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FORM 10-Q
- --------------------------------------------------------------------------------
For the quarterly period ended March 31, 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 ______
- --------------------------------------------------------------------------------
Commission File Number: 1-13205
KING POWER INTERNATIONAL GROUP CO., LTD.
(Exact name of registrant as specified in its charter)
Nevada 75-2641513
------ ----------
(State of incorporation) (IRS Employer ID number)
25th-27th Floor, Siam Tower, 989 Rama 1 Road, Patumwan, Bangkok 10330 Thailand
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(Address of principal executive offices)
011 (662) 658-0090
------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the proceeding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: April 30, 2003: 20,250,000
1
KING POWER INTERNATIONAL GROUP CO., LTD.
Form 10-Q for the Quarterly ended March 31, 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 22
Item 4 Controls and Procedures 28
Part II - Other Information
Item 1 Legal Proceeding 28
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 29
Item 6 Exhibits and Reports on Form 8-K 29
2
Part I - Financial Information
Item 1 - 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. (a Nevada Corporation) and Subsidiaries as of March 31, 2003,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the three months ended March 31, 2003 and 2002, 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
May 14, 2003
3
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Note 2003 2002
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 25,406,880 $ 15,509,155
Trade accounts receivable 455,054 1,488,965
Refundable value added tax 4 1,345,939 833,291
Trade accounts and management fee receivable from related
companies, net 11 154,287 154,870
Merchandise inventories, net 34,632,537 32,022,091
Restricted fixed deposits 3 20,226,700 19,729,589
Deferred income tax assets 10 3,782,452 3,745,025
Prepaid expenses 2,519,518 1,850,981
Other current assets 462,811 421,663
------------ ------------
Total current assets 88,986,178 75,755,630
Property, plant and equipment, net 5 6,532,411 6,374,932
Loans and accrued interest from related companies and directors, net 11 9,154,956 9,586,184
Investments and other assets 3,658,243 3,626,698
------------ ------------
TOTAL ASSETS $108,331,788 $ 95,343,444
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
See Accountants' Review Report
4
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
March 31, December 31,
Note 2003 2002
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and bank loans 6 $ 16,905,564 $ 17,193,843
Current portion of long-term loan 8 27,120 36,926
Trade accounts payable 13,705,719 12,518,038
Accrued concession fees 7 3,691,811 4,864,882
Accrued corporate income tax 6,275,501 4,222,302
Other current liabilities 3,411,030 8,852,914
------------- -------------
Total current liabilities 44,016,745 47,688,905
Long-term loan, net 8 25,680,579 13,908,201
------------- -------------
Total liabilities 69,697,324 61,597,106
------------- -------------
Minority interest 1,605,524 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 (deficit) 17,931,671 13,546,681
Legal reserve 82,233 82,233
Translation adjustments (1,853,359) (2,140,046)
------------- -------------
Total shareholders' equity 37,028,940 32,357,263
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 108,331,788 $ 95,343,444
============= =============
The accompanying notes are an integral part of these consolidated financial
statements
See Accountants' Review Report
5
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED MARCH 31,
Note 2003 2002
------------ ------------
Sales revenue $ 54,513,994 $ 44,519,311
Cost of sales
Cost of merchandise sold 28,777,562 20,812,230
Concession fees 7 9,938,067 8,369,259
------------ ------------
Total cost of sales 38,715,629 29,181,489
------------ ------------
Gross profit 15,798,365 15,337,822
Operating expenses
Selling and administrative expenses 9,245,769 6,622,248
------------ ------------
Total operating expenses 9,245,769 6,622,248
------------ ------------
Income from operations 6,552,596 8,715,574
Other income (expense)
Interest income 240,117 400,137
Interest expense (394,677) (350,475)
Gain (loss) on foreign exchange, net (58,402) 23,708
Other income 261,522 285,243
------------ ------------
Total other income (expense) 48,560 358,613
------------ ------------
Net income before income tax 6,601,156 9,074,187
Income tax expense 10 (2,011,329) (2,799,454)
------------ ------------
Net income before minority interest 4,589,827 6,274,733
Minority interest (204,837) (287,432)
------------ ------------
Net income attributed to common shares $ 4,384,990 $ 5,987,301
============ ============
Weighted average number of common shares outstanding
20,250,000 20,250,000
Basic earnings per share $ 0.22 $ 0.30
The accompanying notes are an integral part of these consolidated financial
statements
See Accountants' Review Report
6
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED MARCH 31,
2003 2002
---------- ----------
Net income attributed to common shares $4,384,990 $5,987,301
Other comprehensive income, net of tax:
Foreign currency translation adjustment 286,687 391,566
---------- ----------
Comprehensive income $4,671,677 $6,378,867
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements
See Accountants' Review Report
7
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31,
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,384,990 $ 5,987,301
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation expense 454,115 309,687
Unrealized loss (gain) on foreign exchange 41,295 (105,355)
Deferred income tax assets (37,427) (57,850)
Decrease (increase) in operating assets:
Trade accounts receivable 1,035,218 70,118
Refundable valued added tax (512,648) (287,389)
Receivables and loans to related companies and directors 420,789 (1,085,638)
Merchandise inventories (2,610,446) (6,612,965)
Prepaid expenses and other current assets (709,685) (118,102)
Other long-term assets (31,545) (12,040)
Increase (decrease) in operating liabilities:
Trade accounts payable 1,211,746 (465,603)
Accrued concession fees (1,173,071) 1,042,212
Other current liabilities (3,388,685) 2,440,558
Minority interest 216,449 302,334
Translation adjustments 286,687 391,566
----------- -----------
Net cash provided by (used in) operating activities $ (412,218) $ 1,798,834
The accompanying notes are an integral part of these consolidated financial
statements
See Accountants' Review Report
8
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE QUARTERS ENDED MARCH 31,
2003 2002
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets $ (611,594) $ (934,636)
(Increase) decrease in restricted fixed deposits (497,111) (2,729,026)
------------ ------------
Net cash provided by (used in) investing activities (1,108,705) (3,663,662)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) bank overdrafts -- (597,792)
Proceeds from (repayment of) bank loans (286,159) 6,088,331
Proceeds from (repayment of) long-term loan 11,762,572 (5,831)
------------ ------------
Net cash provided by (used in) financing activities 11,476,413 5,484,708
Effect of exchange rate changes on cash and cash equivalents (57,765) 16,999
------------ ------------
Net increase in cash and cash equivalents 9,897,725 3,636,879
Cash and cash equivalents, beginning of period 15,509,155 3,955,240
------------ ------------
Cash and cash equivalents, end of period $ 25,406,880 $ 7,592,119
============ ============
Supplemental cash flow information Cash paid during the period:
Interest $ 391,650 $ 373,031
Income taxes $ 12,930 $ 13,095
The accompanying notes are an integral part of these consolidated financial
statements
See Accountants' Review Report
9
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE QUARTERS ENDED MARCH 31, 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 5,987,301
Other comprehensive income, net of tax
Foreign currency translation adjustment 391,566
------------
Comprehensive Income 6,378,867
-------------------------------------------------============
Balances at March 31, 2002 20,250,000 20,250 20,848,145
============================================
Balances at January 1, 2003 20,250,000 20,250 20,848,145
Net Income 4,384,990
Other comprehensive income, net of tax
Foreign currency translation adjustment 286,687
Comprehensive Income 4,671,677
-------------------------------------------------============
Balances at March 31, 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 5,987,301 5,987,301
Other comprehensive income, net of tax
Foreign currency translation adjustment 391,566 391,566
Comprehensive Income
-------------------------------------------------------------
Balances at March 31, 2002 7,433,919 82,233 (2,181,956) 26,202,591
=============================================================
Balances at January 1, 2003 13,546,681 82,233 (2,140,046) 32,357,263
Net Income 4,384,990 4,384,990
Other comprehensive income, net of tax
Foreign currency translation adjustment 286,687 286,687
Comprehensive Income
-------------------------------------------------------------
Balances at March 31, 2003 17,931,671 82,233 (1,853,359) 37,028,940
=============================================================
The accompanying notes are an integral part of these consolidated financial
statements
See Accountants' Review Report
10
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
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 March 31, 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 MARCH 31, 2003 AND 2002
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 March 31, 2003, and December 31, 2002, were $1 = Baht
42.883 and Baht 43.240, respectively. The average exchange rates for the three
months ended March 31, 2003 and 2002, were $1= Baht 42.893, Baht 43.8568,
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 the fixed charges per month 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.
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.
12
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
Reclassification - Certain amounts in the 2002 financial statements and related
footnotes have been reclassified to conform to the 2003 presentation.
3. RESTRICTED FIXED DEPOSITS
March 31, 2003 December 31, 2002
----------------- -----------------
Restricted fixed deposits $ 20,226,700 $ 19,729,589
Interest rates 0.75%-2.50% 0.75%-3.00%
As of March 31, 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
March 31, 2003 December 31, 2002
----------------- -----------------
Land $ 612,830 $ 607,770
Building 383,513 380,346
Leasehold improvements 8,165,610 7,613,367
Office equipment and fixtures 3,427,813 3,475,607
Vehicles 1,114,117 1,045,927
Work in progress 37,586 109,351
----------------- -----------------
Total cost 13,741,469 13,232,368
Less: accumulated depreciation (7,209,058) (6,857,436)
----------------- -----------------
Net book value $ 6,532,411 $ 6,374,932
================= =================
6. BANK OVERDRAFT AND LOANS FROM BANKS
March 31, 2003 December 31, 2002
----------------- -----------------
Trust receipts $ 115,694 $ 542,594
Short-term loan 16,789,870 16,651,249
----------------- -----------------
$ 16,905,564 $ 17,193,843
================= =================
As of March 31, 2003, and December 31, 2002, the Company has an overdraft
facility with commercial banks in Thailand totaling Baht 75.74 million ($
1,766,201) 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
three months ended March 31, 2003, the average rate of MOR was 6.50% - 7.75% 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 March 31, 2003, and December 31, 2002, trust receipts incurred by KPD and
KPT bear interest at the rates varying from 3.19% - 7.00% 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 March 31, 2003, and December 31, 2002, the Company has short-term loans
with various commercial banks in Thailand, bearing interest at rates of 2.25% -
4.85% and 2.25% - 5.65%per annum, respectively, collateralized by fixed deposits
and guaranteed by a director.
13
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
Trust receipts at March 31, 2003
Foreign currency borrowing by subsidiaries in Thailand Currencies Amount Interest rate (%)
-----------------------------------------------
-Without forward contract USD 51,699 $ 51,852 6.00 - 7.00
CHF 81,597 60,164 3.19
JPY 436,608 3,678 6.00
------------
$ 115,694
============
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
============
As of March 31, 2002 and December 31, 2002, 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 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 $3,691,811 and $4,864,882 as of March
31, 2003, and December 31, 2002, respectively. Concession fee expense for the
three months ended March 31, 2003 and 2002, was $9,938,067 and $8,369,259,
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 8,675 286 8,031 17,698 1,330 13,732
2004 12,191 361 7,686 25,115 1,791 13,941
2005 13,380 357 7,686 26,588 107 14,650
2006 4,939 89 7,108 27,780 27 15,306
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 MARCH 31, 2003 AND 2002
8. LONG-TERM LOANS, NET
Long-term liabilities as of March 31, 2003, and December 31, 2002, consist of
the following:
March 31, 2003 December 31, 2002
----------------- -----------------
Long-term loans $ 25,666,150 $ 13,900,906
Installment purchase payable 41,549 44,221
----------------- -----------------
25,707,699 13,945,127
Less: current portion of long-term debt (27,120) (36,926)
----------------- -----------------
Total $ 25,680,579 $ 13,908,201
================= =================
As of March 31, 2003 and December 31, 2002, long-term loans consist of loans
from banks carrying interest rates of 4.00% - 6.90% 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.
Long term loans as of March 31, 2003 are due as follows:
March 31, 2003
-----------------
Installment purchase obligation
2003 $ 12,161
2004 12,161
2005 12,161
2006 5,066
-----------------
Total $ 41,549
=================
Long-term loan installment payments
2003 $ 14,959
2004 11,659,632
2005 13,991,559
-----------------
Total $ 25,666,150
=================
15
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
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:
Common Stock Additional Retained Treasury
Shares Amount Paid-in 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.
16
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
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:
March 31,2003 March 31,2002
------------- -------------
Current income tax (payable)
United States $ -- $ --
Foreign (1,973,902) (2,741,604)
------------- -------------
(1,973,902) (2,741,604)
Deferred income tax
United States $ -- $ --
Foreign (37,427) (57,850)
------------- -------------
(37,427) (57,850)
------------- -------------
Net income tax expense $ (2,011,329) $ (2,799,454)
============= =============
Pre-tax income for foreign companies for the quarters ended March 31, 2003, was
$6,704,230. Current taxes payable are included in current liabilities.
The components of deferred income tax assets and liabilities were:
March 31,2003 December 31, 2002
----------------- -----------------
Provision for doubtful accounts and obsolescence $ 3,804,236 $ 3,766,980
Net operating loss carry forward 555,719 519,372
----------------- -----------------
4,359,955 4,286,352
Less: valuation allowance (577,503) (541,327)
----------------- -----------------
Deferred income tax assets $ 3,782,452 $ 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 three months ended March 31,
2003 2002
--------------------------------------
Standard income tax rate 35.00% 35.00%
Foreign tax rate difference (5.08)% (4.21)%
Less: valuation allowance 0.55% -
--------------------------------------
Effective income tax rate 30.47% 30.79%
======================================
As of March 31, 2003, and December 31, 2002, the Company has deferred income tax
assets relating to net operating loss carry forwards for income tax purposes of
$555,719 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 MARCH 31, 2003 AND 2002
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 $7,503,497 million and $7,677,049 million shown in the
following schedule as receivable from King Power International Co., Ltd. (KPI),
as of March 31, 2003, and December 31,2002, respectively, reserves have been
provided for $629,193and $627,821, respectively. Of the $3,413,710 million and
$3,691,148 million shown on the following schedule as receivable from King Power
On Board Sales and Services Co., Ltd. (KPO), as of March 31, 2003, and December
31, 2002, respectively, reserves have been provided for $978,722 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. 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 March 31, 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 March 31, 2003 Accounts Interest & other Management Fee Accounts
Receivable Loans receivables Receivables Total Payable
----------------------------------------------------------------------------------
King Power International Co., Ltd. -- 6,080 1,389 34 7,503 1,380
Forty Seven Co., Ltd. -- 2,429 631 -- 3,060 --
Downtown D.F.S. (Thailand) Co., Ltd. 394 2,239 343 2,152 5,128 --
Top China Group Co., Ltd. -- 233 15 -- 248 --
Lengle (Thailand) Co., Ltd. -- 840 98 -- 938 --
King Power On Board Sales and Services Co., Ltd. 120 2,853 441 -- 3,414 --
Thai Nishigawa International Co., Ltd. -- -- -- -- -- 79
Niji (Thailand) Co., Ltd. -- -- -- -- -- 214
----------------------------------------------------------------------------------
514 14,674 2,917 2,186 20,291 1,673
Less: provision for doubtful accounts:
Related companies (394) (6,711) (1,725) (2,152) (10,982) --
----------------------------------------------------------------------------------
Total 120 7,963 1,192 34 9,309 1,673
==================================================================================
Director - to (from) -- -- -- -- -- --
==================================================================================
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
----------------------------------------------------------------------------------
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 March 31, 2003, and
December 31, 2002, KPD has accrued concession fees amounting to $3,691,457 and
$4,864,882, respectively.
18
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
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 5.50% - 8.19%,
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 2003. For related companies that did not
require additional loans from KPD and KPT, the interest rate charged to them did
not change.
During the quarters March 31, 2003 and 2002, the Company had operating
transactions with related parties and directors as follows (in $000s):
For the three months ended March 31,
2003 2002
---------------- ----------------
Related Companies
Sales $ 518 $ 157
Interest income 171 338
Management fee income 120 166
Purchases 17,772 567
Concession fees 7,098 6,115
Service $ 1,200 $ --
Directors
Interest and income $ -- $ --
12. COMMITMENTS AND CONTINGENT LIABILITIES (see also Note 7)
Lease commitments
As of March 31, 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 $ 34,279 $ 246,210
Letters of guarantee
As of March 31, 2003, and December 31, 2002, KPT and KPD were contingently
liable for bank guarantees totaling $22.66 million and $21.17 million,
respectively, issued in favor of the Excise Department and the AOT as a
performance bond.
Unused letters of credit
As of March 31, 2003, and December 31, 2002, KPD and KPT have unused letters of
credit totaling $0 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 ($7.26 million at March 31, 2003 exchange rates). As of
March 31, 2003 the Company has paid in full (99 million Baht or $2.31 million),
for the purchase of the first tract of land and 42.47 million Baht ($990,325) 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 ($3.96 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 March 31, 2003, and December 31, 2002, the affiliate had made no
borrowings on this facility.
19
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
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. Negotiations
with the plaintiffs are ongoing in an effort to settle the suits and proceed
with the merger. 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 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 March 31,2003 Duty Free Tax Free All and
Retail Retail Others Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Segment Information
Revenue from external customers 45,597 8,918 -- (1) 54,514
Cost of merchandise sold 24,889 3,890 -- (1) 28,778
Concession fees 7,098 2,840 -- -- 9,938
Gross profit 13,610 2,188 -- -- 15,798
Interest Income 200 62 -- (22) 240
Interest expense 393 5 19 (22) 395
Segment net income (loss) 4,089 604 4,385 (4,488) 4,590
Segment total assets 95,661 14,358 39,284 (40,971) 108,332
Expenditures for segment assets 477 135 -- -- 612
Depreciation expense 403 52 -- -- 455
Unrealized gain (loss) on exchange (4) (26) (11) -- (41)
Deferred income tax assets 2,559 1,201 22 -- 3,782
Long - lived
Geographic Information - Sale Revenue asset
------------ ------------
Bangkok 51,323 9,677
Northern Thailand region 407 198
Southern Thailand region 2,784 316
------------ ------------
Total 54,514 10,191
============ ============
20
KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
Adjustments
Quarters Ended March 31,2002 Duty Free Tax Free All and
Retail Retail Others Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Segment Information
Revenue from external customers 36,656 7,863 -- -- 44,519
Cost of merchandise sold 17,594 3,218 -- -- 20,812
Concession fees 6,115 2,254 -- -- 8,369
Gross profit 12,947 2,391 -- -- 15,338
Interest Income 365 73 8 (46) 400
Interest expense 343 32 21 (46) 350
Segment net income (loss) 5,739 793 5,987 (6,244) 6,275
Segment total assets 64,545 12,690 27,888 (30,542) 74,581
Expenditures for segment assets (884) (51) -- -- (935)
Depreciation expense 237 73 -- -- 310
Unrealized gain (loss) on exchange 128 (3) (20) -- 105
Deferred income tax assets 2,404 1,174 21 -- 3,599
Long - lived
Geographic Information Revenue asset
------------ ------------
Bangkok 42,468 4,120
Northern Thailand region 589 237
Southern Thailand region 1,462 202
------------ ------------
Total 44,519 4,559
============ ============
21
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 March 31, 2003:
Net realized loss on foreign exchange $17,107
Net unrealized loss on foreign exchange $41,295
The calculation of realized foreign exchange loss of $58,402 is shown in charts
labeled A and B, respectively.
22
CHART A
-------
The unrealized gain on foreign exchange of US$27,492 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 03/31/03
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
Currency Amount Exchange Rate Total
03/31/03 Baht
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
Australian Dollar (137) 26.084 (3,566)
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
Swiss Franc 192,964.44 31.619 6,101,343
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
German Deutschmark 3,312.70 19.6642 65,142
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
Europe 528,969.99 46.718 24,712,420
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
French Franc 68,444.78 5.9052 404,180
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
British Pound Sterling (6,089) 67.9561 (413,776)
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
Hong Kong Dollar 1,724,171.60 5.5277 9,530,703
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
Italian Lire 4,554,312.00 0.0200 91,086
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
Singapore Dollar 46,348.99 24.4677 1,134,053
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
Japanese Yen 283,600.00 0.36121 102,439
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
US Dollar 2,748,634.60 43.0100 118,218,775
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
TOTAL 159,942,799
- ------------------------------ ----------------------------- ------------------------------ --------------------------------
BALANCE PER GENERAL LEDGER 160,849,913
--------------------------------
Unrealized gain on accounts payable in foreign currency 03/31/03 907,114
--------------------------------
Unrealized gain on accounts payable in foreign currency 01/01/03 125,090
--------------------------------
Net unrealized gain on account payable in foreign currency 03/31/03 1,032,204
--------------------------------
Loan from bank (trust receipt) in foreign currency as of 03/31/03
- ------------------------------- ------------------------------ ------------------------------ ------------------------------
Currency Amount Exchange rate Total
03/31/03 Baht
- ------------------------------- ------------------------------ ------------------------------ ------------------------------
Swiss Franc 81,597.40 31.6190 2,580,028
- ------------------------------- ------------------------------ ------------------------------ ------------------------------
Japanese Yen 436,608.00 0.36121 157,707
- ------------------------------- ------------------------------ ------------------------------ ------------------------------
US Dollar 51,699.00 43.0100 2,223,574
- ------------------------------- ------------------------------ ------------------------------ ------------------------------
TOTAL 4,961,309
- ------------------------------- ------------------------------ ------------------------------ ------------------------------
BALANCE PER GENERAL LEDGER 4,962,514
------------------------------
Unrealized gain on Trust Receipt in foreign currency 03/31/03 1,205
------------------------------
Unrealized gain on Trust Receipt in foreign currency 01/01/03 89,746
------------------------------
Net unrealized gain on trust receipt in foreign currency 03/31/03 90,951
------------------------------
23
Unrealized gain on Account receivable as of 03/31/03
----------------------------- ------------------------------ ------------------------------ ------------------------------
Currency Amount Exchange rate Total
03/31/03 Baht
----------------------------- ------------------------------ ------------------------------ ------------------------------
Australian Dollar 6,855.40 25.6304 175,707
----------------------------- ------------------------------ ------------------------------ ------------------------------
Swiss franc 8,709.10 31.2546 272,199
----------------------------- ------------------------------ ------------------------------ ------------------------------
Europe 38,113.35 46.1460 1,758,779
----------------------------- ------------------------------ ------------------------------ ------------------------------
British Pound sterling 1,588.50 67.2306 106,796
----------------------------- ------------------------------ ------------------------------ ------------------------------
Hong Kong Dollar 31,160.40 5.4751 170,606
----------------------------- ------------------------------ ------------------------------ ------------------------------
Italian Lire 133,000.00 0.0196 2,607
----------------------------- ------------------------------ ------------------------------ ------------------------------
Singapore Dollar 5,445.46 24.1446 131,478
----------------------------- ------------------------------ ------------------------------ ------------------------------
US Dollar 508,249.99 42.7946 21,750,355
----------------------------- ------------------------------ ------------------------------ ------------------------------
TOTAL 24,368,527
----------------------------- ------------------------------ ------------------------------ ------------------------------
BALANCE PER GENERAL LEDGER 24,403,650
------------------------------
Unrealized loss from account receivable 03/31/03 (35,122)
------------------------------
Unrealized gain from account receivable 01/01/03 91,191
------------------------------
Net unrealized gain on account receivable 03/31/03 56,069
------------------------------
Net unrealized gain on account payable in foreign currency 03/31/03 1,032,204
------------------------------
Net unrealized gain on loan from bank (T/R) in foreign currency 03/31/03 90,951
------------------------------
Net unrealized gain on account receivable in foreign currency 03/31/03 56,069
------------------------------
Net unrealized gain on exchange rate as at 03/31/03 1,179,224
------------------------------
US$ 27,492 (US$1 = Baht 42.8930)
24
CHART B
The unrealized loss on foreign exchange of US$68,787 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 03/31/03
- ----------------------------- --------------------------- ----------------------- --------------------------
Currency Amount Exchange Rate Total
03/31/03 Baht
- ----------------------------- --------------------------- ----------------------- --------------------------
Australian Dollar 26,099.72 25.6304 668,946
- ----------------------------- --------------------------- ----------------------- --------------------------
Canadian Dollar 401.00 29.0392 11,645
- ----------------------------- --------------------------- ----------------------- --------------------------
Swiss Franc 1,030.00 31.2546 32,192
- ----------------------------- --------------------------- ----------------------- --------------------------
China Renminbi Yuan 2,219,262.00 5.1550 11,440,296
- ----------------------------- --------------------------- ----------------------- --------------------------
Europe 319,608.00 46.1460 14,748,631
- ----------------------------- --------------------------- ----------------------- --------------------------
British Pound Sterling 59,185.20 67.23060 3,979,057
- ----------------------------- --------------------------- ----------------------- --------------------------
Hong Kong Dollar 1,243,565.10 5.4751 6,808,643
- ----------------------------- --------------------------- ----------------------- --------------------------
Japanese Yen 105,903,509.00 0.3564 37,745,070
- ----------------------------- --------------------------- ----------------------- --------------------------
Korean Won 127,889,000.00 0.0339 4,335,437
- ----------------------------- --------------------------- ----------------------- --------------------------
Singapore Dollar 66,347.00 24.1446 1,601,922
- ----------------------------- --------------------------- ----------------------- --------------------------
Taiwanese Dollar 218,400.00 1.2301 268,654
- ----------------------------- --------------------------- ----------------------- --------------------------
US Dollar 1,852,379.31 42.7946 79,271,831
- ----------------------------- --------------------------- ----------------------- --------------------------
TOTAL 160,912,324
- ----------------------------- --------------------------- ----------------------- --------------------------
BALANCE PER GENERAL LEDGER 153,165,359
--------------------------
Unrealized gain from cash on hand in foreign currency 03/31/03 7,746,965
--------------------------
Unrealized loss from cash on hand in foreign currency 01/01/03 (10,224,667)
--------------------------
Net unrealized loss from cash on hand in foreign currency 03/31/03 (2,477,702)
--------------------------
Unrealized gain from advanced from companies as at 03/31/03
- ----------------------------- --------------------------- ----------------------- --------------------------
Currency Amount Baht Exchange Rate Total
03/31/03
- ----------------------------- --------------------------- ----------------------- --------------------------
BAHT CURRENCY 75,272,641.32 42.883 1,755,303
- ----------------------------- --------------------------- ----------------------- --------------------------
BALANCE PER GENERAL LEDGER 1,744,280
--------------------------
Net unrealized gain on advanced 03/31/03 (11,023)
--------------------------
US$ (68,787) (US$1 = Baht 42.893)
25
NET FOR UNREALIZED GAIN/ (LOSS) EXCHANGE AS OF 03/31/03
- -------------------------------------------------------
Baht US$
------------------------
Net unrealized exchange gain as of 03/31/03 1,179,224
Net unrealized loss on exchange rate as of 03/31/03 (2,477,702)
----------
NET UNREALIZED EXCHANGE (LOSS) (1,298,478) (30,272)
------------------------
Net unrealized exchange gain KPG (US) as of 03/31/03 (11,023)
----------
NET UNREALIZED EXCHANGE (LOSS) (41,295)
----------
NET FOR REALIZED GAIN/(LOSS) EXCHANGE AS OF 03/31/03
- ----------------------------------------------------
Baht US$
------------------------
Net realized loss on exchange rate of KPT at 03/31/03 (3,153,360)
Net realized gain on exchange rate of KPD at 03/31/03 2,419,610
----------
NET REALIZED EXCHANGE (LOSS) (733,750) (17,107)
----------
Net realized gain on exchange rate of KPG(US) at 03/31/03 0
----------
NET REALIZED EXCHANGE (LOSS) (17,107)
----------
TOTAL NET REALIZED/ UNREALIZED EXCHANGE RATE (LOSS) = US$ (58,402)
(3) Results of operations, comparing three months ended March 31, 2003 and
2002
Sales revenue for the three months ended March 31, 2003, was
approximately $54.5 million as compared to approximately $44.5 million for 2002.
This increase is directly attributable to the Company's promotional campaign
attracting more spending for each customer, including clearance of seasonal
inventory with substantial discounts. Furthermore, according to the statistical
compilation provided by the Bangkok International & Domestic Airport (BIA), the
number of passengers traveling through its premises from January to March, 2003,
has increased 1.48% from the same period last year or from 8.4 million
passengers in 2002 to 8.5 million passengers in 2003. However, due to the
adverse impact of the spreading of SARS disease, the number of travelers
traveling through BIA has dropped significantly during the month of March, 2003,
with a decrease of 6.53% from the same period last year. SARS concerns have
continued to depress the travel market in Asia and sales subsequent to March 31,
2003, were down 30% and that trend has continued in May. The Company's balance
sheet strength and sound cash position provide it with the capacity to manage
through this downturn. However, the length of the SARS created travel recession
cannot be predicted with accuracy. Management will continue to monitor sales and
adjust Company operations to market conditions .
The cost of merchandise sold for the three months ended March 31, 2003
and 2002, was approximately $28.8 million and $20.8 million, respectively. The
principal factor causing this increase is directly related to the increase in
sales volume as described above. Cost of merchandise increased as a percent of
sales from 46.75% to 52.79% primarily due to the discounting discussed above.
The ratio of concession fees paid to the AOT to sales revenue decreased from
18.29% in 2002 to 18.23% in 2003. This decrease was 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 first quarter of the year 2003 has
been favorable, thus the fixed amount decreased the ratio of the concession fees
paid to the AOT to sales.
26
Selling and administrative expenses were approximately $9.2 million for the
three months ended March 31, 2003, and approximately $6.6 million for the same
period in 2002. In terms of percentage of sales, 2003 expenses were
approximately 16.98% of sales and 2002 expenses were approximately 14.88% of
sales. The expenditure increases result from a variety of factors: enhanced
staff and management incentives, including selling commissions, bonuses, and
salary increment; 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.
Net income for the three months ended March 31, 2003, was approximately $4.4
million, or $0.22 per share (basic), and approximately $6.0 million, or $0.30
per share (basic), for the three months ended March 31, 2002.
The ratio of inventory divided by revenue for the three months ended March 31,
2003 and 2002, was approximately 63.53% and 62.44%, 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.
(5) Liquidity and Capital Resources
For the quarter ended March 31, 2003, and the year ended December 31, 2002, the
Company had working capital of approximately $45.0 million and $28.1 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 negative cash flow from operations of approximately $0.4 million
at March 31, 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 March 31, 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 21,634,528
Trade Accounts Receivable 41,085
Refundable value-added-tax 1,345,939
Advances to related companies / director 7,962,661
Deferred income tax assets 3,782,452
Restricted deposit 20,226,700
Other current assets 2,981,329
Other non-current assets 4,734,604
TYPE OF MONETARY LIABILITY US DOLLARS
Bank overdraft & loan 16,789,870
Current portion of long-term debt 27,120
Accounts Payable 9,975,971
Concession fees 3,691,811
Other current liabilities 9,247,796
Long-term loan - net 25,680,579
27
(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 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 had counter-proposed a price of $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.
28
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 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
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.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
29
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
May 14th, 2003
By: /s/ Viratana Suntaranond
-------------------------
Viratana Suntaranond, Chief Financial Officer
May 14th, 2003
30
Section 302
CERTIFICATION
I, Vichai Raksriaksorn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of King Power
International Group Co., Ltd.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly 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
quarterly 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: May 14th 2003
/s/ Vichai Raksriaksorn
-----------------------
Vichai Raksriaksorn
Chief Executive Officer
31
Section 302
CERTIFICATION
I, Viratana Suntaranond, certify that:
7. I have reviewed this quarterly report on Form 10-Q of King Power
International Group Co., Ltd.;
8. Based on my knowledge, this quarterly 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 quarterly report;
9. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
10. 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 quarterly 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 quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our Evaluation Date;
11. 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
12. The registrant's other certifying officers and I have indicated in this
quarterly 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: May 14th, 2003
/s/ Viratana Suntaranond
------------------------
Viratana Suntaranond
Chief Financial Officer
32
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 Quarterly Report of King Power International Group Co.,
Ltd. (the "Company") on Form 10-Q for the period ending March 31, 2003 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
May 14th, 2003
33
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 Quarterly Report of King Power International
Group Co., Ltd. (the "Company") on Form 10-Q for the period ending March 31,
2003 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
May 14th, 2003
34