accompanying footnotes are an integral part of these financial statements
6
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED JUNE 30,
Six months ended June 30, Three months ended June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net income (loss) attributable to common shares $ 1,300,751 $ 9,226,272 $ (3,084,239) $ 3,238,971
Other comprehensive income, net of tax:
Foreign currency translation adjustment 998,685 1,743,352 711,998 1,351,786
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 2,299,436 $ 10,969,624 $ (2,372,241) $ 4,590,757
============ ============ ============ ============
See accountants' review report
The accompanying footnotes are an integral part of these financial statements
7
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED JUNE 30,
Six months ended June 30, Three months ended June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,300,751 $ 9,226,272 $ (3,084,239) $ 3,238,971
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 934,241 712,841 480,125 403,154
Unrealized loss (gain) on foreign exchange 95,059 (1,736) 53,764 103,619
Deferred income tax assets (415,543) (322,776) (378,115) (264,926)
Decrease (increase) in operating assets:
Trade accounts receivable 1,068,952 170,372 33,734 100,254
Refundable valued added tax (113,210) (399,146) 399,438 (111,757)
Receivables and loans to related companies and
directors (313,634) 1,368,948 (734,423) 2,454,586
Merchandise inventories (6,761,343) (13,912,101) (4,150,897) (7,299,136)
Prepaid expenses and other current assets (224,706) (104,905) 484,979 13,197
Other long-term assets (138,595) (1,966,148) (107,050) (1,954,108)
Increase (decrease) in operating liabilities:
Trade accounts payable (4,546,575) 558,862 (5,758,321) 1,024,465
Accrued concession fees (392,001) 961,216 781,070 (80,996)
Other current liabilities (7,842,296) 3,531,546 (4,453,611) 1,090,988
Minority interest 175,757 529,836 (40,692) 227,502
Translation adjustments 998,685 1,743,352 711,998 1,351,786
------------ ------------ ------------ ------------
Net cash provided by (used in) operating $(16,174,458) $ 2,096,433 $(15,762,240) $ 297,599
activities
See accountants' review report
The accompanying footnotes are an integral part of these financial statements
8
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE QUARTERS ENDED JUNE 30,
Six months ended June 30, Three months ended June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets $ (1,431,083) $ (2,296,921) $ (819,489) $ (1,362,285)
(Increase) decrease in restricted fixed deposits (777,927) (5,458,325) (280,816) (2,729,299)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing (2,209,010) (7,755,246) (1,100,305) (4,091,584)
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) bank overdrafts 1,650,249 (597,861) 1,650,249 (69)
Proceeds from (repayment of) bank loans 2,813,929 6,986,981 3,100,088 898,650
Proceeds from (repayment of) long-term loan 12,260,105 401,924 497,533 407,755
------------ ------------ ------------ ------------
Net cash provided by (used in) financing 16,724,283 6,791,044 5,247,870 1,306,336
activities
Effect of exchange rate changes on cash and cash
equivalents (97,344) (30,128) (39,579) (47,127)
------------ ------------ ------------ ------------
Net increase in cash and cash equivalents (1,756,529) 1,102,103 (11,654,254) (2,534,776)
Cash and cash equivalents, beginning of period 15,509,155 3,955,240 25,406,880 7,592,119
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 13,752,626 $ 5,057,343 $ 13,752,626 $ 5,057,343
============ ============ ============ ============
Supplemental cash flow information
Cash paid during the period:
Interest $ 821,158 $ 773,932 $ 429,508 $ 400,901
Income taxes $ 4,308,197 $ 1,436,769 $ 4,295,266 $ 1,423,674
See accountants' review report
The accompanying footnotes are an integral part of these financial statements
9
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002 (in US $)
Common Stock Additional Comprehensive
Shares Amount Paid in Capital Income
-------------------------------------------------------------
Balances at January 1, 2002 20,250,000 20,250 20,848,145
Net Income 9,226,272
Other comprehensive income, net of tax
Foreign currency translation 1,743,352
adjustment
-------------
Comprehensive Income 10,969,624
------------------------------------------------=============
Balances at June 30 2002 20,250,000 20,250 20,848,145
=============================================
Balances at January 1, 2003 20,250,000 20,250 20,848,145
Net Income 1,300,751
Other comprehensive income, net of tax
Foreign currency translation adjustment 998,685
-------------
Comprehensive Income 2,299,436
------------------------------------------------=============
Balances at June 30, 2003 20,250,000 20,250 20,848,145
=============================================
Accumulated
Other
Retained Legal Comprehensive
Earnings Reserve Income Total
-------------------------------------------------------------
Balances at January 1, 2002 1,446,618 82,233 (2,573,522) 19,823,724
Net Income 9,226,272 9,226,272
Other comprehensive income, net of tax
Foreign currency translation 1,743,352 1,743,352
adjustment
Comprehensive Income
-------------------------------------------------------------
Balances at June 30 2002 10,672,890 82,233 (830,170) 30,793,348
=============================================================
Balances at January 1, 2003 13,546,681 82,233 (2,140,046) 32,357,263
Net Income 1,300,751 1,300,751
Other comprehensive income, net of tax
Foreign currency translation adjustment 998,685 998,685
Comprehensive Income
-------------------------------------------------------------
Balances at June 30, 2003 14,847,432 82,233 (1,141,361) 34,656,699
=============================================================
See accountants' review report
The accompanying footnotes are an integral part of these financial statements
10
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
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 of Thailand Public Company Limited (AOT), (previously
named "Airports Authority of Thailand" (AAT)) a non- exclusive license to
operate duty free stores for all stores of this specific nature. Prior to
January 1, 2002, KPD was one of two operators 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 Bangkok and Phuket airports located throughout Thailand. KPT holds
the operating license granted by the AOT 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 June 30, 2003 and December
31, 2002, 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.
11
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
Foreign Currency Translation and Transactions - The financial position and
results of operations of the Company's foreign subsidiaries are determined using
the local currency as the functional currency. Assets and liabilities of these
subsidiaries are translated at the prevailing exchange rates in effect at each
period end. Contributed capital accounts are translated using the historical
rate of exchange when capital was injected. Income statement accounts are
translated at the average rate of exchange during the year. Translation
adjustments arising from the use of different exchange rates from period to
period are included in the cumulative translation adjustment account in
shareholders' equity. Gains and losses resulting from foreign currency
transactions are included in operations. Gains or losses on foreign exchange
transactions are recognized as incurred in the consolidated statements of
income. Differences between the forward rate and the spot rate in forward
exchange contracts are amortized as revenue and expense over the period of the
contract.
The exchange rates at June 30, 2003, and December 31, 2002, were $1 = Baht
42.047 and Baht 43.240, respectively. The average exchange rates for the six
months ended June 30, 2003 and 2002, were $1= Baht 42.5986, Baht 43.2317,
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 AOT, KPT is
required to pay concession fees, rental and services fees, and other related
expenses at a fixed monthly rate as defined in the concession agreement.
According to the concession agreement with the AOT, 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.
12
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
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.
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 2002 financial statements and related
footnotes have been reclassified to conform to the 2003 presentation.
3. RESTRICTED FIXED DEPOSITS
June 30, 2003 December 31, 2002
----------------- -----------------
Restricted fixed deposits $ 20,507,516 $ 19,729,589
Interest rates 0.75% - 2.50% 0.75% - 3.00%
As of June 30, 2003, and December 31, 2002, 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
June 30, 2003 December 31, 2002
----------------- -----------------
Land $ 625,015 $ 607,770
Building 391,138 380,346
Leasehold improvements 8,841,807 7,613,367
Office equipment and fixtures 3,534,932 3,475,607
Vehicles 1,221,947 1,045,927
Work in progress 43,045 109,351
----------------- -----------------
Total cost 14,657,884 13,232,368
Less: accumulated depreciation (7,786,110) (6,857,436)
----------------- -----------------
Net book value $ 6,871,774 $ 6,374,932
================= =================
6. BANK OVERDRAFT AND LOANS FROM BANKS
June 30, 2003 December 31, 2002
----------------- -----------------
Bank overdraft $ 1,650,249 0
Trust receipts 3,592,830 $ 542,594
Short-term loan 16,410,208 16,651,249
----------------- -----------------
$ 21,653,287 $ 17,193,843
================= =================
As of June 30, 2003, and December 31, 2002, the Company has an
overdraft facility with commercial banks in Thailand totaling Baht 75.74 million
($ 1,801,318) and Baht 75.74 million ($ 1,751,619), respectively, bearing
interest at the Minimum Overdraft Rate ("MOR") plus 1.00% - 1.50% per annum. For
the six months ended June 30, 2003, the average rate of MOR was 5.75% -6.50% per
annum, and for the year ended December 31, 2002, the average rate MOR was 6.50%
- - 7.75%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 June 30, 2003, and December 31, 2002, trust receipts incurred by
KPD and KPT bear interest at the rates varying from 2.85% - 7.13%and 6.00% -
7.75% per annum, respectively, and are collateralized by fixed deposits, KPD's
land, and guaranteed by two directors of KPD, together with a related company.
As of June 30, 2003, and December 31, 2002, the Company has short-term
loans with various commercial banks in Thailand, bearing interest at rates of
3.60% - 4.60% and 2.25% - 5.65%per annum, respectively.
13
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
Trust receipts at June 30, 2003
Foreign currency borrowing by subsidiaries in Thailand Currencies Amount Interest rate (%)
-----------------------------------------------
- Under forward contract and T/R BAHT 2,384,758 $ 56,716 6.25
- Without forward contract USD 1,997,497 2,000,856 3.48 - 3.84
EUR 1,036,090 1,191,154 4.78 - 5.75
GBP 30,192 50,138 6.06 - 7.13
HKD 344,745 44,369 3.81 - 4.81
SGD 10,102 5,781 3.19
CHF 327,714 243,816 2.85 - 3.19
------------
$3,592,830
============
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
============
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 AOT and the Customs Department of Thailand, which included the right to
rent office space. Under the aforementioned agreements with the AOT 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 AOT were $4,472,881 and $4,864,882 as of June 30,
2003, and December 31, 2002, respectively. Concession fee expense for the six
months ended June 30, 2003 and 2002, was $17,082,675 and $15,917,472,
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)
- ------------ ------------------- --------------------- ------------- -------------------- -------------------- -------------
Airport Rental, Service & Collateral Airport Concession Rental, Service & Collateral
Year Concession Fees Other Expenses Fees Other Expenses
- ------------ ------------------- --------------------- ------------- -------------------- -------------------- -------------
2003 5,415 191 8,133 13,036 863 14,014
2004 12,434 376 7,869 25,614 1,852 14,524
2005 13,646 373 7,869 27,117 109 15,239
2006 5,037 93 7,280 28,332 27 15,907
On March 20, 2001, the AOT awarded the Company a contract, beginning January 1,
2002, to operate the duty free retail space as the only operator 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.
14
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
8. LONG-TERM LOANS, NET
Long-term liabilities as of June 30, 2003, and December 31, 2002, consist of the
following:
June 30, 2003 December 31, 2002
----------------- -----------------
Long-term loans $ 26,165,957 $ 13,900,906
Installment purchase payable 39,275 44,221
----------------- -----------------
26,205,232 13,945,127
Less: current portion of long-term debt (17,159) (36,926)
----------------- -----------------
Total $ 26,188,073 $ 13,908,201
================= =================
As of June 30, 2003 and December 31, 2002, long-term loans consist of loans from
banks carrying interest rates of 4.00% - 6.62% and 3.60% - 7.25% per annum,
respectively. The long-term loans are secured by the Company's land and building
and guaranteed by a director of the Company (see Note 6).
Long term loans as of June 30, 2003, and December 31, 2002, are due as follows:
June 30, 2003 December 31, 2002
----------------- -----------------
Installment purchase obligation
2003 $ 6,202 $ 12,060
2004 12,402 12,060
2005 12,402 12,060
2006 8,269 8,041
----------------- -----------------
Total $ 39,275 $ 44,221
================= =================
Long-term loan installment payments
2003 $ 4,756 $ 24,866
2004 11,891,455 11,563,367
2005 14,269,746 2,312,673
----------------- -----------------
Total $ 26,165,957 $ 13,900,906
================= =================
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 acquisition 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 interest. These 1,200,000 shares of
common stock were represented by the following components:
15
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
-----------------------------------------------------------------------------
Beginning Balance at 12/31/96 275,316 $ 275 $ 151,186 $ (143,833) $ (6,000) $ 1,628
Form S-8 issuance at 5/8/97 924,684 925 69,717 -- -- 70,642
Reissuing of treasury stock -- -- -- -- 6,000 6,000
Net loss at 6/12/97 -- -- -- (78,270) -- (78,270)
-----------------------------------------------------------------------------
Total shareholders' equity
At June 12, 1997 1 ,200,000 $ 1,200 $ 220,903 $ (222,103) $ -- $ --
-----------------------------------------------------------------------------
(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 a dividend is declared; until such reserve
reaches 10% of the Company's authorized share capital.
10. INCOME TAX
The Company accounts for income taxes using the liability method, which requires
an entity to recognize the deferred tax liabilities and assets. Deferred income
taxes are recognized based on the differences between the tax bases of assets
and liabilities and their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years. Further, the effects of
enacted tax laws or rate changes are included as part of deferred tax expense or
benefits in the period that covers the enactment date. A valuation allowance is
recognized if it is more likely than not that some portion, or all of, a
deferred tax asset will not be realized.
The provision for income taxes consists of the following:
June 30,2003 June 30,2002
------------ ------------
Current income tax (payable)
United States $ -- $ --
Foreign (491,162) (4,067,303)
------------ ------------
(491,162) (4,067,303)
Deferred income tax
United States $ -- $ --
Foreign (415,543) (322,776)
------------ ------------
(415,543) (322,776)
------------ ------------
Net income tax expense $ (906,705) $ (4,390,079)
============ ============
Pre-tax income for foreign companies for the quarters ended June 30, 2003, was
$2,948,792 Current taxes payable are included in current liabilities.
16
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
The components of deferred income tax assets and liabilities were:
June 30, 2003 December 31, 2002
----------------- -----------------
Net operating loss carry forward 1,005,563 519,372
----------------- -----------------
4,940,536 4,286,352
Less: valuation allowance (779,968) (541,327)
----------------- -----------------
Deferred income tax assets $ 4,160,568 $ 3,745,025
================= =================
As a result, the effective income tax rate for the subsidiaries is different
from the standard income tax rate. The following reconciliation shows the
differences between the effective and standard rates.
For the six months ends June 30,
2003 2002
-----------------------------------
Standard income tax rate 35.00% 35.00%
Foreign tax rate difference (6.47%) (5.20%)
Less: valuation allowance 10.18% 1.38%
-----------------------------------
Effective income tax rate 38.71% 31.18%
===================================
As of June 30, 2003, and December 31, 2002, the Company has deferred income tax
assets relating to net operating loss carry forwards for income tax purposes of
$1,005,563 and $519,372, 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.
17
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
11. RELATED PARTY AND DIRECTOR TRANSACTIONS
The Company and its subsidiaries have business transactions with and have
advanced funds to various entities affiliated by common ownership and control
and to its officers, directors and shareholders. Where management has considered
it necessary, reserves have been provided for losses on collection of these
balances. In certain instances, advances to affiliated companies have been, in
turn, advanced to other related parties, including directors and shareholders of
the Company. Of the $8,396,725 and $7,677,049 shown in the following schedule as
receivable from King Power International Co., Ltd. (KPI), as of June 30, 2003,
and December 31,2002, respectively, reserves have been provided for $771,883 and
$627,821, respectively. Of the $3,219,583 and $3,691,148 shown on the following
schedule as receivable from King Power On Board Sales and Services Co., Ltd.
(KPO), as of June 30, 2003, and December 31, 2002, respectively, reserves have
been provided for $833,503 and $999,321, 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. From January
through May, 2003, the guarantors made payments in the amount of 5,000,000 Baht
($115,634) per month, including interest, against the KPO debt. For the months
of June and July, 2003, such payments were reduced to 2,000,000 Baht per month.
Balances at June 30, 2003 and December 31, 2002, with related companies and
directors are as follows (in $000s)
----------------------------------------------------------------------------------
Loans to and receivables from related Companies and Directors
As of June 30, 2003 Accounts Interest & other Management Fee Accounts
Receivable Loans receivables Receivables Total Payable
----------------------------------------------------------------------------------
King Power International Co., Ltd. 994 5,882 1,466 54 8,396 --
Forty Seven Co., Ltd. -- 2,478 656 -- 3,134 --
Downtown D.F.S. (Thailand) Co., Ltd. 402 2,283 361 2,195 5,241 --
Top China Group Co., Ltd. -- 238 17 -- 255 --
Lengle (Thailand) Co., Ltd. -- 856 104 -- 960 --
King Power On Board Sales and Services Co., Ltd. -- 2,743 477 -- 3,220 588
Thai Nishigawa International Co., Ltd. - -- -- -- - 35
Niji (Thailand) Co., Ltd. --- -- -- -- - 119
----------------------------------------------------------------------------------
1,396 14,480 3,081 2,249 21,206 742
Less: provision for doubtful accounts:
Related companies (402) (6,724) (1,874) (2,195) (11,195) --
----------------------------------------------------------------------------------
Total 994 7,756 1,207 54 10,011 742
==================================================================================
Director - to (from) -- -- -- -- - --
==================================================================================
18
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
----------------------------------------------------------------------------------
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) -- -- -- -- -- --
==================================================================================
Additionally, the AOT owns 5% of KPD common shares. As of June 30, 2003, and
December 31, 2002, KPD has accrued concession fees amounting to $3,614,997 and
$4,864,882, respectively.
19
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
Effective July 1, 2001, KPD and KPT increased the interest rate charged for new
loans to related companies from a range of 2.00%-2.50% to 3.56% - 3.74%,
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 after July 1, 2001. For related companies that did not
require additional loans from KPD and KPT, the interest rate charged to them did
not change.
During the six months ended June 30, 2003 and 2002, the Company had operating
transactions with related parties and directors as follows (in $000s):
For the six months ended June 30,
2003 2002
--------------- ---------------
Related Companies
Sales $ 1,205 $ 389
Interest income 281 648
Management fee income 190 262
Purchases 31,807 4,142
Concession fees 11,410 11,229
Purchases - assets -- 9
Services $ 1,900 $ 191
Directors
Interest and income $ -- $ --
12. COMMITMENTS AND CONTINGENT LIABILITIES (see also Note 7)
Lease commitments As of June 30, 2003, KPD and KPT had leasing commitments for
office space under non-cancelable operating lease agreements expiring in 2003.
The obligations of the subsidiaries under these lease agreements are set forth
as follows:
KPT KPD
--------------- ---------------
2003 $ 14,983 $ 143,489
Letters of guarantee
As of June 30, 2003, and December 31, 2002, KPT and KPD were contingently liable
for bank guarantees totaling $23.20 million and $21.17 million, respectively,
issued in favor of the AOT as a performance bond.
Unused letters of credit
As of June 30, 2003, and December 31, 2002, KPD and KPT have unused letters of
credit totaling $0.18 and $0.98 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 ($7.40 million at June 30, 2003 exchange rates). As of
June 30, 2003 the Company has paid in full (99 million Baht or $2.35 million),
for the purchase of the first tract of land and 42.47 million Baht ($1.01
million) of the 212.34 million Baht purchase price of the second tract of land.
The total $3.36 million in deposits are included in Investments and Other Assets
in the accompanying balance sheet. Beginning one year from date of contract,
interest begins to accrue at the MLR currently in effect. Under the terms of the
contract, the remaining balance in the amount of 169.87 million Baht ($4.04
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 June 30, 2003, and December 31, 2002, the affiliate had made no
borrowings on this facility.
20
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
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. On May 16, 2003,
the Company entered into a stipulation of settlement with the plaintiffs, which
is subject to the approval of the State District Court of Clark County, Nevada.
The Court has scheduled a hearing to approve the settlement on September 15,
2003. The stipulation of settlement provides for purchase price of $3.27 per
share for the minority interest shares plus a settlement fund of $1.7 million,
less certain related expenses and the representative plaintiffs' attorney fees,
will be distributed to the class members. On June 18, 2003, the Company filed a
preliminary information statement, which was amended on August 12, 2003, as an
amendment of the preliminary proxy statement. No shareholders' meeting will be
required because the controlling shareholders hold enough stock to assure
approval of the merger.
14. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for 2003, and 2002 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).
Adjustments
Quarters Ended June 30, 2003 Duty Free Tax Free All and
Retail Retail Others Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Segment Information
Revenue from external customers 71,400 13,137 -- (39) 84,498
Cost of merchandise sold 39,975 5,947 -- (39) 45,883
Concession fees 11,410 5,673 -- -- 17,083
Gross profit 20,016 1,517 -- - 21,533
Interest Income 462 95 -- (51) 506
Interest expense 836 19 34 (51) 838
Segment net income (loss) 2,699 (635) 1,279 (1,908) 1,435
Segment total assets 92,776 13,755 37,406 (42,232) 101,705
Expenditures for segment assets 840 591 -- -- 1,431
Depreciation expense 816 118 -- -- 934
Unrealized gain (loss) on exchange (52) - (43) --- (95)
Deferred income tax assets 2,658 1,503 -- - 4,161
Long - lived
Geographic Information - Sale Revenue asset
------------ ------------
Bangkok 80,247 10,158
Northern Thailand region 600 195
Southern Thailand region 3,651 284
------------ ------------
Total 84,498 10,637
============ ============
21
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
See Accountants' Review Report
Adjustments
Quarters Ended June 30, 2002 Duty Free Tax Free All and
Retail Retail Others Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Segment Information
Revenue from external customers 69,588 14,707 -- -- 84,295
Cost of merchandise sold 34,390 6,105 -- -- 40,495
Concession fees 11,229 4,688 -- -- 15,917
Gross profit 23,969 3,914 -- -- 27,883
Interest Income 675 144 16 (84) 751
Interest expense 754 49 45 (84) 764
Segment net income (loss) 9,216 1,028 9,226 (9,782) 9,688
Segment total assets 72,109 12,293 32,789 (34,471) 82,720
Expenditures for segment assets 2,223 74 -- -- 2,297
Depreciation expense 567 146 -- -- 713
Unrealized gain (loss) on exchange 95 (2) (91) -- 2
Deferred income tax assets 2,605 1,237 22 -- 3,864
Long - lived
Geographic Information Revenue asset
------------ ------------
Bangkok 80,419 5,200
Northern Thailand region 1,052 152
Southern Thailand region 2,824 180
------------ ------------
Total 84,295 5,532
============ ============
22
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
(1) Caution Regarding Forward-Looking Information
This quarter report contains certain forward-looking statements and information
relating to the Company that is based on the beliefs of the Company or
management as well as assumptions made by and information currently available to
the Company or management. When used in this document, the words "anticipate",
"believe", "estimate", "expect", and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company regarding future events and are subject to certain risks, uncertainties
and assumptions, including the risks and uncertainties noted. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected or intended. In each instance,
forward-looking information should be considered in light of the accompanying
meaningful cautionary statements herein.
(2) Effects on the Change in Foreign Currency Exchange System
On July 2, 1997, the Thai Government announced that the Thai Baht would
thereafter be converted to a "Managed Float" system for the relationship of the
Baht to other international currencies. This change had an immediate impact on
the Company's operations and the results of its operations.
The Company's subsidiaries conduct their business with selling and purchase
prices based on Thai Baht, US Dollars, and other currencies. Sales are made both
in Thai Baht and other currencies, but eventually will be converted into Thai
Baht. Accordingly, the Company bears foreign currency transaction risks between
the date of purchase of goods for resale and the ultimate payment of the goods
in the appropriate negotiated currency.
The overall effect of the Thai Baht devaluation was an increase in the
attractiveness of Thailand as a tourist destination. This increase in tourists
had a direct impact on increasing the Company's sales in the post-devaluation
time period.
In accordance with generally accepted accounting principles, the Company has
separately presented the following items in its statement of income for the
quarter ended June 30, 2003:
Loss on foreign exchange, net $(116,249)
The calculation of loss on foreign exchange, net of $(116,249) is shown in
charts labeled A and B, respectively.
23
CHART A
The calculation of unrealized gain on foreign exchange of US$56,568 was
calculated on an accumulated basis with quarterly adjustment on financial
obligations, receivable and cash on hand in foreign currency as shown below:
Account payable in foreign currency as of 30/06/03
- ------------------------------ ----------------------------- ------------------------------ -------------------------------
Currency Amount Exchange Rate Total
30/06/03 Baht
- ------------------------------ ----------------------------- ----------------------------- --------------------------------
Australian Dollar (137) 28.2739 (3,865)
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
Swiss Franc 31,804.22 31.2826 994,919
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
German Deutschmark - - 0
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
Europe 153,447.99 48.3399 7,417,660
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
French Franc (50,938.04) 5.9052 (300,799)
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
British Pound Sterling (54,338) 69.825 (3,794,159)
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
Hong Kong Dollar 9,254.70 5.4115 50,082
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
Italian Lire (433,688) 0.0200 (8,674)
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
Singapore Dollar 2,605.38 24.0613 62,689
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
Japanese Yen 18,333.26 0.35294 6,471
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
US Dollar 1,766,908.33 42.1177 74,418,115
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
Total 78,842,439
- ------------------------------ ----------------------------- ---------------------------- ---------------------------------
BALANCE PER GENERAL LEDGER 80,925,421
---------------------------------
Unrealized gain on account payable in foreign currency 30/06/03 2,082,982
---------------------------------
Unrealized gain on account payable in foreign currency 01/01/03 125,090
---------------------------------
Net unrealized gain on account payable in foreign currency 30/06/03 2,208,072
---------------------------------
Loan from bank (Trust receipt) in foreign currency as of 30/06/03
- ------------------------------ ----------------------------- ------------------------------ -------------------------------
Currency Amount Exchange Rate Total
30/06/03 Baht
- ------------------------------ ----------------------------- ----------------------------- --------------------------------
Swiss Franc 327,713.57 31.2826 10,251,732
- ------------------------------ ----------------------------- ----------------------------- --------------------------------
Europe 1,036,089.65 48.33990 50,084,470
- ------------------------------ ----------------------------- ----------------------------- --------------------------------
British Pound Sterling 30,191.90 69.8250 2,108,149
- ------------------------------ ----------------------------- ----------------------------- --------------------------------
Hong Kong Dollar 344,745.00 5.4115 1,865,588
- ------------------------------ ----------------------------- ----------------------------- --------------------------------
Singapore Dollar 10,102.00 24.0613 243,067
- ------------------------------ ----------------------------- ----------------------------- --------------------------------
US Dollar 1,997,497.23 42.1177 84,129,989
- ------------------------------ ----------------------------- ----------------------------- --------------------------------
Total 148,682,995
- ------------------------------ ----------------------------- ----------------------------- --------------------------------
BALANCE PER GENERAL LEDGER 148,794,892
--------------------------------
Unrealized gain on Trust Receipt in foreign currency 30/06/03 111,897
--------------------------------
Unrealized gain on Trust Receipt in foreign currency 01/01/03 89,746
--------------------------------
Net unrealized gain on Trust Receipt in foreign currency 30/06/03 201,643
--------------------------------
Net unrealized gain on accounts payable in foreign currency 30/06/03 2,208,072
--------------------------------
Net unrealized gain on exchange rate as at 30/06/03 2,409,715
--------------------------------
US$ = 56,568 (US$1 = 42.5986 Baht)
24
CHART B
The calculation of unrealized loss on foreign exchange of US$151,627 was
calculated on accumulated basis with quarterly adjustment on financial
receivable and cash on hand in foreign currency as shown below:
Cash on hand in foreign currency as of 30/06/03
- ------------------------------ --------------------------- ----------------------- --------------------------
Currency Amount Exchange Rate Total
30/06/03 Baht
- ------------------------------ --------------------------- ----------------------- --------------------------
Australian Dollar 81,331.86 27.8026 2,261,237
- ------------------------------ --------------------------- ----------------------- --------------------------
Canadian Dollar 1,490.00 31.0081 46,202
- ------------------------------ --------------------------- ----------------------- --------------------------
Swiss Franc 2,620.00 30.9507 81,091
- ------------------------------ --------------------------- ----------------------- --------------------------
China Renminbi Yuan 638,282.00 5.0643 3,232,452
- ------------------------------ --------------------------- ----------------------- --------------------------
Europe 426,153.00 47.7994 20,369,858
- ------------------------------ --------------------------- ----------------------- --------------------------
British Pound Sterling 70,581.64 69.1581 4,881,292
- ------------------------------ --------------------------- ----------------------- --------------------------
Hong Kong Dollar 738,555.10 5.3673 3,964,047
- ------------------------------ --------------------------- ----------------------- --------------------------
Japanese Yen 94,225,567.00 0.34867 32,853,628
- ------------------------------ --------------------------- ----------------------- --------------------------
Korean Won 21,142,000.00 0.0350 739,970
- ------------------------------ --------------------------- ----------------------- --------------------------
Singapore Dollar 82,757.00 23.7658 1,966,786
- ------------------------------ --------------------------- ----------------------- --------------------------
Taiwanese Dollar 484,400.00 1.2123 587,238
- ------------------------------ --------------------------- ----------------------- --------------------------
US Dollar 3,271,111.71 41.9328 137,166,873
- ------------------------------ --------------------------- ----------------------- --------------------------
Total 208,150,674
- ------------------------------ --------------------------- ----------------------- --------------------------
BALANCE PER GENERAL LEDGER 203,039,962
--------------------------
Unrealized gain from cash on hand in foreign currency 30/06/03 5,110,712
--------------------------
Unrealized loss from cash on hand in foreign currency 01/01/03 (9,257,437)
--------------------------
Net unrealized loss from loss on hand in foreign currency 30/06/03 (4,146,725)
--------------------------
Unrealized loss on account receivable as of 30/06/03
- ------------------------------ --------------------------- ----------------------- --------------------------
Currency Amount Exchange Rate Total Baht
30/06/03
- ------------------------------ --------------------------- ----------------------- --------------------------
Australian Dollar 6,855.40 27.8026 190,598
- ------------------------------ --------------------------- ----------------------- --------------------------
Swiss Franc 12,271.60 30.9507 379,815
- ------------------------------ --------------------------- ----------------------- --------------------------
German Deutschmark - - 0
- ------------------------------ --------------------------- ----------------------- --------------------------
Europe 50,542.58 47.7994 2,415,905
- ------------------------------ --------------------------- ----------------------- --------------------------
French Franc - - 0
- ------------------------------ --------------------------- ----------------------- --------------------------
British Pound Sterling 2,631.92 69.1581 182,018
- ------------------------------ --------------------------- ----------------------- --------------------------
Hong Kong Dollar 32,246.70 5.3673 173,078
- ------------------------------ --------------------------- ----------------------- --------------------------
Italian Lire 133,000.00 0.0196 2,607
- ------------------------------ --------------------------- ----------------------- --------------------------
Japanese Yen - - 0
- ------------------------------ --------------------------- ----------------------- --------------------------
Singapore Dollar 6,264.06 23.7658 148,870
- ------------------------------ --------------------------- ----------------------- --------------------------
US Dollar 1,116,862.34 41.9328 46,833,165
- ------------------------------ --------------------------- ----------------------- --------------------------
Total 50,326,056
- ------------------------------ --------------------------- ----------------------- --------------------------
BALANCE PER GENERAL LEDGER 50,890,801
--------------------------
Unrealized loss from account receivable 30/06/03 (564,745)
--------------------------
Unrealized gain from account receivable 01/01/03 91,191
--------------------------
Net unrealized loss from account receivable 30/06/03 (473,554)
--------------------------
Net unrealized loss from cash on hand in foreign currency 30/06/03 (4,146,725)
--------------------------
Net unrealized loss on exchange rate as of 30/06/03 (4,620,279)
--------------------------
Unrealized loss from advanced from companies as at 30/06/03
- ----------------------------- --------------------------- -------------------------- ----------------------------
Currency Amount Baht Exchange rate Total
30/06/03 US$
- ----------------------------- --------------------------- -------------------------- ----------------------------
Baht Currency 99,738,777.14 42.047 2,372,078
- ----------------------------- --------------------------- -------------------------- ----------------------------
BALANCE PER GENERAL LEDGER 2,328,912
----------------------------
Net unrealized loss on advanced 30/06/03 (43,166)
----------------------------
US$ = (151,627) (US$1 = 42.5986 Baht)
NET FOR UNREALIZED GAIN / (LOSS) EXCHANGE OF 30/06/03
- -----------------------------------------------------
(BAHT) (US)
----------
Net unrealized exchange gain as of 30/06/03 2,409,715
Net unrealized loss on exchange rate as at 30/06/03 (4,620,279)
----------
NET UNREALIZED EXCHANGE (2,210,564) (51,893)
----------
Net unrealized exchange loss KPG (US) as of 30/06/03 (43,166)
----------
NET UNREALIZED EXCHANGE (95,059)
----------
NET FOR REALIZED GAIN/(LOSS) EXCHANGE OF 30/06/03
Net realized loss on exchange rate of KPT as at 30/06/03 (5,458,314)
Net realized gain on exchange rate of KPD as at 30/06/03 4,555,662
----------
NET REALIZED EXCHANGE (902,652) (21,190)
----------
Net realized gain on exchange rate of KPG (US) as at 30/06/03 0
----------
NET REALIZED EXCHANGE (21,190)
----------
TOTAL NET REALIZED /UNREALIZED EXCHANGE RATE (116,249)
(3) Results of operations, comparing six months ended June 30, 2003 and
2002
Sales revenue for the six months ended June 30, 2003, was approximately $84.5
million compared to approximately $84.3 million for 2002. The increase should
have been much greater, however, due to the adverse impact of the spreading of
Severe Acute Respiratory Syndrome (SARS) disease, the number of travelers
traveling through BIA has dropped significantly during the months of April -
June, 2003, with a decrease of 39.41% from the same period last year or from the
months of January - June, 2003, with a decrease of 17.87% from the same period
last year. The Company's balance sheet strength and sound cash position provide
it with the capacity to manage through this downturn. As of the filing date, the
SARS epidemic has subsided and the traveling recession appears to be neutralized
beginning in the month of July, 2003. Management will continue to monitor sales
and adjust Company operations to market conditions .
The cost of merchandise sold for the six months ended June 30, 2003 and 2002,
was approximately $45.9 million and $40.5 million, respectively. The principal
factor causing this increase is directly related to the increase in merchandise
sold, however, at a higher discount rate to attract sales during the SARS
outbreak. The ratio of the concession fees paid to the AOT, comparing the six
months ended June 30, 2003, to the same period in 2002, increased from 18.87% in
2002 to 20.22% in 2003. This increase is due to the concession fee structure of
KPT being based on fixed amount with additional annual increment. The volume of
sales generated from KPT for the six months ended June 30, 2003, particularly
due to the SARS outbreak, has not kept up with such increment thus causing the
increase in the ratio of the concession fees paid to the AOT. Management
anticipates that a possible reduction in the ratio of these fees may result from
a return to normal travel during the 2nd half of the fiscal year.
26
Selling and administrative expenses were approximately $19.2 million for the six
months ended June 30, 2003, and approximately $14.3 million for the same period
in 2002. In terms of percentage of sales, 2003 expenses were approximately
22.67% of sales and 2002 expenses were approximately 16.96% of sales. The
expenditure increases result from a variety of factors: additional rent expense
on the expanded sales areas in the various airports and amortization of the
leasehold improvements made to those sales areas. The unfavorable change in the
ratios is caused by both the increase in expenditures and the tightened margins
due to the sales discounting discussed above. During to the SARS outbreak, the
Management implemented several drastic measures to minimize expenditures
including proportionate mandatory leave without-pay among executives, forced
vacation for staffs, etc.
Net income for the six months ended June 30, 2003, was approximately $1.3
million, or $0.06 per share (basic), and approximately $9.2 million, or $0.46
per share (basic), for the six months ended June 30, 2002.
The ratio of inventory divided by revenue for the six months ended June 30, 2003
and 2002, was approximately 45.90% and 41.64%, respectively. This increase is
caused by the pre-committed larger volume of merchandised orders required by the
Company's suppliers for their financial viability to support the new and
improved lines of products developed and initiated by the Company.
(4) Results of operations, comparing three months ended June 30, 2003 and
2002
Sales revenue for the three months ended June 30, 2003, was approximately $30
million compared to approximately $39.8 million for 2002. The decrease was due
to the adverse impact of the spreading of SARS disease, the number of travelers
traveling through BIA has dropped significantly as stated above.
The cost of merchandise sold for the three months ended June 30, 2003, and 2002,
was approximately $17.1 million and $19.7 million, respectively. The principal
factor causing this decrease was directly related to the decrease in merchandise
sold during the SARS outbreak. The ratio of the concession fees paid to the AOT,
comparing the three months ended June 30, 2003, to the same period in 2002,
increased from 18.98% in 2002 to 23.83% in 2003. This increase is due to
concession fee structure of KPT is being based on fixed amount with an
additional annual increment as stated above with which KPT's sales volume has
not kept up.
Selling and administrative expenses were approximately $9.9 million for the
three months ended June 30, 2003, and approximately $7.7 million for the same
period in 2002. In terms of percentage of sales, 2003 expenses were
approximately 33.05% of sales and 2002 expenses were approximately 19.30% of
sales. The expenditure increases result from a variety of factors as stated
above.
27
Net loss for the three months ended June 30, 2003, was approximately $3.1
million, or $0.15 per share (basic), and net income approximately $3.2 million,
or $0.16 per share (basic), for the three months ended June 30, 2002.
(5) Liquidity and Capital Resources
For the quarter ended June 30, 2003, and the year ended December 31, 2002, the
Company had working capital of approximately $42.9 million and $28.1 million,
respectively. The improvement in this figure was due to the Company's ability to
replacing part of current liabilities with long-term loans. The Company
experienced a negative cash flow from operations of approximately $0.4 million
at June 30, 2003, compared to a positive cash flow of $1.8 million during the
same period of 2002. This decrease is due to the meaningful reduction in accrued
liabilities.
(6) Monetary Assets and Liabilities Denominated in Thai Baht
As of June 30, 2003, 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 8,782,203
Trade Accounts Receivable 260,329
Refundable value-added-tax 946,501
Advance to related companies 7,756,600
Deferred income tax assets 4,160,568
Restricted deposit 20,507,516
Other current assets 2,496,348
Other non-current assets 4,855,961
TYPE OF MONETARY LIABILITY US DOLLARS
Bank overdraft & loan 18,117,173
Current portion of long-term debt 17,159
Accounts Payable 6,044,526
Concession fees 4,472,881
Other current liabilities 4,896,049
Long-term loan - net 26,188,072
28
(7) Recently Issued Accounting Principles
New Accounting Standards Not Yet Adopted - NONE
Item 4 - 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.
Part II - Other Information
Item 1- Legal Proceedings
On May 16, 2003, KPG entered into a stipulation of settlement with the
plaintiffs of the three putative class action lawsuits filed against the Company
and its directors. The lawsuits have been consolidated into the first filed
lawsuit for purposes of the settlement. Under the stipulation of settlement, the
class members who hold King Power's common shares immediately prior to the
effective time of the merger and do not request exclusion from the class, will,
subject to the terms and conditions of the settlement, be entitled to receive a
portion of the settlement fund of U.S.$1.7 million, less certain related
expenses and the representative plaintiffs' attorney fees. In addition, King
Power will cause the class members to be paid U.S.$3.27 per share in accordance
with the procedures set forth in the plan of merger. The effectiveness of the
settlement and payment of the settlement fund will be conditioned upon, among
other things, the approval of the settlement by the Clark County District Court,
Nevada and the consummation of the merger.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders in July, 2003. The following
seven persons were elected as Directors to serve for a year.
NAME VOTES FOR VOTES AGAINST
Vichai Raksriaksorn 19,760,582 95
Viratana Suntaranond 19,760,582 95
Aimon Raksriaksorn 19,760,582 95
Suwan Panyapas 19,757,582 3,095
Dharmnoon Prachuabmoh 19,757,582 3,095
Chulchit Bunyaketu 19,760,582 95
Preeyaporn Thavornun 19,757,582 3,095
29
Item 5 - Other Information
King Power entered into an amended and restated agreement and plan of merger on
May 16, 2003 that provides for it to be taken private by shareholders Vichai
Raksriaksorn, Viratana Suntaranond, Aimon Raksriaksorn and Niphon Raksriaksorn
(collectively, the "Controlling Shareholders") and several other shareholders
who together with the Controlling Shareholders hold approximately 88.6% of the
King Power's common shares (collectively, together with the Controlling
Shareholders, the "Majority Shareholders"). The plan of merger provides for the
merger of King Power with and into KP (Thailand) Company Limited ("Newco"), with
Newco as the corporation surviving the merger. Immediately prior to the
effective time of the merger, Newco will be held by the Majority Shareholders.
As a result of the merger, each common share that is not held by Newco or a
Majority Shareholder will be converted into the right to receive U.S.$3.27 in
cash, without interest. King Power's obligation to effect the merger is subject
to certain conditions, including the approval by the Nevada court of the
stipulation of settlement dated May 16, 2003 in a manner satisfactory to King
Power.
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 31.1 Section 302 Certification
Exhibit 31.2 Section 302 Certification
Exhibit 32.1 Section 906 Certification
Exhibit 32.2 Section 906 Certification
Exhibit 10.1 Agreement and Plan of Merger dated as of October 29, 2001, as
Amended and Restarted as of May 16, 2003 (Incorporated by
reference to Appendix C of the Company's preliminary
Information Statement on Schedule 14C filed on August 12,
2003)
Exhibit 10.2 Stipulation of Settlement dated May 16, 2003 (Incorporated by
reference to Exhibit 99. (d) (2) of Amendment No. 1 to
Schedule 13E-3 filed on June 18, 2003)
Report on Form 8-K
On May 16, 2003, King Power International Group Co., Ltd. issued a press release
announcing that its Board of Directors has approved a merger transaction in
which the Company will be taken private. The Company also announced that it has
entered into a Stipulation of Settlement to settle three related class action
lawsuits pending against the Company and the members of its Board of Directors.
30
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned who are duly
authorized.
KING POWER INTERNATIONAL GROUP CO., LTD.
By: /s/ Vichai Raksriaksorn
---------------------------------------------------------
Vichai Raksriaksorn, Chairman and Chief Executive Officer
August 14th, 200
By: /s/ Viratana Suntaranond
---------------------------------------------------------
Viratana Suntaranond, Chief Financial Officer
August 14th, 2003
31