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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1998
OR
Transition Report Pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934 For the Transition period from ______ to ________
Commission File Number 1-13205
KING POWER INTERNATIONAL GROUP CO., LTD.
(Exact name of registrant as specified in its charter)
NEVADA 75-2641513
(State of incorporation) (I.R.S. Employer
Identification No.)
26th & 27th Floors, Siam Tower, 989 Rama I Road,
Patumwan, Bangkok 10330 Thailand
(Address of principal executive offices)
Registrant's telephone number, including area code: 011 (662) 658-0090
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, $.001 par value per share
Name of exchange on which registered: American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation 8-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Number of share of Common Stock of the registrant outstanding as of February 26,
1999: 20,250,000 shares.
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant based upon the closing price of $2.31 per share
for the registrant's common stock as reported by the American Stock Exchange as
of February 26, 1999 was approximately $19,200,720.
TABLE OF CONTENTS
Item Number Page
Part I
1. Business 4
2. Properties 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
Part II
5. Market for the Company's Common Stock and Related Stockholder
Matters 9
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial Condition
And Results of Operations 11
7A. Quantitative and Qualitative Disclosures of Market Risk 14
8. Financial Statements 20
9. Changes In and Disagreements with Accountants on Accounting
And Financial Disclosure 44
Part III
10. Directors, Executive officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 45
11. Executive Compensation 48
12. Security Ownership of Certain Beneficial Owners and Management 49
13. Certain Relationships and Related Transactions 50
Part IV
14. Exhibits and Reports on Form 8-K 52
2
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements and information relating
to the Company that is based on the beliefs of the Company or its management as
well as assumptions made by and information currently available to the Company
or its management. When used in this document, the words "anticipate",
"believe", "estimate", "expect", and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company regarding future events and are subject to certain risks, uncertainties
and assumptions, including the risks and uncertainties noted. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected or intended. In each instance,
forward-looking information should be considered in light of the accompanying
meaningful cautionary statements herein.
3
PART I
ITEM 1 BUSINESS
General
The global duty free business is a multi-billion dollar industry in
which luxury and brand name merchandise such as perfumes and cosmetics, liquor
and tobacco and general merchandise products are sold to travelers exempt from
import duties and taxes, within certain allowances, at their respective
destinations. Since 1993, the global duty free business grew at a compounded
annual growth rate of 5.4 % in terms of revenue from US$17 billion in 1993 to
US$21 billion in 1997.
The travel-retail industry, which is defined as all of the business
activities involved in the duty-free and tax-free businesses, including selling
goods at traveling ports (principally airports) and on airplanes, at tourist
centers, at resorts and in major cities, etc., began to develop in 1964 when
Japanese retailers began establishing duty free shops around the region. As
trade among the countries within the region increased, the Asian duty free
business began to grow. The Asian travel-retail industry was given additional
impetus when trade between Asian countries and the United States and European
countries began to grow further. This increase in trade resulted in an increase
in tourism by travelers from the United States and Europe. Consequently,
Thailand became the most popular travel destination among Southeast Asia's
countries, welcoming more than 33 million passengers traveling through the
International Airports in Thailand during 1998. During the 1990's the number of
passengers has increased at a compounded average growth rate of 7% from 19
million in 1990 to 33 million passengers in 1998, according to Airports
Authority of Thailand (AAT).
King Power International Group Co., Ltd. (the "Company") is currently
the leading travel-retail operator in Thailand. The Company operates and manages
27 duty free and 28 tax free stores, via two concession agreements with the AAT,
throughout all of Thailand's major airports. At the end of 1998, the Company has
approximately 51,100 square feet of retail space at the Bangkok and Provincial
International Airports, which represented growth in retail space from the end of
1997 of approximately 20%.
Background and Organization of the Company
- ------------------------------------------
The Company (formerly known as Immune America, Inc.) was incorporated
under the laws of the State of Nevada in 1985. Until June 12, 1997, this Company
was inactive and was regarded as a development stage company.
On June 12, 1997, the Company engaged in a reverse merger transaction
with the shareholders of J.M.T. Group Company Limited and J.M.T. Duty Free
Company Limited, whereby an aggregate 18,800,000 shares of restricted,
unregistered common stock was exchanged for 99.94% of the issued and outstanding
shares of J.M.T Group Company Limited and 94.95% of the issued and outstanding
shares of J.M.T. Duty Free Company Limited.
The reverse merger was treated as a re-capitalization of the Company.
Accordingly, the assets, liabilities and business operations of J.M.T. Group
Company Limited and J.M.T. Duty Free Company Limited are recognized at
historical cost. The consolidated historical financial statements of J.M.T.
Group Company Limited and J.M.T. Duty Free Company Limited became the historical
financial statements of the Company.
4
Concurrent with the reverse merger, the Company changed its corporate
name from Immune America, Inc. to King Power International Group Co., Ltd.
Subsequently, on September 9, 1997 J.M.T. Duty Free Company Limited changed its
corporate name to King Power Duty Free Company Limited and on October 10, 1997
J.M.T. Group Company Limited changed its corporate name to King Power Tax Free
Company Limited.
The Company operates its current businesses through two divisions:
the Tax Free Division and the Duty Free Division.
Tax Free Division
- -----------------
King Power Tax Free Company Limited (the "Tax Free Division" or,
sometimes, "KPD") is a Thai corporation engaged in selling various souvenirs and
consumer products in the International and Domestic terminals of all the major
airports located in Thailand to international and local travelers. The Tax Free
Division holds the exclusive operating license granted by the AAT for all shops
of this specific nature.
At the end of 1998, the Tax Free Division operated 28 stores within
Thailand's major international and domestic airports, totaling more than 22,250
square feet of retailing space compared to 6,181 square feet in 1993 when it
first began operations. There are now 18 shops located in the various terminals,
which comprise the Bangkok International Airport; 11 of these shops are located
in the airside departure terminals. The landside shops are established in seven
different locations in the departure and arrival halls of both terminals. The
Tax Free Division sells domestically manufactured general merchandise including
Thai silk, pewter, Benjarong porcelain, Thai dolls, jewelry, watches, pens,
lighters, leather goods and confectionery, free of Thailand's value-added-tax.
There are ten shops, located in the domestic terminals at the Bangkok,
Chiang Mai and Phuket domestic and international airports, selling indigenous
general merchandise of Thailand, together with local specialty goods.
The Company is proud to be active participant in the promotional
campaign known as "Amazing Thailand" for the years 1998 and 1999. Of the four
new shops, two shops were opened in joint operations with AAT, the Tourism
Authority of Thailand ("TAT"), and the Department of Industrial Promotion from
the Ministry of Industry and dedicated to the "Amazing Thailand" promotion.
Duty Free Division
- ------------------
King Power Duty Free Company Limited (the "Duty Free Division" or,
sometimes, "KPD" ) is a Thai corporation engaged in selling duty free
merchandise to the traveling public under the supervision of Thai customs in
duty free shops located in the international terminals of all of the major
airports in Thailand. The Duty Free Division holds a non-exclusive license to
operate duty free shops from the AAT for shops of this specific nature until
December 2001.
The Duty Free Division operates 27 duty free stores, with approximately
28,850 square feet of retail space, in Thailand's International Airports at
Bangkok, Chiang Mai, Phuket and Hat Yai. The Duty Free Division accounts for 60%
of the total duty free retail space currently used in these four airports. The
Duty Free Division's merchandise mix consists of top quality brand name liquor
and tobacco products, luxury goods such as watches, perfumes, cosmetics, fashion
accessories, gourmet food and chocolates. In Thailand all imported merchandise
is subject to import duties and governmental taxes. However, the Duty Free
Division's goods are sold exclusively for departing passengers and are free of
all import duties, excise taxes and the value-added-tax imposed by the Thai
government.
The Duty Free Division started its operation on January 1, 1997. During 1998,
the Duty Free Division successfully introduced Harrods of Knightsbridge U.K as
the first duty-free Harrods in Asia located in both Terminals of the Bangkok
International Airport. Additionally, the Company has also introduced specialty
stores focusing on well known fashion designers, such as Ferragamo, Versace,
Cartier, Dunhill, Etro, Fendi, Bally, Lanvin, and Givenchy located in the
Terminal I of the Bangkok International Airport.
5
Both the Duty Free Division's and the Tax Free Division's sales and
their overall performance and results are subject to the influence of external
factors, some of which are beyond the Company's control. These include the
distribution of airlines at particular terminals, the routes that are serviced
by those airlines, loading levels of airline passengers, and economic and other
conditions affecting the airlines servicing Thailand in general. The Company
strategically manages those factors within its control in order to maximize its
performance and minimize the effect of those that it cannot control. The Company
believes that the devaluation of the Thai Baht, relative to the U.S. dollar,
will continue to encourage a greater number of tourists and travelers to come to
Thailand in the future which should result in a significant positive effect on
the Company's business, both as to sales volumes and profits.
King Power International Group (Thailand) Co., Ltd.
- ---------------------------------------------------
King Power International Group (Thailand) Co., Ltd. was principally
formed to lease the Company's Head Office in the Siam Tower in Bangkok in 1997.
The rental expenses for this facility are allocated according to the actual
usage by each of the Company's subsidiaries. Management has decided to have the
subsidiaries lease their premises directly from the leasor effective as of
January 1999 in order to prevent unnecessary repetitive payment of corporate
income taxes among the Company's subsidiaries.
Regulation
- ----------
The Duty Free operations are subject to the regulated supervision of
the Customs Department of Thailand ("Customs"). All imported merchandise is
received and stored in the Company's bonded warehouses in Thailand where it is
exempt from all import duties, excise taxes and value-added-taxes of Thailand.
Since the merchandise is sold without duties or taxes, it must remain within the
bonded warehouses until it is requested to transfer to the respective Duty Free
stores for sales.
The Company has a total of four bonded warehouses located in Bangkok,
Chiang Mai, Phuket and Hat Yai serving all of the Duty Free Division's shops in
Thailand. Transfer of any bonded merchandise must be documented and approved by
Customs before these products are transferred for sale to the traveling public
at the various retail stores. Customs makes regular inspections of the inventory
in the bonded warehouses and shop premises. With this tightly regulated control
from Customs, customers are assured that all products sold by the Company are
genuine and of the highest quality.
Suppliers, Distribution and Inventory Control
- ---------------------------------------------
The Company purchases both local and imported merchandise from more
than 550 vendors worldwide. This supplier base gives the Company a choice to
selectively purchase the highest quality products and to negotiate with vendors
for the lowest cost, in order for the Company to supply its customers with the
best possible value for their money. Currently, the Company does not have any
long-term purchase commitments.
Through the Company's historically strong relationships with many of
its suppliers, the Company has secured exclusive agreements from numerous
suppliers to be the sole agent for the sale of their products in Thailand in the
duty free shops. Furthermore, the Company receives significant sales support
from these vendors. These supports include in-store displays, gift-with-purchase
items, sales incentives, advertisements, staff training, signage and sales
personnel.
Merchandise is generally shipped directly from vendors to the Company's
bonded warehouses for the Duty Free Division and delivered to the Company's
warehouses at the airport or downtown for the Tax Free Division. The Company's
inventories are strictly controlled to comply with Customs' regulations.
Detailed records documenting the receipt, the transfer and sale of all
merchandise are kept by the Company to certify the authenticity and excellence
of the products sold by the Company.
The Company uses an outside shipping contractor to provide the services
of customs clearing for the imported merchandise into Thailand and directly to
the Company's bonded warehouses.
6
In order to control inventory levels, the Company uses automated
replenishment systems. Transfers are made to stores in accordance with demands
identified by respective store's managers. The Company maintains the overall
control of enough stock displays in respective stores and repurchasing point of
inventory level in respective warehouses.
The Company's computerized inventory control system allows the Company
to: (1) identify the merchandise needs at each store, (2) promptly reorder
merchandise from the vendors, and (3) comply with the Customs' record-keeping
requirements. Through the Company's automated system, appropriate product mixes
are maintained to maximize merchandise turnovers. The Company has rarely
experienced problems with obsolescence because the turnover frequency for most
products is rapid and slow moving products are quickly identified.
Employees
- ---------
The Company's business as conducted in it shops is labor intensive.
The Company currently employes approximately 1500 persons. Each member of the
sales staff is equipped with special selling skills geared to the Travel-Retail
business, that is, they are fluent in many languages and have extensive product
knowledge in order to handle sales discussions with foreign customers.
Management promotes job enhancement at every level of the staff to ensure
maximum job satisfaction in return for the highest productivity by each
employee. For example, the Company maintains a Training Center to encourage the
learning of managerial skills, languages, product knowledge, etc. and has
implemented the ISO 9002 standards of operation. Employee turn-over continues to
be very low and Management foresees no problems in maintaining its capable staff
of employees as long as the Company sustains its market share and the growth of
its businesses.
Competition
- -----------
The Company foresees no competition for the Tax Free Division. During
1997, the Company was granted an extension by the AAT of the Tax Free Division's
license for the exclusive right to operate and sell gifts and general
merchandise at the Bangkok International Airport, for a further five year term
extending from 1998 to 2003.
The Company has developed strong relationships with the AAT over the
years and as a result of this and the major contributions which the Company has
made to increase tourism to Thailand, the Company believes that the renewal and
extension of the Duty Free Division's license will be on terms favorable to the
Company.
In Thailand, there are several barriers for parties wishing to enter
into the duty free business. Any new entrant company must be of Thai ownership
who have proven Asian regional duty free experience, particularly with regard to
serving international passengers and Thai Nationals. For a new entrant, the
company's management must be comprised of Thai nationals and it must reach a
minimum turnover in duty free business. Additionally, the new entrant must
possess bonded warehouse facilities located in Thailand and should be already
carrying all major international brands in its portfolio of merchandise.
Economic Conditions and Exchange Rates
- --------------------------------------
The principal customers of the Company are the traveling public
utilizing the International and Domestic Airports at Bangkok, Chiang Mai, Phuket
and Hat Yai. The Company's businesses closely tie up with economic conditions of
countries where the travelers come from. The Company has strategically
confronted the current economic turmoil of the Asia Pacific region with decisive
actions to minimize the adverse effects on its operations.
In 1998 the Tax Free Division was able to maintain its operational
trends because most of its merchandise consists of products purchased in Thai
Baht. Additionally, the Tax Free Division has always been able to sell its
merchandise in U.S. dollars. Although Thai Baht was floated there was a minimal
impact on this division's operations because there was very little difference in
the purchasing power of the customers.
7
The Duty Free Division imports all of its products from suppliers
across the world whereas the purchasing commitments are tied to either U.S.
dollars or currencies of the originating countries. The Company partially offset
the impact of the weak Thai Baht by adjusting, as often as daily, both the
Company's pricing policy and point of sale exchange rates reflecting the current
exchange rate of the Thai banks. By this policy, the Company is able to minimize
the realized and unrealized loss of exchange when purchasing activities are
denominated in foreign currencies.
BUSINESS STRATEGIES
- -------------------
The Company began operating its Tax Free Division in 1993 after
obtaining the five-year sole license to operate its business from the AAT. This
license was renewed in 1998, extending for a period of five additional years
(until 2003) the Division's license to operate in Thailand. In 1997, the Company
obtained its five-year Duty Free license and since that time the Duty Free
Division has become the principal contributor of profits to the Company's
operations. Even though merchandise sold by the Tax Free Division generally
carry a higher profit margin compared to the profit margin for merchandise sold
by the Duty Free Division, the value of each item (measured by its selling
price) is less, thus, the profitability of the Tax Free Division has been
generally lower. Management intends to concentrate on improving the
profitability of the Tax Free Division in the future, principally through
reduction of concession fee and rent cost, selecting higher value merchandise,
and lower operating costs. For Duty Free Division, the Company will continue to
expand its facilities and increase sales volumes. The Company also intends to
expand the existing operation through the acquisition of profitable related
companies and by incorporating new projects into the Company or its
subsidiaries, and to develop additional retail space for sales outside of AAT's
premises.
Improving Profitability for the Tax Free Division
- -------------------------------------------------
The Company has on-going negotiations with the AAT to lower the
concession fees charged by the AAT, to exchange space between the Tax Free and
the Duty Free Divisions, and to discontinue some of the shops to decrease losses
which are caused by increased concession fees. The Tax Free Division is in the
process of re-engineering its entire operation to be more compatible with new
international trends for this business. It is anticipated that implementation
will progress in phrases throughout 1999 and beyond. The main components of this
re-engineering targets are (1) increased efficiency in selecting the merchandise
to be sold and emphasizing the potential for increased sales volumes and the
profitability of each item of merchandise selected; (2) downsizing the amount
and types of merchandise displayed from the concept of "something for everyone"
to becoming more selective in the types of merchandise displayed at different
locations; (3) developing premium brands in order to create brand awareness, the
uniqueness of product availability, to upgrade quality and design, and to
improve packaging and marketing; and (4) utilizing the Company's overall
resources more efficiently through the implementation of the Management and
Quality Assurance Standard "ISO 9002".
Expansion of the Duty Free Division
- ------------------------------------
Since the current trend for the Duty Free Division's products is
continued high demand driven by the increased number of Asian tourists who have
made plans or arrangements to visit Thailand in 1999 and 2000, as announced by
the Tourism Authorities of Thailand (TAT), this Division will focus on ensuring
adequate supplies of, and more variety in, the merchandise it offers for sale in
order to cater to these customers. Similar to the introduction of Harrods of
Knightsbridge U.K. during 1998, this Division will attempt to open more
internationally recognized Concept Stores in the AAT's facilities during 1999
and beyond.
General Expansion of Business
- ------------------------------
There are related companies (see Item 13 of this report), which operate
in the same or similar businesses and which are profitable, that Management is
currently assessing with a goal to acquire one or more of these in order to
expand the Company's businesses in Thailand. It is hoped that one or more of
these possible acquisitions or mergers would be completed within the 1999 fiscal
year; thus giving the Company the opportunity to increase its sales volume, to
8
improve profitability since economies of scale should reduce various costs of
operation and the unit cost of merchandise acquired for sale, and to reduce
operating risks as a result of a more diversified business structure.
ITEM 2 PROPERTIES
The Company's principal office is located at the 26th and 27th Floors of the
Siam Tower, at 989 Rama I Road, Patumwan, Bangkok 10330. The telephone number is
011-(662) 658-0090. This office which is leased from the Bangkok
Intercontinental Hotels Co., Ltd. contains 29,353 square feet of space and is
leased for three years expiring in October 2000 at an annual cost of $79,175 at
an average exchange rate 40.795 Thai Baht to 1 US Dollar for 1998.
The Company operates 55 retail stores with retail space totaling 51,100 square
feet, located in the international and domestic airports of Thailand located in
Bangkok, Chiang Mai, Phuket, and Hat Yai. All of the stores are leased from the
Airports Authority of Thailand (the "AAT") under varying lease agreements for
the Company's two subsidiaries. Under these lease agreements, the Company is
subject to a monthly rental fee (exclude duty charge and other expenses) for the
actual utilized space. During the 1998 fiscal year the Company paid a total of
$1,220,636 to the AAT under these lease agreements. The Company anticipates that
the total sum due under these lease agreements for the 1999 fiscal year will be
approximately $1,615,257 at the exchange rate of 36.5948 Thai Baht to 1 US
Dollar as of December 31, 1998.
The Company leases five warehouses containing almost 30,000 square feet in
Bangkok, Chiang Mai, Phuket, and Hat Yai from the AAT. The bonded warehouses
contain 25,000 square feet of space for the Duty Free Division and 4,100 square
feet of warehouse space for the Tax Free Division. The Company believes its
facilities are adequate for its current operations.
All payments with regards to properties are made in Thai Baht. The Company used
the average exchange rate, 40.795 Thai Baht to 1 US Dollar, to translate these
expenses into US Dollars during 1998.
ITEM 3 LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation, or any
litigation which if it were decided against the Company would likely have a
result which would be materially adverse to the Company, its current or future
financial condition, or the Company's present or anticipated methods of
operation.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the American Stock Exchange under the
ticker symbol "KPG". The approximate number of holders of record of shares of
common stock, excluding the number of beneficial owners whose securities are
held in street name, was 365 of February 26, 1999. The Company believes that
approximately 900 stockholders currently own and hold the stock in street name.
9
The following table set out the high and low reported sales prices for the
common stock as reported by the American Stock Exchange since it was listed on
July 30, 1997:
High Low
First Quarter of 1999
(Through February 26, 1999) $2.88 $2.13
Fourth Quarter of 1998 $4.50 $1.75
Third Quarter of 1998 $4.50 $1.88
Second Quarter of 1998 $6.38 $3.50
First Quarter of 1998 $9.75 $1.19
Fourth Quarter of 1997 $13.38 $12.88
Third Quarter of 1997 $16.75 $12.88
The Company has never paid any cash dividends. Future earnings will be retained
for use in the Company's business, and the Company does not intend to pay any
cash dividends on its common stock for the foreseeable future.
ITEM 6 SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following data should be read in conjunction with "the Company,"
"Management's Discussion and analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto and the
Unaudited Pro Forma Information and notes thereto included elsewhere in this
Prospectus.
Year Ended December 31,
1994 1995 1996 1997 1998
Consolidated Statement of Income data:
Revenues..................................... $ 14,895 $ 26,461 $ 41,869 $ 95,997 $ 91,125
Gross Profit................................. (5,413) 192 7,383 23,154 27,051
Selling, general and administrative
expenses.................................. 2,313 3,179 6,273 14,621 31,931
------------ ----------- ----------- ----------- --------
Operating Income ( loss)..................... (7,726) (2,986) 1,110 8,533 (4,880)
Operating Income (expenses),net.............. 332 399 493 (1,846) 541
Income (loss) before minority interest and
income tax................................ (7,394) (2,587) 1,603 6,687 (4,339)
Net Income (loss)............................ $ (7,389) $ (2,586) $ 1,643 $ 7,935 $ (4,287)
======== ====== ====== ====== =====
Net Income (loss) per share:
Basic..................................... (0.39) $ ( 0.14) $ 0.09 $ 0.40 $ (0.21)
Diluted................................... $ - $ - - $ - $ -
Weighted Average Share Outstanding:
Basic..................................... 18,800 18,800 18,800 19,779 20,250
Diluted................................... - - - - -
10
Consolidated Balance Sheet Data:
Working Capital.............................. $ (3,001) $ (6,109) $ (7,351) 17 2,793
Total Assets................................. 1,320 1,952 23,742 35,078 48,076
Total Long - Term Debt ...................... - - 55 227 403
Stockholders' Equity......................... (2,647) (5,258) 3,927 9,764 8,751
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Caution Regarding Forward-Looking Information
- ---------------------------------------------
This annual report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or its management as well as assumptions made by and information currently
available to the Company or its management. When used in this document, the
words "anticipate", "believe", "estimate", "expect", and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current view of
the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks and uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.
Results of operations, comparing fiscal years ended December 31, 1998 and 1997
- ------------------------------------------------------------------------------
King Power Duty Free Co., Ltd. (KPD) began retail operations in 1997
and the revenue of this subsidiary is a direct result of the increase in the
number of tourists coming to Thailand as a result of the social and government
stability, the Thai Baht devaluation and its fully functional retail stores. In
1998 additional growth was experienced in general merchandise sales at King
Power Tax Free Co., Ltd. (KPT) stores in Thailand airports, principally due to
an increase in tourism traffic. Management anticipates that Thailand will
continue to be an attractive tourist destination during future periods and will
expand as a focal point for air travel throughout Asia.
Sales revenue for the year ended December 31, 1998 was approximately
$91.1 million, compared to approximately $96.0 million for 1997. This decrease
is directly attributable to the devaluation of Baht that took place during the
last half of 1997. Overall sales revenue, measured in Thai Baht, increased
14.29% from Baht 3,252.7 million for the year ended December 31,1997 to Baht
3,717.5 million for the same period in 1998. However, the average exchange rate
of Baht 40.795 to 1 was used to convert the 1998 figure into US Dollars, while
the average exchange rate of Baht 33.883 to 1 was used for 1997. Also commencing
in the last half of 1997, the Thai Government began the "Amazing Thailand"
marketing campaign for the 1998-1999 time period to coincide with various events
occurring in Thailand or other countries located near Thailand. This marketing
campaign is international in scope and directly targeted to attract additional
new and repeat visitors to Thailand. The Company expects that this promotional
campaign will continue to directly impact the Company's operations in a positive
manner during 1999 and in subsequent years.
The cost of merchandise sold for the years ended December 31, 1998 and
1997 was approximately $39.1 million and $38.5 million, respectively. The
principal factor causing this slight increase is directly related to the change
in product mix during 1998 resulting from the decision to concentrate more on
products that have higher turnover and to sacrifice some profit margin in order
to increase sales volumes and decrease carrying costs. In addition, KPT's
concession agreement to maintain its locations within the Thai airports requires
payments based upon a fixed amount. As a result, comparing the year ended
December 31, 1997 to the year ended December 31, 1998, the ratio of the
Company's concession fee to sales revenue dropped favorably from approximately
35.77% in 1997 to approximately 27.40% in 1998. Additionally, during the first
11
quarter of 1998, the Thai government permanently waived the Customs Fee (which
is reported as part of concession fee) previously imposed at the rate of 15% of
gross sales.
Selling and administrative expenses, excluding depreciation and others,
also reflect the expansion of KPD's business and the increase in traffic at
KPT's stores. These expenses were approximately $16.2 million for the year ended
December 31, 1998 and approximately $14.6 million for the same period in 1997.
In terms of percentage of sales, 1998 expenses were approximately 17.76% of
sales and 1997 expenses were approximately 15.23% of sales. Management has made
a commitment to improve this ratio by improving the effectiveness and efficiency
of the Company's sales force that should result from additional training and
management supervision.
For 1998 the Company provided an allowance for doubtful accounts in the
amount of approximately $15.7 million for advances to related companies and
directors. This allowance was necessary due to liquidity constraints of the
related parties, including businesses in Hong Kong which have suffered
unexpected and severe losses as a result of the dramatic decrease in tourists
visiting that country.
The Company's profit, before this provision for doubtful accounts, for
the 1998 fiscal year was approximately $10.8 million, compared to a profit from
operations of approximately $8.5 million for the year ended December 31, 1997.
The net loss for the year ended December 31, 1998 (including this provision for
doubtful accounts) was approximately $4.3 million, or $0.21 per share (basic),
compared to net income of approximately $7.9 million, or $0.40 per share
(basic), for the year ended December 31, 1997. This decrease was caused by a
one-time charge of approximately $15.7 million, resulting from a provision for
doubtful accounts. As a result of a substantial increase in the total amount of
Advances to Related Companies and Loans to Directors which increased from $4.9
million at December 31, 1997 to $23.1 million at December 31,1998, and liquidity
constraints on those businesses, under generally accepted accounting principles
the Company was required to make this provision. Even though an allowance has
been provided, Management will aggressively pursue collection of these accounts.
The ratio of inventory divided by revenue for the years ended December
31, 1998 and 1997 was approximately 16.36% and 13.69%, respectively. This slight
increase is a result of the commencement of operation by the Company's new
stores, including Harrods (Knightsbridge) and nine boutiques shops.
Results of operations, comparing fiscal years ended December 31, 1997 and 1996
- ------------------------------------------------------------------------------
KPD began retail operations in 1997 and the revenue of this subsidiary
is a direct result of the increase in tourists to Thailand as a result of the
Thai Baht devaluation. Further growth was experienced in general merchandise
sales at the KPT stores in the Thailand airports due to an increase in tourism
traffic. Management anticipates that Thailand will continue to be an attractive
tourist destination during future periods and will expand as a focal point for
air travel throughout Asia.
Sales revenue for 1997 was approximately $96.0 million as compared to
approximately $41.9 million for 1996. This increase is directly attributable to
the factors previously discussed. Additionally, as a result of the Thai Baht
devaluation, KPD has increased its retailing prices three times or approximately
54%, during 1997. Further, commencing in the last half of 1997, the Thai
Government began the "Amazing Thailand" marketing campaign for the 1998-1999
time period to coincide with various events occurring in Thailand or other
countries located near Thailand. This marketing campaign is international in
scope and directly targeted to attract additional new and repeat visitors to
Thailand. The Company expects that this promotional campaign will directly
impact the Company's operations in a positive manner during and subsequent to
this time period.
Cost of sales for the years ended December 31, 1997 and 1996 were
approximately $38.5 million and $14.5 million, respectively. The factors for
this increase relate to the expansion of the KPD subsidiary and a larger number
of customers at the KPT stores for consumer goods. In addition, KPT's concession
agreement to maintain its locations within the Thai airports requires payments
based upon fixed amount. In the time period from the year ended December 31,
1996 to the year ended December 31, 1997, the Company's concession fee as
percentage to sales revenue dropped from approximately 47.84% in 1996 to
approximately 35.77% in 1997.
12
Direct selling expenses, excluding depreciation and others, also
reflect the commencement of KPD's business and the increase in traffic at KPT's
stores. These expenses were approximately $4.8 million for 1996 and
approximately $8.7 million in 1997. In terms of percentage of sales, 1996
expenses were approximately 11.5% of sales and 1997 expenses were approximately
9.1% of sales. The improvement of these expenses as a percentage of sales is
attributable to the effectiveness and efficiency of the Company's sales force
through improvements in training and management supervision.
Administrative expenses for the years ended December 31, 1997 and 1996
were approximately $3.8 million and $0.9 million, respectively. As a percentage
of total sales, these expenses were approximately 4.0% and 2.2%, respectively.
Administrative expenses have grown due to the growth in the Company's business.
Management has designated these expenses for constant monitoring in order to
control their levels in relation to the Company's size, sales volume and
operational necessity.
Net income for the year ended December 31, 1997 was approximately $7.9
million, or $0.40 per share (basic), and approximately $1.6 million, or $0.09
per share (basic), for the year ended December 31, 1996. However, included as a
component of net income is the cumulative effect of both realized and unrealized
gains and losses from foreign exchange caused charges to operations of
approximately $4.4 million or approximately $0.22 per share (basic)for the year
ended December 31, 1997.
The ratio of inventory divided by revenue for the year ended December
31, 1997 and 1996 was approximately 13.7% and 16.1%, respectively. This
reduction is due to the significant increase in sales volume during 1997, which
exceed the inventory level as projected.
Results of Operations, comparing fiscal years ended December 31, 1996 and 1995
- ------------------------------------------------------------------------------
Sales revenue for 1996 was approximately $42 million as compared to
approximately $26 million for 1995. This increase is attributable to the exempt
of Value Added Tax at 7% waived by the Government in order to promote tourism
and increase spending on local merchandise in 1996, as well as the Company's
expansion in the shops area in the Bangkok domestic airport and the first phase
of Terminal 2, a newly constructed area which is part of the expansion of
Bangkok International Airport.
Cost of sales for the years ended December 31, 1996 and 1995 were
approximately $14.5 million and $10.7 million, respectively. The increase is
directly related to the increase in sales of inventory. Further, the KPT's
concession agreement with the AAT requires payments based upon fixed amount and
the concession fee on Terminal 2 is significantly less than the original
concession fee charged on Terminal 1. The Company's concession fee as percentage
to sales revenue dropped from 58.91% in 1995 to 47.84% in 1996.
Direct selling expenses, excluding depreciation and others, increased
as a result of the expansion in the area occupied by the Company's stores. These
expenses were approximately $2.7 million for 1995 and approximately $4.8 million
in 1996. In terms of percentage of sales, 1995 expenses were approximately 10.3%
of sales and 1996 expenses were approximately 11.5% of sales. The increase in
the percentage of sales is attributable to the under utilization of the rented
space while the stores were being constructed.
Administrative expenses for the years ended December 31, 1996 and 1995
were approximately $0.9 million and $0.2 million, respectively. As a percentage
of sales, these expenses were approximately 2.2% and 0.9%, respectively.
Administrative expenses have increased due to the growth in the Company's
business. Management has designated these expenses for constant monitoring in
order to control their levels in relation to the Company's size, sales volume,
and operational necessity.
Net income for the year ended December 31, 1996 was approximately $1.6
million, or $0.09 per share (basic), contracted to a loss of approximately ($2.6
million), or a loss of ($0.14) per share (basic), for the year ended December
31, 1995. This turnaround resulted directly from the significant increase in
sales revenue achieved by the Company.
13
Liquidity and Capital Resources
- -------------------------------
For the years ended December 31, 1998 and 1997, the Company had working
capital of approximately $2.8 million and $0.02 million, respectively. The
improvement in this figure is due to the Company's ability to significantly
expand operations, thereby increasing current assets. The Company experienced a
negative cash flow from operations of approximately $4.9 million at December 31,
1998, compared to a positive cash flow of $3.8 million during the same period of
1997. This decrease is mainly due to the significant increase in advances to
related companies for the purpose of pilot projects for future expansion. In
order to prevent any realization of losses attributed from the usual stage of
start-up operation, the Company's management decided not to have the Company
directly own these related companies until these companies become profitable.
Management is trying to reduce this exposure by exploring ways that these
related companies can pay down or eliminate these loan balances or the Company
could eliminate them by acquiring these profitable related companies as
according to the original objective.
Management is also currently engaged in a corporate reorganization
process in order to ultimately enhance the profitability and cash flows of the
Company by investing in profitable related companies and incorporating new
potential projects into the operations of Company or its subsidiaries, KPT and
KPD.
Recently Issued Accounting Principles
- -------------------------------------
New Accounting Standards Not Yet Adopted - Accounting for Derivative
Instruments and Hedging Activities - Statement of Financial Accounting Standards
No. 133 is effective for fiscal year beginning after June 15, 1999. This
Statement requires that certain derivative instruments be recognized in balance
sheet at fair value and for changes in fair value to be recognized in
operations. Additional guidance is also provided to determine when hedge
accounting treatment is appropriate whereby hedging gains and losses are offset
by losses and gains related directly to the hedged item. The Company believes
that adoption will not have a significant impact on financial condition or
operating results.
Year 2000 effect
- ---------------
The Company's previous computer software system was not Year 2000
compliant. Due to the expansion of the Company's business and the necessity to
operate more efficiently, the Company's management decided to change computer
software and related hardware system to fully support the integration of all
systems and all subsidiaries in order to generate centralized management
reporting and ensure more effective control of the business. The new system was
installed in October 1998, it was tested in February 1999 and will be fully
operational by the end of May 1999. The total cost for this new computer system
is estimated to be $650,000.
The Company does not have the ability to contact all of its numerous
suppliers to confirm that each one has effectively dealt with this problem. The
Company believes that if any of its suppliers fail to become Year 2000 compliant
and, thus, cannot deliver the needed merchandise, the Company can, for the most
part, obtain similar or comparable merchandise from suppliers that are Year 2000
compliant. The banks and other financial institutions with which the Company and
its subsidiaries deal have reported that they are, or will be shortly, Year 2000
complaint.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
On July 2, 1997, the Thai Government announced that the Thai Baht would
thereafter be converted to a "Managed Float" system for the relationship of the
Baht to other international currencies. This change had an immediate impact on
the Company's operations and the results of its operations.
The Company's subsidiaries conduct their business with selling and
purchase prices based on Thai Baht, US Dollars, and other currencies. Sales are
made both in Thai Baht and other currencies, but eventually will be converted
14
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.
King Power Duty Free Company, Limited (KPD) incurred an economic and
financial loss as a result of the devaluation and subsequent float of the Thai
Baht on the settlement of accounts in currencies owed other than Thai Baht.
However, as the Thai Baht has been stabilized and KPD began to buy forward
contracts in order to prevent any exchange risk from its foreign currencies
financial obligations, the losses from this transaction have been significantly
reduced.
King Power Tax Free Company, Limited (KPT) has been selling goods at
prices based upon the US Dollar since its inception. Further, KPT deals in
predominately Thailand produced goods whereby all purchases are settled in Thai
Baht. Therefore, the devaluation of the Thai Baht had minimal effect on the
settlement of open trade payables of KPT. Accordingly, the devaluation had an
opposite economic impact on the operations of KPT whereby the Thai Baht
devaluation increased the overall profitability of this subsidiary.
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.
The Company's financial statements and all accompanying discussions in
this document are presented in US Dollars.
In accordance with generally accepted accounting principles, the
Company has reported gain on foreign exchange-net of $0.03 million for the year
ended December 31, 1998 with the following showing the calculation supporting
the figure:
CHART A
The calculation of Unrealized gain on foreign exchange of US$=559,674.11 was
calculated on accumulated basis with quarterly adjustment on financial
obligations, receivable and cash on hand in foreign currency as shown below:
Accounts payable in foreign currency as of 12/31/98
- --------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
12/31/98
- --------------------------------------------------------------------------------
Swiss Franc 175,617.95 27.1097 4,760,949.94
German Deutschmark 32,541.70 22.1134 719,607.63
French Franc 790,520.00 6.6054 5,221,700.81
Hong Kong Dollar 2,316,261.77 4.7766 11,063,855.97
Italian Lire 18,708,500.00 0.0226 422,812.10
British Pound Sterling 160,386.91 62.1749 9,972,040.09
Singapore Dollar 573.30 22.4134 12,849.60
Japanese yen 490.00 32.0466 15,702.83
US Dollar 2,652,140.15 36.8900 97,837,450.13
- --------------------------------------------------------------------------------
Total 130,026,969.11
BALANCE PER GENERAL LEDGER 142,710,477.78
Unrealized gain on accounts payable in foreign currency 12,683,508.67
- --------------------------------------------------------------------------------
15
Loan from bank(Trust receipt) in foreign currency as of 12/31/98
- --------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
12/31/98
- --------------------------------------------------------------------------------
German Deutschmark 433,430.34 22.1134 9,584,618.48
Hong Kong dollar 7,237,083.71 4.7766 34,568,654.05
Italian Lire 926,405,459.50 0.0226 20,936,763.38
Singapore Dollar 69,634.08 22.4134 1,560,736.49
US Dollar 4,851,988.97 36.8900 178,989,873.10
Swiss Franc 175,770.32 27.1097 4,765,080.64
British Pound Sterling 15,487.50 62.1749 962,933.76
Australian Dollar 101,182.46 22.7192 2,298,784.55
Franch Franc 2,082,357.40 6.6054 13,754,820.72
Jamanese Yen 3,292,720.00 0.3205 1,055,204.81
- --------------------------------------------------------------------------------
Total 268,477,469.99
BALANCE PER GENERAL LEDGER 274,296,081.91
Unrealized gain on Trust Receipt in foreign currency 5,818,611.92
16
Unrealized gain on Cash on hand as at 12/31/98
- --------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
12/31/98 Baht
- --------------------------------------------------------------------------------
US Dollar 208,855.92 36.5948 7,643,040.62
British Pound Sterling 56,253.78 61.3766 3,452,665.75
German Deutschmark 6,740.00 21.8162 147,041.19
Singapore Dollar 9,993.00 21.9126 218,972.61
Malaysian Ringgit 747.00 9.3687 6,998.42
Hong Kong Dollar 337,497.60 4.7131 1,590,659.94
Japanese Yen 12,050,491.00 0.3153 3,799,061.89
Swiss Franc 1,230.00 26.6926 32,831.90
French Franc 5,800.00 6.5038 37,722.04
Korean Won 4,363,000.00 0.0302 131,762.60
Netherland Guilder - 19.3063 -
China Renminbi Yuan 43,621.00 4.2875 187,025.04
Canadian Dollar 65.00 23.5640 1,531.66
Australian Dollar 7,803.97 22.2361 173,529.86
Taiwanese Dollar 58,300.00 1.1321 66,001.43
- --------------------------------------------------------------------------------
total 17,488,844.95
- --------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 16,471,579.07
Unrealized gain on cash in hand in foreign currency 1,017,265.88
Unrealized gain on accounts payable in foreign currency 12,683,508.67
Unrealized gain on Trust Receipt in foreign currency 5,818,611.92
Net Unrealized gain on exchange rate as at 12/31/98 19,519,386.47
(US$1 =40.80 Baht ) 478,416.34
Unrealized gain from advanced from companies as at 12/31/98
- --------------------------------------------------------------------------------
Currency Amount BAHT Exchange Rate Total
12/31/98 US DOLLAR
BAHT CURRENCY 38,428,217.25 36.89 1,041,697.40
- --------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 1,122,955.18
Unrealized gain on advanced from companies 81,257.78
Add: Net unrealized gain on exchange rate as at 12/31/98 478,416.34
Total unrealized gain on foreign exchange 559,674.11
17
CHART B
The calculation of Unrealized loss on foreign exchange of US$ = 48,840.29 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 12/31/98
- -------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
12/31/98 Baht
- -------------------------------------------------------------------------------
US Dollar 39,809.25 36.5948 1,456,811.54
British Pound Sterling 682.46 61.3766 41,887.07
German Deutschmark 590.00 21.8162 12,871.56
Singapore Dollar 947.00 21.9126 20,751.23
Malaysian Ringgit - 9.3687 -
Hong Kong Dollar 870.00 4.7131 4,100.40
Japanese Yen 2,436,266.00 0.315262 768,062.09
Swiss Franc - 26.6926 -
French Franc 300.00 6.5038 1,951.14
Korean Won 754,000.00 0.0302 22,770.80
Netherland Guilder - 19.3063 -
China Renminbi Yuan 5,154.00 4.2875 22,097.78
Canadian Dollar - 23.5640 -
Australian Dollar 1,529.35 22.2361 34,006.78
Taiwanese Dollar 20,500.00 1.1321 23,208.05
- -------------------------------------------------------------------------------
Total 2,408,518.44
- -------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 12/31/98 2,772,136.21
Unrealized loss from cash in hand in foreign currency (363,617.77)
18
Unrealized loss on account receivable as at 12/31/98
- --------------------------------------------------------------------------------
Currency Amount Exchange Rate Total
12/31/98 Baht
- --------------------------------------------------------------------------------
Swiss Franc 36,417.53 26.6926 972,078.56
US Dollar 67,929.03 36.5948 2,485,849.27
French Franc 420,065.52 6.5038 2,732,022.13
Japanese Yen 2,142,710.00 0.3152 675,382.19
German Deutschmark 16,693.00 21.8162 364,177.83
Hong Kong Dollar 652,184.86 4.7131 3,073,812.46
Netherland Guilder 52,641.60 19.3063 1,016,314.52
Australian Dollar 24,696.00 22.2361 549,142.73
British Pound Sterling 28,326.12 61.3766 1,738,560.94
- --------------------------------------------------------------------------------
Total 13,607,340.62
- --------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 14,895,256.09
Unrealized loss from account receivable in foreign currency (1,287,915.47)
Unrealized loss from cash in hand in foreign currency (363,617.77)
Net Unrealized exchange loss as of 12/31/98 (1,651,533.24)
Net Unrealized exchange loss as of 12/31/98 in US Dollar (40,478.76)
Unrealized loss on interest payable as at 12/31/98
- --------------------------------------------------------------------------------
Currency Amount Baht Exchange Rate Total
12/31/98 US DOLLAR
- --------------------------------------------------------------------------------
Thai Baht 3,379,491.19 36.89 91,609.95
- --------------------------------------------------------------------------------
BALANCE PER GENERAL LEDGER 83,248.42
Unrealized loss on interest payable (8,361.53)
Net Unrealized exchange as of 12/31/98 (8,361.53)
Add: Net unrealized exchange loss as at 12/31/98 (40,478.76)
Total unrealized loss on foreign exchange as at 12/31/98 (48,840.29)
NET FOR REALIZED/UNREALIZED GAIN/LOSS EXCHANGE OF 12/31/98
(BAHT) (US)
Net Unrealized gain on exchange rate as at 12/31/98 559,674.11
Net Unrealized loss on exchange rate as at 12/31/98 (48,840.29)
NET UNREALIZED GAIN ON EXCHANGE RATE as at 12/31/98 510,833.82
NET FOR REALIZED GAIN/LOSS EXCHANGE OF 12/31/98
Net realized loss on exchange rate of KPT
as at 12/31/98 (21,923,223.92) (537,333.92)
Net realized gain on exchange rate of KPD
as at 12/31/98 2,091,836.90 51,270.51
- ------------------------------------------------
Net realized gain on exchange rate of KPG(US)
as at 12/31/98 1,138.97
NET REALIZED EXCHANGE (19,831,387.02) (484,924.44)
NET REALIZED EXCHANGE 25,909.38
TOTAL NET REALIZED/UNREALIZED EXCHANGE RATE 25,909.38
19
Monetary Assets and Liabilities Denominated in Thai Baht
As of December 31, 1998 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 829,337
Accounts Receivable
Trade A/R 279,422
Advances to related companies 6,281,280
Loans to directors 5,314,018
Restricted deposit 5,254,485
Other current assets 3,124,462
Other assets 531,406
TYPE OF MONETARY LIABILITY
Bank overdraft & loan from bank 2,863,298
Current portion of long-term debt 1,346,820
Trade accounts payable 7,853,579
Accrued concession fee 10,797,835
Other current liabilities 4,849,894
Long-term loan - net 402,927
ITEM 8 FINANCIAL STATEMENTS
Consolidated Financial Statements of the Company (Audited)
Independent Auditor's Report - Deloitte Touche Tohmatsu Jaiyos dated
April 1, 1999
Independent Auditor's Report - BDO International Limited dated
February 27, 1998
Balance Sheets as of December 31, 1998 and 1997
Statements of Income for the Years Ended December 31, 1998,
1997 and 1996
Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996
Statements of Changes Shareholder's Equity for the Years Ended
December 31, 1998, 1997 and 1996
Notes to Financial Statements
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
We have audited the consolidated balance sheet of King Power International Group
Co., Ltd. and subsidiaries as at December 31, 1998 and the related consolidated
statements of operations, comprehensive income, changes in shareholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance as to whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of King Power
International Group Co., Ltd. and subsidiaries as at December 31, 1998, and the
results of operations, the changes in shareholders' equity and the cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
DELOITTE TOUCHE TOHMATSU JAIYOS
April 1, 1999
BANGKOK, THAILAND
21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors and Shareholders of
King Power International Group Co., Ltd.
We have audited the accompanying consolidated balance sheets of King Power
International Group Co., Ltd. (the "Company") as of December 31, 1997, and the
related consolidated statements of income, comprehensive income, changes in
shareholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1997. We have also audited the financial statement
schedules listed in the accompanying index. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial statement schedules are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial statement schedules.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
financial statements and financial statement schedules. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, financial position of King Power International
Group Co., Ltd. as of December 31, 1997, and the results of its operations, and
its cash flow of each of the years in the two-year period ended December 31,
1997, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the related financial statement
schedules, presents fairly, in all material respects, the information set forth
therein.
BDO International Limited
Bangkok, Thailand
February 27, 1998
22
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31,
1998 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,371,739 $ 1,316,880
Trade accounts receivable - net of allowance for doubtful
accounts $ 1.87 million for 1998 (Note 11) 334,015 861,189
Loans to and receivables from
related companies and directors - net of allowance for
doubtful accounts of $ 11.16 million for 1998 (Note 11) 11,911,642 4,925,115
Merchandise inventories-net 14,910,164 13,140,356
Restricted fixed deposits (Note 3) 5,254,485 --
Deferred income tax assets (Note 10) 4,464,606 874,465
Other current assets (Note 4) 3,124,462 3,814,415
----------- -----------
Total current assets 41,371,113 24,932,420
PROPERTY, PLANT AND EQUIPMENT-NET (Note 5) 6,173,610 3,402,452
RESTRICTED FIXED DEPOSITS (Note 3) -- 6,465,680
INVESTMENTS AND OTHER ASSETS 531,406 277,647
=========== ===========
TOTAL ASSETS $48,076,129 $35,078,199
=========== ===========
Notes to the consolidated financial statements are an integral part of these
statements
23
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31,
1998 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft and loans from banks (Note 6) $ 10,185,747 $ 6,218,494
Current portion of long-term debt (Note 8) 1,346,820 28,649
Trade accounts payable 11,398,114 11,504,418
Accrued concession fee (Note 7) 10,797,835 6,216,070
Other current liabilities 4,849,894 948,076
------------
------------
Total current liabilities 38,578,410 24,915,707
LONG-TERM LIABILITIES - NET (Note 8) 402,927 227,486
------------ ------------
TOTAL LIABILITIES 38,981,337 25,143,193
------------ ------------
MINORITY INTEREST 343,473 170,712
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY (Note 9)
Common stock-$0.001 par value
100,000,000 shares authorized
20,250,000 shares issued and outstanding 20,250 20,250
Additional paid in capital 20,848,145 20,848,145
Retained earnings (Deficit) (11,916,895) (7,629,761)
Translation adjustments (200,181) (3,474,340)
------------ ------------
Total shareholders' equity 8,751,319 9,764,294
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 48,076,129 $ 35,078,199
============ ============
Notes to the consolidated financial statements are an integral part of these
statements
24
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
SALES $ 91,125,385 $ 95,996,663 $ 41,869,197
------------ ------------ ------------
COST OF SALES
Cost of merchandise sold 39,104,944 38,504,886 14,453,584
Concession fee 24,969,793 34,337,536 20,032,406
------------ ------------ ------------
Total cost of sales 64,074,737 72,842,422 34,485,990
------------ ------------ ------------
GROSS PROFIT 27,050,648 23,154,241 7,383,207
OPERATING EXPENSES
Selling and administrative expenses 16,184,976 14,621,272 6,273,079
Provision for doubtful accounts 15,745,552 -- --
------------ ------------ ------------
Total operating expenses 31,930,528 14,621,272 6,273,079
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (4,879,880) 8,532,969 1,110,128
------------ ------------ ------------
OTHER INCOMES (EXPENSES)
Interest income 1,439,169 1,826,763 592,317
Interest expense (1,364,628) (1,226,176) (539,337)
Gain (loss) on foreign exchange-net 25,909 (2,746,497) 464,743
Unrealized loss on foreign exchange due to
Baht devaluation -- (1,625,558) --
Management fee income 254,243 1,647,548 --
Other income (expenses) - net 186,795 278,285 (24,580)
------------ ------------ ------------
541,488 (1,845,635) 493,143
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX (4,338,392) 6,687,334 1,603,271
INCOME TAX BENEFIT (Note 10) 113,955 1,219,387 --
------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY
INTEREST (4,224,437) 7,906,721 1,603,271
LOSS (PROFIT) SHARED BY MINORITY
INTEREST (62,697) 28,115 39,517
------------ ------------ ------------
NET INCOME (LOSS) $ (4,287,134) $ 7,934,836 $ 1,642,788
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 20,250,000 19,779,011 18,800,000
BASIC EARNINGS (LOSS) PER SHARE $ (0.21) $ 0.40 $ 0.09
Notes to the consolidated financial statements are an integral part of these
statements
25
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
Net income (loss) $(4,287,134) $ 7,934,836 $ 1,642,788
Other comprehensive income (loss) before tax
foreign currency translation adjustments 3,274,159 (3,984,828) 510,488
=========== =========== ===========
Comprehensive income (loss) $(1,012,975) $ 3,950,008 $ 2,153,276
=========== =========== ===========
Notes to the consolidated financial statements are an integral part of these
statements
26
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996, 1997 AND 1998
Additional Retained Translation
Shares Amount Paid in Earnings Adjustments Total
Capital
Balances, January 1, 1996 18,800,000 $ 18,800 $ 11,602,130 $(17,207,385) $ 385,104 $ (5,201,351)
Initial investment in King Power Duty
Free at February 26, 1996 -- -- 7,360,465 -- -- 7,360,465
Net income (loss) -- -- -- 1,642,788 -- 1,642,788
Translation adjustments -- -- -- -- 125,384 125,384
------------ ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1996 18,800,000 18,800 18,962,595 (15,564,597) 510,488 3,927,286
============ ============ ============ ============ ============ ============
Balances, January 1, 1997 18,800,000 18,800 18,962,595 (15,564,597) 510,488 3,927,286
Recapitalization at June 12, 1997 1,200,000 1,200 (1,200) -- -- --
Regulation S issuance at August 19, 1997 250,000 250 1,886,750 -- -- 1,887,000
Net income -- -- -- 7,934,836 -- 7,934,836
Translation adjustments -- -- -- -- (3,984,828) (3,984,828)
------------ ------------ ------------ ------------ ------------ ------------
Balances, December 31, 1997 20,250,000 20,250 20,848,145 (7,629,761) (3,474,340) 9,764,294
============ ============ ============ ============ ============ ============
Balances, January 1, 1998 20,250,000 20,250 20,848,145 (7,629,761) (3,474,340) 9,764,294
Net income (loss) -- -- -- (4,287,134) -- (4,287,134)
Translation adjustments -- -- -- -- 3,274,159 3,274,159
------------ ------------ ------------ ------------ ------------ ------------
Balance at, December 31, 1998 20,250,000 $ 20,250 $ 20,848,145 $(11,916,895) $ (200,181) $ 8,751,319
============ ============ ============ ============ ============ ============
Notes to the consolidated financial statements are an integral part of these
statements
27
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (4,287,134) $ 7,934,836 $ 1,642,788
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 953,908 779,002 180,831
Unrealized (gain) loss on foreign exchange (517,287) 3,553,568 --
Provision for damage stock (reversal) (617,652) 743,747 --
Allowance for doubtful accounts 15,745,552 -- --
Deferred tax assets (3,338,336) (874,465) --
Trade accounts receivable 777,840 (956,125) (73,335)
Loans and receivables to related companies
and directors (22,131,676) (2,373,415) (3,697,380)
Merchandise inventories 2,631,652 (5,803,278) (6,115,974)
Other current assets 1,788,326 (769,608) (2,141,000)
Other assets 665,430 (677,430) (38,573)
Trade accounts payable (3,078,966) (3,859,315) 6,958,849
Accrued concession fee 2,791,828 6,216,070 --
Other current liabilities 3,628,816 (69,038) 769,233
Other 102,218 (29,283) 390,044
------------ ------------ ------------
Net cash provided (used) by
operating activities (4,885,481) 3,815,266 (2,124,517)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase and sale of fixed assets - net (2,564,547) (2,430,519) (1,476,670)
Decrease (increase) in restricted fixed deposit 3,073,008 3,081,772 (9,547,452)
------------ ------------ ------------
------------ ------------ ------------
Net cash used by investing Activities 508,461 651,253 (11,024,122)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayment) in bank overdrafts 2,176,618 (1,305,625) 2,325,030
Proceeds (repayment) from bank loan 1,578,472 (1,072,033) 3,903,201
Proceeds (repayment) from installment purchase
payable -- (71,028) 118,498
Proceeds from long-term loan -- 208,665 --
Capital injection in KPD -- -- 7,360,455
Net proceeds from Regulation S issuance -- 1,887,000 --
------------ ------------ ------------
Net cash provided (used) by financing
activities 3,755,090 (353,021) 13,707,184
------------ ------------ ------------
Notes to the consolidated financial statements are an integral part of these
statements
28
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
Effect of exchange rate changes on cash and cash
equivalents 676,789 (3,935,821) 125,384
----------- ----------- -----------
Increase in cash and cash equivalents 54,859 177,677 683,929
Cash and cash equivalents - as at January 1, 1,316,880 1,139,203 455,274
----------- ----------- -----------
Cash and cash equivalents-as at December 31, $ 1,371,739 $ 1,316,880 $ 1,139,203
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period
Interest paid 1,469,280 588,403 539,337
Income taxes paid 5,466 -- --
Non-cash transaction
Common stock -- 1,200 --
Additional paid-in capital -- (1,200) --
Notes to the consolidated financial statements are an integral part of these
statements
29
KING POWER INTERNATIONAL GROUP CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
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 issued and outstanding common shares of King Power Tax Free
Company Limited [(formerly J.M.T. Group Company Limited) - KPT thereafter] and
94.95% of the issued and outstanding common shares of King Power Duty Free
Company Limited [(formerly J.M.T. Duty Free Company Limited) - KPD thereafter].
This exchange of the Company's common stock to the former KPT and KPD
shareholders resulted in those former shareholders obtaining a majority voting
interest in the Company. Generally accepted accounting principles require that
the company whose stockholders retain the majority interest in a combined
business be treated as the acquirer for accounting purpose. Consequently, this
transaction has been accounted for as a "reverse acquisition" for financial
reporting purpose and KPT and KPD are deemed to have acquired 94% of equity
interest in the Company as of the date of acquisition. The relevant acquisition
process utilizes the capital structure of Immune America, Inc. and the assets
and liabilities of KPT and KPD are recorded at historical cost.
KPT and KPD are the operating entities for financial reporting purpose, and the
financial statements prior to June 12, 1997 represent KPT and KPD's financial
position and results of operations. The assets, liabilities and results of
operations of both KPT and KPD are included as of June 12, 1997. Although KPT
and KPD are deemed to be the acquiring corporations for financial accounting and
reporting purpose, the legal status of the Company as the surviving corporation
does not change.
Concurrent with the reverse acquisition, the Company changed its corporate name
from Immune America, Inc. to King Power International Group Co., Ltd.
KPD is a Thailand-based corporation engaged in selling duty free merchandise to
the traveling public under the supervision of Thai customs in various stores
located in the international terminals of the various airports located in
Thailand. KPD holds from the Airports Authority of Thailand a non-exclusive
license to operate duty free stores for all stores of this specific nature. For
the duty free store operation, KPD is exempt from input value added tax on
purchases of merchandise and from output value added tax on sales of
merchandise.
30
KPT is a Thailand-based corporation engaged in selling various souvenirs and
consumer products in the international and domestic terminal of the various
airports located within Thailand to the general public. KPT holds the exclusive
operating license granted by the Airports Authority of Thailand for all shops of
this specific nature. For the tax free operation, KPT is subject to input value
added tax on purchases of merchandise and is exempt from output value added tax
on sales of merchandise.
On October 10, 1997, the Company acquired 4,900 shares of common stock in King
Power International Group (Thailand) Company Limited ("KPG Thai"), equivalent to
49% of the registered capital. KPG Thai was established in Thailand on September
11, 1997 and has registered capital totaling Baht 1 million divided into 10,000
shares of common stock with Baht 100 per share. KPT acquired 5,093 shares of
common stock in KPG Thai equivalent to 50.93% of the registered capital. The
Company owns 99.93% of equity interest in KPG Thai.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements are prepared
in accordance with accounting principles generally accepted in the United States
of America which include the accounts of the Company and its subsidiaries. All
significant inter-company accounts and transactions have been eliminated in
consolidation. Investment in other companies under 20% of interest was accounted
for using the cost method. 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.
Allowance for Doubtful Accounts - The allowance for doubtful accounts of the
Company is provided at the estimated collection losses on receivables, based on
the Company's collection experience together with a review of the financial
position of each debtor.
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
year 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 exchange are recognized as income or expenses in the year.
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.
31
The exchange rates as of December 31, 1998 and 1997 are $1= Thai Baht 36.688 and
Baht 47.247, respectively. The average rates of exchange during 1998, 1997 and
1996 are $1= Thai Baht 40.795, Baht 33.883 and 25.408, respectively.
Property, Plant and Equipment - Property, plant and equipment is stated at cost.
Depreciation is computed utilizing the straight-line method over the estimated
useful lives of the assets as follows:
Building 20 Years
Leasehold improvements Term of lease
Selling office equipment and fixtures 5 Years
Vehicles 5 Years
Maintenance, repairs and minor renewals are charged directly to expenses as
incurred.
Store Pre - Opening Costs - Store pre - opening costs are expensed as incurred.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates.
Revenue Recognition - The Company recognizes revenue from sales of merchandise
at the point of sale.
Concession Fees - According to the concession agreement with Airports Authority
of Thailand, KPT is required to pay concession fees, rental and services fees,
and other related expenses at the fixed charges per month as defined in the
agreement. According to the concession agreement with Airports Authority of
Thailand, KPD is required to pay concession fee at the fixed percentage of sales
but at least equal to the fixed charges as defined in agreement, and pay rental
and service fee and other related expenses.
Concentration 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. 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
payable 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 instruments are subject to
change with market interest rates.
Income Taxes - The Company accounts for income taxes using the liability method,
under Statement of Financial Accounting Standard No. 109.
32
The Company does not provide for United States income taxes on unremitted
earnings of its Thailand-based subsidiaries since the Company's intention is to
reinvest these earnings in their operations.
Earnings Per Share - Basic earnings per share has been computed based on the
average number of common shares outstanding for the period. There are no
potential dilutive securities outstanding.
Reclassification - Certain 1996 and 1997 amounts have been reclassified to
conform with the 1998 presentation.
New Accounting Standards Not Yet Adopted-Accounting for Derivative Instruments
and Hedging Activities Statement of Financial Accounting Standards No. 133 is
effective for fiscal years beginning after June 15, 1999. This Statement
requires that certain derivative instruments be recognized in balance sheets at
fair value and for changes in fair value to be recognized in operations.
Additional guidance is also provided to determine when hedge accounting
treatment is appropriate whereby hedging gains and losses are offset by losses
and gains related directly to the hedged item. The Company believes that
adoption will not have a significant impact on financial condition or operating
results.
3. RESTRICTED FIXED DEPOSITS
1998 1997
Restricted fixed deposits $ 5,254,485 $ 6,465,680
Interest rates 6.00% - 15.00% 9.25% - 11.25%
In 1998, the restricted fixed deposits with maturities from six to
twelve months are pledged as a collateral to a commercial bank for bank credit
facilities of subsidiaries. As these are current obligations of the Company, the
deposits are shown as current assets. In 1997, the restricted fixed deposits
were primarily collateral for bank credit facilities of subsidiaries and a
related company (Forty Seven Co., Ltd.) and for the issuance of a letter of
guarantee required by the Airports Authority of Thailand pursuant to the
operating agreement with the Company and are, therefore, shown as non - current
assets.
4. OTHER CURRENT ASSETS
Other current assets consist of the following :
1998 1997
Management fee receivable
- related companies (see Note 11) $2,714,184 $ 2,174,893
Refundable value added tax 2,238,862 963,528
Other 885,600 675,994
------------- ------------
5,838,646 3,814,415
Less Allowance for doubtful account (2,714,184) -
----
============= ============
$ 3,124,462 $ 3,814,415
============= ============
33
In the Company's 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% and at the rate of 10% starting at August
16, 1997.
In 1998, KPG Thai charged a management fee amounting to $ 267,284 to King Power
International Co., Ltd. (a related company) for office rental, operating
expenses, advertising and consulting. The fee is based on actual expenses plus
20%. The period of agreement was for one year, commencing from January 1, 1998
to December 31, 1998.
In 1997, KPT charged a management fee to Downtown D.F.S (Thailand) Co., Ltd. (a
related company) for management and consulting service. The period of agreement
was for one year, commencing from January 1, 1997 to December 31, 1997. The fee
amounted to $ 182,000 per month, and totaled $ 2,184,000. In 1998, no such
services were provided by KPT and accordingly, no management fees were charged.
5. PROPERTY, PLANT AND EQUIPMENT-NET
1998 1997
Land $ 716,393 $ 111,753
Building 140,870 109,375
Leasehold improvements 4,556,110 2,334,382
Sales office equipment and fixtures 2,160,045 983,794
Vehicles 654,010 294,023
Construction in process - 354,486
------------- ------------
Total cost 8,227,428 4,187,813
Less Accumulated depreciation (2,053,818) (785,361)
============= ============
Net book value $ 6,173,610 $ 3,402,452
============= ============
As at December 31, 1998 and 1997, land and building are pledged as collateral
for credit line of trust receipt and long - term loan from bank. (see Note 6)
6. BANK OVERDRAFT AND LOANS FROM BANKS
1998 1997
Bank overdrafts $ 516,589 $ 958,635
Loan from bank - 1,693,229
Trust receipts 9,669,158 3,143,323
Promissory note - 423,307
============ ============
$ 10,185,747 $ 6,218,494
============ ============
34
As at December 31, 1998 and 1997, the Company has an overdraft facility with a
commercial bank in Thailand totaling Baht 20.74 million ($ 570,000) and Baht 25
million ($ 530,000) carrying interest rates of at MOR (Minimum Overdraft Rate)
plus 1% per annum. For the years ended December 31, 1998 and 1997 the average
rate of MOR was 15.00% - 21.75% and 15.50% - 24.00% per annum, respectively.
Available lines of credit for the bank overdrafts are guaranteed by certain
directors and pledge of fixed deposits. (see Note 3)
As at December 31, 1998 and 1997, trust receipts incurred by KPD bear interest
at the rates varying from 7.14% - 17.50% and 12.50% - 19.50% per annum,
respectively, and are guaranteed by fixed deposits, KPD's land, and two
directors of KPD together with a related company. Trust receipts are as follows
as of December 31, 1998:
Currencies Amount Interest rate
( % )
1998
Foreign currency borrowing by subsidiaries in Thailand
- -under forward contract USD 2,308,958 2,308,958
- -without forward contract AUD 101,182 62,665 11.47 - 15.50
BAHT 1,522,526 41,504 14.50 - 15.50
DEM 433,430 261,277 9.75 - 14.00
FRF 2,082,357 374,956 9.10 - 12.00
GBP 15,488 26,250 13.50
HKD 7,237,084 942,342 9.06 - 17.50
ITL 926,405,459 570,736 9.06 - 13.00
SFR 175,770 129,896 7.75 - 14.50
SGD 69,634 42,545 9.50 - 14.50
USD 4,851,989 4,879,264 9.06 - 15.50
YEN 3,292,720 28,765 7.14
============
$ 9,669,158
============
KPT had a short-term loan with a Thailand bank for Baht 100 million of which the
balance as at December 31, 1997 is amounting to Baht 80 million ($ 1,693,229)
carrying interest rate at MLR (Minimum Loan Rate), plus 1.5% per annum. The
repayments schedule was by ten installments of Baht 10 million, starting from
November, 1996. The short-term loan was guaranteed by two directors of KPT
together with a related company, and one million shares of KPD's stock. The loan
was repaid in 1998.
For the year ended December 31, 1997, the average rate of MLR was 17% per annum.
As of December 31, 1997, KPT issued a 30-day promissory note payable to a local
commercial bank, which bears interest at rates varying from 13% - 14.25% per
annum. The amount was repaid in 1998.
35
7. CONCESSION FEES
Accrued concession fees consist of the following :
1998 1997
Accrued concession fee :
- Customs Department $ 2,881,077 $ 709,661
- Airports Authority of Thailand 7,916,758 5,506,409
============ ===========
$ 10,797,835 $ 6,216,070
============ ===========
1998 1997 1996
Concession fee expense $ 24,969,793 $ 34,337,537 $ 20,032,406
============ ============ ============
In order to obtain the necessary rights to operate at the international and
domestic airports in Thailand, the Company has entered into various agreements
with the Airports Authority of Thailand and the Customs Department of Thailand
to operate at the international and domestic airports and to rent office space.
Both KPD and KPT are required to pay concession fees, rental and service fees,
property tax, and other expenses and to pledge cash or obtain a letter of bank
guarantee of a local commercial bank as collateral under the aforementioned
agreements with the Airports Authority of Thailand and pay concession fees under
the aforementioned agreements with the Customs Department. A summary of the
concession and rental fees payable and collateral for the remaining periods of
the agreement are as follows:
KPT KPD
Airport Rental, Service Collateral Airport and Rental, Service Collateral
Concession fee and other expense Customs and other expense
Year Concession fee
'000 '000
1999 14,590 680 8,553 9,560 930 9,541
2000 14,590 650 8,085 9,900 930 9,882
2001 14,590 220 7,935 10,240 930 10,223
2002 14,590 - 7,851 - - -
2003 6,080 - 7,851 - - -
Effective March 19, 1998, the Thai Customs Department agreed to waive the
concession fees which KPD is required to pay for the duration of KPD's
concession through 2001 thus reducing the total amount required. Amounts
expensed by KPD under Thai Customs Department concession were $ 9,024,251 for
1997 and $ 1,988,951 from January 1 to March 19, 1998. Additionally, the Customs
Department approved on November 6, 1998 to extend the repayment of concession
fee for December 1997 and January 1998 amounting to $ 1,716,107 (Bath
62,953,299) as installment payments, carrying interest rate of 1% per month and
due in October 1999.
36
8. LONG - TERM LIABILITIES
1998 1997
Long-term loans $1,575,401 $ 208,665
Installment purchase payable 59,556 47,470
----------- -----------
1,634,957 256,135
Less Current portion of long-term debt 1,346,820) (28,649)
----------- -----------
Long-term liabilities 288,137 227,486
----------- -----------
Other liabilities 114,790 -
---------- -----------
$ 402,927 $ 227,486
=========== ===========
As at December 31, 1998 and 1997 long-term loans consist of loans from banks and
financial institution, carrying interest rate of 17.25% - 21.50% and 13.50% per
annum, respectively. The long-term loans are secured by the Company's land,
building and guaranteed by a director of the Company. (see Note 5)
Loans are due as follows:
Installment Purchase Obligation
1998 1997
1998 $ - $ 22,930
1999 38,340 22,930
2000 8,859 1,610
2001 6,740 -
2002 5,617 -
------------ ---------
Total $ 59,556 $ 47,470
============ ==========
Long-term Loan Installment Payments
1998 $ - $ 5,719
1999 1,346,820 6,528
Thereafter 228,581 196,418
------------ --------
Total $ 1,575,401 $208,665
============ =========
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.
37
(b) Per 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 which 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, the other 4% of equity interest
were represented by 1,200,000 shares of common stock as of June 12,
1997 when the reverse acquisition was effective. These 1,200,000
shares of common stock were represented by the following components:
Common stock Additional Retained Treasury Total
Shares Amount paid-in earnings stock
capital
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 proceeds of $1,887,000. Both entities are
located in Taipei, Taiwan, Republic of China. 125,000 shares were
placed in escrow until May 1, 1998, subject to an additional payment
by the purchasers 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 States
Securities Act of 1933, as amended.
10. INCOME TAX
The provision for income taxes consist of the following:
1998 1997 1996
Current (payable):
United States $ - $ - $ -
Foreign (3,476,186) - -
----------- ----------- -----------
(3,476,186) - -
----------- ----------- -----------
Deferred (benefit):
United States - - -
Foreign 3,590,141 1,219,387 -
----------- ----------- -----------
3,590,141 1,219,387 -
----------- ----------- -----------
Total income tax benefit $ 113,955 $ 1,219,387 $ -
=========== =========== ===========
38
Pre-tax loss for foreign companies for the year ended 1998 was $ 2,028,413.
Current taxes payable are included in other current liabilities.
A reconciliation of the Company's statutory income tax rate with its effective
income tax rate is as follow:
1998 1997 1996
Statutory United States Federal rate (35)% 35% 35%
Foreign tax rate difference 2 (5) (5)
Use of net operating loss carry forward (1) (30) (30)
Usage of temporary difference - (4) (1)
Recognition of net operating loss carry forward - (14) (286)
Valuation allowance recorded 19 - 287
Non-deductible expenses 3 - -
Other miscellaneous (including translation) 9 - -
-------------- -------------- -----------
(3)% (18)% -
============== ============== ============
The components of deferred tax assets and liabilities were :
1998 1997 1996
Reserves $ 4,945,942 $ - $ -
Temporary difference - 264,166 20,052
Net operating loss carry forward 333,572 955,221 4,589,205
-------------- ------------- -------------
5,279,514 1,219,387 4,609,257
Translation adjustment - (344,922) -
Less Valuation allowance (814,908) - (4,609,257)
----
-------------- ------------- -------------
Deferred tax assets $ 4,464,606 $874,465 $ -
============== ============= =============
As at December 31, 1998 and 1997, U.S. Parent Company and the Company's
foreign subsidiaries have deferred tax assets relating to net operating
loss carry forwards for income tax purpose of $ 333,572 and $ 955,221,
respectively, that expire in years 1999 to 2000. No valuation allowance on
the foreign loss carry forwards has been provided at December 31, 1998 and
1997 as the Company has determined that it is more likely than not to
realize these deferred income tax assets. The U.S. loss carry forward has a
full valuation allowance provided for it as management does not believe it
is more likely than not to be realized.
39
11. RELATED PARTIES AND DIRECTORS TRANSACTIONS
The Company has business transactions with and has advanced funds to
related companies and directors. These transactions are with companies that
have joint directors and/or shareholders with the Company. Balances at
December 31, 1998 and 1997 with related companies and directors are as
follows (in'000):
As at December 31, 1998
Accounts Loans and receivables to related Management Accounts Other
receivable companies fee payable payable
and Directors receivables
------------ ----------------------------------------- ------------- ----------- -----------
Loans Interest and Total
other
receivables
1998
King Power International Co., Ltd. $ 1,690 $ 1,052 $ 156 $ 1,208 $ 199 $ - $ -
Forty Seven Co., Ltd. - 6,022 354 6,376 - - -
Downtown D.F.S. (Thailand) Co., Ltd. 184 2,070 377 2,447 2,515 - -
King Power Duty Free (CBO) Ltd. - 1,429 128 1,557 - 88 50
Top China Group Co., Ltd. - 1,302 70 1,372 - - -
Lengle (Thailand) Co., Ltd. - 299 18 317 - - -
Grand Enterprise and Trading
Partnership - 1,177 47 1,224 - - -
King Power on Board and Sale Service
Co., Ltd. - 372 25 397 - 98 -
Infotel Communication(Thailand) Co.,
Ltd. - 553 44 597 - - -
King Power Development Co., Ltd. - 121 3 124 - - -
King Power Alpha on Board and Sale
Service Co., Ltd. - 2 - 2 - - -
Thai Nishigawa International Co., Ltd. - - - - - 55 -
Niji (Thailand) Co., Ltd. - - - - - 66 -
------------ -------------- ----------- -------------- ------------- ----------- -----------
1,874 14,399 1,222 15,621 2,714 307 50
Directors - 7,228 220 7,448 - - -
------------ -------------- ----------- -------------- ------------- ----------- -----------
1,874 21,627 1,442 23,069 2,714 307 50
Less Allowance for doubtful accounts
Related companies (1,874) (8,110) (913) (9,023) (2,714) - -
Directors - (2,134) - (2,134) - - -
------------ -------------- ----------- -------------- ------------- ----------- -----------
(1,874) (10,244) (913) (11,157) (2,714) - -
------------ -------------- ----------- -------------- ------------- ----------- -----------
Total $ - $ 11,383 $ 529 $ 11,912 $ - $ 307 $ 50
============ ============== =========== ============== ============= =========== ===========
40
As at December 31, 1997
Accounts Loans and receivables to related Management Accounts
receivable companies fee payable
and Directors receivables
-------------------------------------------------------------------------------
Loans Interest Total
and
other
receivables
1997
King Power International Co., Ltd. $ 438 $1,961 $ -- $1,961 $ -- $ --
Forty Seven Co., Ltd. -- 345 32 377 -- --
Downtown D.F.S. (Thailand) Co., Ltd. 164 635 240 875 2,175 --
King Power Duty Free (CBO) Ltd. -- 9 -- 9 -- 280
Lengle (Thailand) Co., Ltd. -- -- -- -- -- 311
Thai Sky Travel & Intertrade Co., Ltd. -- -- -- -- -- 2
Thai Nishigawa International Co., Ltd. -- -- -- -- -- 32
Niji (Thailand) Co., Ltd. -- -- -- -- -- 20
------ ------ ------ ------ ------ ------
602 2,950 272 3,222 2,175 645
Directors -- 1,323 380 1,703 -- --
------ ------ ------ ------ ------ ------
602 4,273 652 4,925 2,175 645
Less Allowance for doubtful accounts
Related companies -- -- -- -- -- --
Directors -- -- -- -- -- --
------ ------ ------ ------ ------ ------
-- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total $ 602 $4,273 $ 652 $4,925 $2,175 $ 645
====== ====== ====== ====== ====== ======
Additionally, the Airports Authority of Thailand owns 5% of KPD common shares.
As at December 31, 1998 and 1997, there are accrued concession fees amounting to
$7,916,758 and $5,506,409, respectively. (see Note 7)
41
An allowance for doubtful accounts of $ 15,745,552 has been provided for certain
amounts due from related companies and directors based on liquidity restraints
of such parties.
In 1998 and 1997, the Company charged interest for loans to/from related
companies at 10.00%, 14.50% - 17.50% per annum and charged interest for loans
to/from directors at 6.50%-10.00% and 14.50% - 17.50% per annum, respectively.
Such loans have no formal contracts or collateral and are due on demand.
KPD made a deposit in 1997 with a related company, Downtown D.F.S. (Thailand)
Co., Ltd.(DDC) for using credit facilities of Baht 100 million from a financial
institution which is guaranteed by DDC.
The Company had operating transactions with related parties and directors as
follows (in'000):
Related Companies
For the year ended December 31,
1998 1997 1996
Sales $ 805 $ 1,253 $ -
Interest income 843 142 -
Management fee income 254 1,648 -
Purchase 945 9,127 768
Commission 369 - -
Concession fee $ 11,092 $34,338 $20,032
Directors
For the year ended December 31,
1998 1997 1996
Interest income $ 198 $ 380 $ -
12. COMMITMENTS AND CONTINGENT LIABILITIES
Lease commitments
As of December 31, 1998 and 1997, KPG Thai has a leasing commitment for
office space under a non-cancelable operating lease agreement in excess of
one year as follows (in'000):
Year ended December 31,
1998 1997
---- ----
1998 $ - $ 236
1999 415 236
2000 364 196
2001 83 -
========== =========
$ 862 $ 668
========== =========
42
Letter of bank guarantee
As of December 31, 1998 and 1997, KPT and KPD were contingently liable for
bank guarantees totaling $ 13.46 million and $ 12.14 million, respectively,
issued in favor of the Excise Department and the Airports Authority of
Thailand as a performance bond.
Unused letters of credit
As of December 31, 1998 and 1997, KPT and KPD have the unused letters of
credit amounting to $6.46 million and $0.00 million, respectively.
13. SEGMENT FINANCIAL INFORMATION
The following segment information of the Company for 1998, 1997 and 1996
are disclosed in accordance with Statement of Financial Accounting Standard
No. 131 ("SFAS 131"). Information by legal entities is the reportable
segment under SFAS 131 because each entity is reported separately for
management (in'000).
For the year ended December 31, 1998
Duty Free Tax Free All
Retail Retail Other Totals
Segment Information
Revenue from external customers $ 57,461 $33,664 $ - $91,125
Cost of merchandise sold 25,537 13,568 - 39,105
Concession fees 11,198 13,771 - 24,969
Gross profit 20,726 6,325 - 27,051
Interest income 1,049 264 126 1,439
Interest expenses 1,048 313 4 1,365
Segment net income (loss) 2,251 (2,781) (3,757) (4,287)
Segment total assets 35,164 11,678 1,234 48,076
Expenditures for segment assets 2,532 580 710 3,822
Depreciation 539 311 104 954
Unrealized gain (loss) on exchange (491) 539 (74) (26)
Provision for damage stock (reversal) (618) - - (618)
Allowance for doubtful accounts 8,468 4,977 2,301 15,746
Deferred tax $ 1,865 $2,540 $ 60 $ 4,465
For the year ended December 31, 1997
Duty Free Tax Free All
Retail Retail Other Totals
Segment Information
Revenue from external customers $ 59,629 $36,367 $ - $95,996
Cost of merchandise sold 25,583 12,922 - 38,505
Concession fees 17,790 16,547 - 34,337
Gross profit 16,256 6,898 - 23,154
Management fee - 1,648 - 1,648
Interest income 975 852 - 1,827
Interest expenses 643 583 - 1,226
Segment net income (loss) 1,700 6,993 (787) 7,906
Segment total assets 20,171 12,512 2,396 35,079
Expenditures for segment assets 1,405 296 317 2,018
Depreciation 595 184 - 779
Gain (loss) on exchange (6,887) 2,515 - (4,372)
Provision for damage stock 533 - - 533
Deferred tax $ $ $ - $
391 483 874
43
For the year ended December 31, 1996
Duty Free Tax Free All
Retail Retail Other Totals
Segment Information
Revenue from external customers $ - $ 41,869 $ - $ 41,869
Cost of merchandise sold - 14,447 - 14,447
Concession fees - 20,032 - 20,032
Gross profit - 7,390 - 7,390
Interest income 156 437 - 593
Interest expenses 27 512 - 539
Segment net income (loss) (811) 2,414 - 1,603
Segment total assets 14,391 9,351 - 23,742
Expenditures for segment assets 1,168 304 - 1,472
Depreciation 26 155 - 181
Gain (loss) on exchange $ 18 $ 447 $ - $ 465
For the year ended
December 31,
1998 1997 1996
Revenue
Total revenues for reportable segments $91,787 $96,376 $ 41,869
Elimination of intersegment revenues (662) (380) -
---------- --------- --------
Total consolidated revenues $91,125 $95,996 $ 41,869
========== ========= ========
For the year ended
December 31,
1998 1997 1996
Profit or loss
Total profit or loss for reportable segments $ 6,201 $ 16,495 $ 1,643
Elimination of intersegment profits (1,914) (8,560) -
---------- --------- --------
Total consolidated profit or loss $ 4,287 $ 7,935 $ 1,643
========== ========== ========
As at December 31,
1998 1997
Assets
Total assets for reportable segments $ 67,102 $ 47,523
Elimination of intersegment assets (19,026) (12,444)
========= ==========
Total consolidated assets $ 48,076 $ 35,079
========= ==========
SCHEDULE 2-ALLOWANCES
SCHDULE 2 - ALLOWANCES
Balance at Additions charged Additions charged Deductions Balance at
the to costs and to other accounts end of year
beginning expenses
of year
For the Year Ended December 31, 1998
Allowances Deducted from Assets
Trade account receivable - 1,874,290 - - 1,874,290
Loans to and receivable from related
company and directors - 11,157,025 - - 11,157,025
Merchandise inventories 533,367 - - -533,367 0
Deferred tax - - 814,908 814,908
Management fees(other current assets) - 2,714,184 - - 2,714,184
Investments in other companies 55,666 16,177 17,845 - 89,688
Total Allowances Deducted from Assets 589,033 15,761,676 832,753 -533,367 16,650,095
===============================================================================
For the Year Ended December 31, 1997
Allowances Deducted from Assets
Merchandise inventories - 469,209 64,158 - 533,367
Deferred tax 4,609,257 - - -4,609,257 0
Investments in other companies 66,284 27,503 -38,121 - 55,666
Total Allowances Deducted from Assets 4,675,541 496,712 26,037 -4,609,257 589,033
===============================================================================
For the Year Ended December 31, 1996
Allowances Deducted from Assets
Deferred tax - - 4,609,257 - 4,609,257
Investments in other companies 37,401 29,757 -874 - 66,284
Total Allowances Deducted from Assets 37,401 29,757 4,608,383 0 4,675,541
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The accounting firm of BDO Binder (Thailand) Ltd., the independent accountants
for the Company that was hired on December 12, 1997, was dismissed as of
November 15, 1998 as directed by the Board of Directors. During the fiscal year
ended December 31, 1997 and the subsequent interim period through November 15,
1998 there have been no disagreements with BDO Binder (Thailand) Ltd. on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure or any reportable events. BDO Binder (Thailand)
44
Ltd.'s report on the Company's financial statements for the fiscal year ended
December 31, 1997 contained no adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. During the fiscal year ended December 31, 1997 and the subsequent
interim period through November 15, 1998 there were no disagreements with the
Company's accounting firm, BDO Binder (Thailand) Ltd. or reportable events.
Because of the dismissal of the accounting firm of BDO Binder (Thailand), LLP,
on November 15, 1998, the Company engaged the accounting firm of Deloitte Touche
Tohmatsu Jaiyos as independent accountants for the Company, effective as of
November 15, 1998. During the fiscal years ended December 31, 1996 and 1997, and
the subsequent interim period through November 15, 1998, there have been no
consultations with Deloitte Touche Tohmatsu Jaiyos on any matters of accounting
principles to a specific transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Name Age Position
- ---- --- --------
Vichai Raksriaksorn 41 Group Chairman, Chief Executive
Officer and Director
Viratana Suntaranond 58 Group Executive Director,
Group Chief Financial Officer,
Secretary and Director
Antares Cheng 42 Group Managing Director and
Director
Aimon Boonkhundha 42 Deputy Group Managing Director
and Director
Dharmnoon Prachuabmoh 65 Director
Suwan Panyapas 55 Director
Benjamin B. Fattedad 56 Group Director of Development
And Director
Set forth below is a description of the backgrounds of the executive officers
and directors of the Company and a listing of their principal occupations for
the past five years.
Vichai Raksriaksorn
1997-Present Group Chairman, Chief Executive Officer and Director of King
Power International Group Co., Ltd.
Managing Director of King Power Duty Free Co., Ltd.
Chairman of King Power Development Co., Ltd.
Thai National Dressage Team Manager
Privilege Committee of Thailand Equestrian Federation
45
1995-1998 Chairman of King Power Duty Free (Macau) Co., Ltd.
Chairman of King Power Duty Free (C.B.O.) Limited, Hong Kong
1994-Present Managing Director of Top (China) Group Co., Ltd.
Chairman of King Power International Co., Ltd.
Managing Director of Forty Seven Co., Ltd.
Chairman of Beijing Great Wall (Top) Tourist Services Co.,
Ltd.
Chairman of V&A Holdings Co., Ltd.
1994-1998 Chairman of Hong Kong Kai Tak International Airport Duty Free
Shop Co., Ltd.
1993-Present Chairman of King Power Tax Free Co., Ltd.
Chairman of Capitalux Co., Ltd.
1992-Present Chairman of Lengle (Thailand) Co., Ltd.
1991-Present Chairman of TAT (Phnompenh) Duty Free Co., Ltd.
1989-Present Managing Director of Downtown D.F.S. (Thailand) Co., Ltd.
Viratana Suntaranond
1997-Present Group Executive Director, Group Chief Financial Officer,
Secretary and Director of King Power
International Group Co., Ltd.
Executive Director and Managing Director of King Power Duty
Free Co., Ltd.
1994-1997 Director of Big Hand Co., Ltd.
1993-Present Managing Director of King Power Tax Free Co., Ltd.
1992-Present President of U.M.P. Commercial Co., Ltd.
1985-Present President of Niji (Thailand) Co., Ltd.
1984-Present Managing Director of Thai-Tai International Trading Co., Ltd.
Antares Cheng
1997-Present Group Managing Director and Director of King Power
International Group Co., Ltd.
1995-Present Managing Director of Hong Kong Kai Tak International Airport
Duty Free Shop Co., Ltd.
General Manager of King Power Duty Free (Macau) Co., Ltd.
1994-Present Director of China Ferry Terminal GM Shop
1993-Present Managing Director of Top Group (Thailand) Co., Ltd.
1992-Present Managing Director of King Power Group
Deputy Managing Director of Downtown DFS (Thailand) Co., Ltd.
1990-Present Director of TAT Phnom Penh Duty Free Co., Ltd., Cambodia
Shareholder, Director and General Manager of Europa Prince
Department store
1989-Present Managing Director of Railway Duty Free, Hong Kong
Aimon Boonkhundha
1997-Present Deputy Group Managing Director and Director of King Power
International Group Co., Ltd.
1996-Present Executive Director of King Power Duty Free Co., Ltd.
1994-Present Executive Director of Top Tourist Service Co., Ltd.
1993-Present Director of King Power Tax Free Co., Ltd.
Executive Director of TAT Phnom Penh Co., Ltd.
1989-Present Managing Director of Thai Nishikawa International Co., Ltd.
Suwan Panyapas
1997-Present Director of King Power International Group Co., Ltd.
1996-Present Senator of Thai National Assembly
1991-Present Advisor to TAT Duty Free Co., Ltd.
46
1989-Present Advisor & Shareholder of Downtown DFS (Thailand) Co., Ltd.
1989-1991 Managing Director of TAT Duty Free Co., Ltd.
Some Special Positions Held:
Member of Committee Training Successful Candidates appointed to
Juvenile Court.
Member of Sub-Committee on the Development of Judicial and Ministerial
System.
Member of Committee/Secretary on Selection Test for Judicial Officer
Senior Judge of Thonburi Court
Chief Judge of Udon Thanee District Court
Chief Judge attached to the Ministry of Justice
Dharmnoon Prachuabmoh
1997-Present Director of King Power International Group Co., Ltd.
Life Member, Pacific Asia Travel Association (PATA)
1995-1996 Member of the Thai Parliament, House of Representatives
Advisor to Deputy Minister, Ministry of Communications and
Transport
Vice Chairman, Tourism Committee (House of Representatives)
1988-1995 President of Thailand Incentive and Convention Association
(TICA)
1988-1989 President of Pacific Asia Travel Association
1986-1994 Governor of Tourism Authority of Thailand (TAT)
Benjamin B. Fattedad
1997-Present Group Director of Development and Director of King Power
International Group Co., Ltd.
Director of Hong Kong Kai Tak International Airport Duty Free
Shop Co., Ltd.
Director of King Power Alpha Limited.
1996-Present Managing Director of Deveg Limited
1995-1997 Advisor of Kong Kong Kai Tak International Airport Duty Free
Shop Co., Ltd.
1993-Present Advisor of Top (China) Group Co., Ltd.
1990-Present Managing Director of Grosse Hong Kong Ltd.
1989-1995 Consultant of TAT Duty Free Co., Ltd., Thailand
Directors of the Company hold office until the next annual meeting of
stockholders or until their successors have been elected and qualified. Vichai
Raksriaksorn and Aimon Boonkhundha are husband and wife. None of the other
directors or executive officers are related. Executive offices are elected by
the Company's Board of Directors to hold office until their respective
successors are elected and qualified.
The Company's bylaws provide that directors may be paid their expenses, if any.
Directors were not paid an annual retainer but they were each paid $2,000 -
$5,000 to attend meetings of the Board of Directors, Board of Executive
Officers, or of its committees held in 1998. All directors attended 100% of the
Board meetings held in 1998.
Committees of the Board of Directors
The Board of Directors has two committees: the Audit Committee and Compensation
Committee. The Audit Committee is composed of Vichai Raksriaksorn, Suwan
Panyapas, and Dharmnoon Prachuabmoh and Mr. Raksriaksorn is chairman. The Audit
Committee is responsible for recommending the annual appointment of the
Company's auditors, with whom the Audit Committee will review the scope of audit
and non-audit assignments and related fees, accounting principles used by the
Company in financial reporting, internal auditing procedures and the adequacy of
the Company's internal control procedures. The Compensation Committee is
composed of Vichai Raksriaksorn, Suwan Panyapas, and Dharmnoon Prachuabmoh and
Mr. Raksriaksorn is Chairman. The Compensation Committee is responsible for
reviewing and making recommendations to the Board of Directors concerning all
forms of compensation paid to the Company's executive officers.
47
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely on the review of Forms 3,4 and 5 and amendments thereto provided
to the Company pursuant to Rule 16a-3(e), no individuals have failed to file on
a timely basis the reports required to be filed under that rule or as required
by Section 16(a) of the 1934 Act during the 1998 fiscal year.
ITEM 11 EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
about the cash and non-cash compensation paid by the Company to its Executive
Officers for the fiscal year ended December 31, 1996, 1997 and 1998. None of the
Company's executive officers or directors received cash and/or non-cash
compensation in excess of $100,000 for any of those fiscal years.
Summary Compensation Table
- ----------------- --------------------------------------------- ------------------------------- -------------
(a) Annual Compensation Long Term
Name and Compensation
Principal Awards (i)
Position Payouts
- ----------------- -------- ---------- ----------- ------------- ----------- --------- --------- -------------
(b) (c) (d) (e) (f) (g) (h)
- ----------------- -------- ---------- ----------- ------------- ----------- --------- --------- -------------
- ----------------- -------- ---------- ----------- ------------- ----------- --------- --------- -------------
Year Salary Bonus Other Annual Restricted Option/ LTIP All Other
Compensation Stock SARs(#) Payouts Compensation
Awards
- ----------------- -------- ---------- ----------- ------------- ----------- --------- --------- -------------
Vichai 1998 - - 5,000* - - - -
Raksriaksorn 1997 - - 6,800 - - - -
Group Chairman 1996 - - - - - - -
& CEO
- ----------------- -------- ---------- ----------- ------------- ----------- --------- --------- -------------
Viratana 1998 - - 5,000* - - - -
Suntaranond 1997 - - 6,800 - - - -
Group Executive 1996 - - - - - - -
Director & CFO
- ----------------- -------- ---------- ----------- ------------- ----------- --------- --------- -------------
Antares Cheng 1998 - - 2,000** - - - -
Group Managing 1997 - - 6,800 - - - -
Director 1996 - - - - - - -
- ----------------- -------- ---------- ----------- ------------- ----------- --------- --------- -------------
Aimon 1998 53,000 - 2,000** - - - -
Boonkhundha 1997 - - 6,800 - - - -
Deputy Group 1996 - - - - - - -
Managing
Director
- ----------------- -------- ---------- ----------- ------------- ----------- --------- --------- -------------
* Both Vichai Raksriaksorn and Viratana Suntaranond received meeting
compensation for the Board of Directors' Meetings and the Board of
Executive Officers' Meetings at $3,000 and $2,000, respectively.
** Both Antares Cheng and Aimon Boonkhundha received meeting compensation
from the Board of Executive Officers' Meetings.
The Company has no employment agreements with any of its executive officers or
directors.
48
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 26, 1999 with
regard to the beneficial ownership of the Common Stock (i) each person known to
the Company to be beneficial owner of 5% or more of its outstanding Common
Stock, (ii) by the officers, directors and key employees of the Company
individually and (iii) by the officers and director as a group.
(1) (2) (3)
Name and Address Number of Shares Beneficially Owned Percent
- ----------------------- ------------------------------------ -------
Vichai Raksriaksorn (1) 5,748,000 (1) 28.38%
Viratana Suntaranond (2) 3,000,000 (2) 14.81%
Aimon Boonkhundha (3) 3,000,000 (3) 14.81%
Antares Cheng 100,000 *
Benjamin B. Fattedad 90,000 *
Suwan Panyapas -0- *
Dharmnoon Prachuabmoh -0- *
Niphon Raksriaksorn (4) 1,037,883 (4) 5.12%
TOTAL 8 persons 12,975,883 (1)(2)(3)(4) 64.07%
* less than 1 %
(1) This excludes 3,000,000 shares owned by his wife, Aimon Boonkhundha, as her
separate property. Mr. Raksriaksorn disclaims all beneficial interest in those
shares, as well as any right to vote or control the disposition of those shares.
(2) This excludes 1,000,000 shares owned by his wife, Umaratana Suntaranond, as
her separate property, as well as 150,000 shares in the aggregate owned by his
three children. Mr. Suntaranond disclaims all beneficial interest in those
shares, as well as any right to vote or control the disposition of those shares.
(3) This excludes 5,748,000 shares owned by her husband, Vichai Raksriaksorn, as
his separate property, as well as 5,000 shares owned by her mother, Auemporn
Boonkhant. Ms. Boonkhundha disclaims all beneficial interest in those shares, as
well as any right to vote or control the disposition of those shares.
(4) This excludes 5,748,000 shares owned by his uncle, Vichai Raksriaksorn, as
his separate property. Mr. Niphon Raksriaksorn disclaims all beneficial interest
in those shares, as well as any right to vote or control the disposition of
those shares.
49
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following companies, which are owned or controlled by one or more
of the directors of the Company, had transactions with the Company during the
1998 fiscal year and are likely to have similar transactions with the Company in
the future. The related amounts are disclosed in Note 11 "Related Parties
Transactions" in Notes To Consolidated Financial Statements. All transactions
were on terms and conditions and at prices substantially similar to those that
these companies would have negotiated with unrelated third parties for the same
goods and services.
Thai Nishikawa International Co., Ltd.
Mr. Vichai Raksriaksorn and Ms. Aimon Boonkhundha are Director and Managing
Director, respectively, and owners of this company whose main business is a
manufacturer of costume jewelry for exporting.
Lengle (Thailand) Co., Ltd.
Mr. Vichai Raksriaksorn is the Chairman and Mr. Suwan Panyapas is a Director of
this company. Along with Mr. Viratana Suntaranond, Mr. Antares Cheng and Ms.
Aimon Boonkhundha, they are stockholders of this company, whose main business
was the Central Buying Office for local merchandise sold to KPT. Other than the
existing loan outstanding owed to KPG's subsidiary, there is no other business
activity currently.
Thai Sky Travel & Intertrade Co., Ltd.
Messrs. Vichai Raksriaksorn, Viratana Suntaranond, Antares Cheng and Dharmnoon
Prachuabmoh are the directors and owners of this company, whose main business is
a travel agent providing travelling arrangement for clients. There have been and
continue to be minimum business activities with this company but principally the
Company and its subsidiaries benefit from the low prices offered by this company
for its services.
King Power Duty Free (C.B.O.) Limited, Hong Kong
Mr. Vichai Raksriaksorn is the Chairman and Mr. Antares Cheng is the Managing
Director and they are owners of this company, whose main business was the
Central Buying Office of imported merchandise sold to KPD. Other than the
existing loan owed to KPG's subsidiary, there is no other business activity
currently.
Niji (Thailand) Co., Ltd.
Mr. Viratana Suntaranond is the President and owner of this company, whose main
business is the manufacturer of ballpoint and plastic-tip pens under the brand
name "Niji". In 1998, when other suppliers raised the cost of shopping bags to
an unacceptable level, KPG's subsidiaries purchased shopping bags from Niji at a
much lower cost than those offered generally in the market.
Forty Seven Co., Ltd.
Messrs. Viratana Suntaranond, and. Dharmnoon Prachuabmoh are Directors, Mr.
Vichai Raksriaksorn is the Managing Director and all are shareholders of this
company, whose main business is to act as the holding company for a duty-free
operation in Hong Kong. This company's operations are currently being liquidated
and it is in the process of recovering the owners' investment in this business.
50
Top China Group Co., Ltd.
Messrs. Viratana Suntaranond, and Antares Cheng are Directors, and Mr. Vichai
Raksriaksorn is the Managing Director and all are shareholders of this company,
whose main business is acting as the holding company for a duty-free operation
in Mainland China at the Great Wall. This company operates, as a joint venture
with the Forestry Ministry of the Republic of China, a duty-free business at the
Great Wall area under the 50-year license.
King Power International Co., Ltd.
Mr. Vichai Raksriaksorn, Mr. Viratana Suntaranond, and Ms. Aimon Boonkhundha are
the Directors, Mr. Raksriaksorn is the Chairman and all are shareholders of this
company, whose main business is the operation of a duty-free store in downtown
Bangkok where merchandise is sold to international travelers.
Downtown D.F.S. (Thailand) Co., Ltd.
Messrs. Vichai Raksriaksorn, Antares Cheng and Suwan Panyapas are shareholders
of this company. Messrs. Raksriaksorn, Cheng and Ms. Aimon Boonkhundha are the
Directors. Mr. Raksriaksorn and Mr. Cheng are Managing Director and Deputy
Managing Director, respectively. The main business of this company is the
operation of a duty-free store in downtown Bangkok. This company is also engaged
in selling general merchandise to the general public.
Airport Authority of Thailand (AAT)
AAT is a governmental agency and it owns five percent of the stock of King Power
Duty Free Co., Ltd. In its capacity as a governmental agency and following the
rules and procedures established by the government of Thailand, it has granted
the concessions and leases under which both King Power Duty Free Co., Ltd. and
King Power Tax Free Co., Ltd. operate.
King Power on Board and Sale Service Co., Ltd.
Messrs. Vichai Raksriaksorn and Viratana Suntaranond and Ms. Aimon Boonkhundha
are the Directors and shareholders of this company. The main business of this
company is intended in the future to be the operation of duty-free sales on
board the airplanes owned and operated by Thai Airways International Public
Co., Ltd.
Infotel Communication (Thailand) Co., Ltd.
Messrs. Vichai Raksriaksorn and Viratana Suntaranond and Ms. Aimon Boonkhundha
are the shareholders of this company. Mr. Suntaranond and Ms. Boonkhundha are
the Directors. The main business of this company, which holds the appropriate
license from the Telecommunications Authorities in Thailand, is to operate an
information providing service to the public.
King Power Development Co., Ltd.
Messrs. Vichai Raksriaksorn and Viratana Suntaranond and Ms. Aimon Boonkhundha
are the Directors and shareholders of this company. The main business of this
company, under an appropriate license, is to operate souvenir shops, food
courts, and recreational facilities at the Bangkok Zoo.
King Power Alpha on Board and Sale Service Co., Ltd.
Mr. Vichai Raksriaksorn and Ms Aimon Boonkhundha are shareholders of this
company and Mr. Raksriaksorn is the Director. The main business of this company
is intended in the future to be the operation of duty-free sales on board the
airplanes owned and operated by Thai Airways International Public Co., Ltd.
Grand Enterprise and Trading Partnership
Mr. Vichai Raksriaksorn is the controlling party of this company. The main
business of this company was a supplier for imported merchandise sold to KPT.
Other than the existing loan outstanding owed to KPG's subsidiary, there is no
other business activity currently.
51
PART IV
ITEM 14 EXHIBITS AND REPORTS ON FORM 8-K
PART IV
ITEM 14 EXHIBITS AND REPORTS ON FORM 8-K
There follows a list of all exhibits filed with this Form 10-K, including those
incorporated by reference. .
Exhibit No. Name or Description
3.1* Articles of Incorporation of King Power International Group Co., Ltd.
3.2* By-Laws of King Power International Group Co., Ltd.
3.3* Certification Document of King Power Duty Free Co., Ltd.
3.4* Certification Document of King Power Tax Free Co., Ltd.
3.5* Memorandum of Association of King Power International Group Co., Ltd.
10.1* Siam Tower Lease dated 10/17/97
10.2* Contract with Airports Authority of Thailand (AAT) dated 03/06/96
10.3* Contract of Lease - Warehouse with AAT dated 12/13/96
10.4* Contract of Lease - Hatyai Airport with AAT dated 03/03/97
10.5* Office Lease at Chaingmai Airport with AAT dated 07/17/97 (was 10.7)
10.6* Contract of Lease with AAT re: Domestic Terminal of Bangkok Airport
dated 05/24/96 (was 10.16)
10.7* Contract for Phuket Airport AAT dated 02/10/97 (was 10.17)
10.8* Contract of Lease - Chiangmai Airport AAT dated 07/09/97 (was 10.18)
10.9* Contract of Lease - Bangkok Airport AAT dated 10/02/97 (was 10.19)
10.10* Letter of Guarantee dated 05/08/96 (was 10.25)
10.11* Letter of Guarantee dated 10/18/96 (was 10.26)
10.12* Letter of Guarantee dated 01/24/97 (was 10.27)
10.13* Letter of Guarantee dated 01/24/97 (was 10.28)
10.14* Letter of Guarantee dated 06/13/97 (was 10.29)
10.15* Letter of Guarantee dated 06/13/97 (was 10.30)
10.16* Agreement for Pledge dated 03/04/97 (was 10.35)
10.17* Fee Latter dated 05/07/97 (was 10.44)
10.18** Contract-Permission to Sell- Phuket Airport with AAT dated 02/10/97
10.19** Contract-Permission to Sell- Chaingmai Airport with AAT dated 07/09/97
10.20** Lease of Office - Bangkok International Airport with AAT dated 01/15/97
10.21** Contract- Permission to Sell- Bangkok Airport with AAT dated 10/02/97
10.22** Letter from AAT dated 04/20/98 commence operations & rent payments
10.23** Letter from AAT dated 05/27/98 commence operations & rent payments
10.24** Letter from AAT dated 06/04/98 commence operations & rent payments-Harrods
10.25** Letter from AAT dated 06/16/98 - display tables
10.26** Letter from AAT dated 08/17/98 - bear symbol-Harrods
10.27** Hiring Contract between Downtown DFS (Thailand) Co., Ltd., as employer, and King Power Duty Free Co.,
Ltd., as consultant, dated 01/01/97
10.28** Computer Terminals Agreement with Logic Company Limited,
dated 09/09/98 for King Power Tax Free Co., Ltd.
52
10.29** Maintenance & Repairs Agreement with Logic Company Limited, dated 09/01/98 for King Power Tax Free
Co., Ltd.
10.30** Computer Terminals Agreement with Logic Company Limited, dated 09/16/98 for King Power Duty Free Co.,
Ltd.
10.31** Maintenance & Repairs Agreement with Logic Company Limited, dated 09/01/98 for King Power Duty Free
Co., Ltd.
10.32** Software End-User License Agreement with SAP Thailand Ltd. dated 09/16/98
10.33** Memorandum with Thai Military Bank dated 08/21/98
10.34** Guarantee for Thai Military Bank dated 08/21/98
10.35 ** Guarantee for Thai Military Bank dated 08/21/98
10.36** Guarantee for Thai Military Bank dated 08/21/98
10.37** Memorandum with Thai Military Bank dated 11/19/98
10.38** Memorandum with Thai Military Bank dated 11/19/98
10.39** Guarantee for Thai Military Bank dated 11/19//98
10.40** Guarantee for Thai Military Bank dated 11/19//98
10.41** Guarantee for Thai Military Bank dated 11/19//98
10.42** Guarantee for Thai Military Bank dated 11/19//98
10.43** Notice for Deduction with Thai Military Bank dated 11/25/98
10.44** Pledge for Thai Military Bank dated 12/03/98
10.45** Letter of Consent with Thai Military Bank dated 12/03/98
10.46** Letter of Consent with Thai Military Bank dated 12/03/98
10.47** Loan Agreement with Siam City Bank dated 06/23/98
10.48** First Amendment to Loan Agreement with Siam City Bank dated 06/23/98
10.49** Guarantee for Siam City Bank dated 06/23/98
10.50** Guarantee for Siam City Bank dated 11/12/98
10.51** Letter of Consent with Siam City Bank dated 11/27/98
10.52** Pledge for Siam City Bank dated 11/27/98
10.53** Letter of Consent with Siam City Bank dated 12/30/98
10.54** Pledge for Siam City Bank dated 12/30/98
10.55** Guarantee to AAT from Bangkok Metropolitan Bank dated 06/18/98
21.1** List of Subsidiaries
27.1** Financial Data Schedule
* As filed with the Company's Form 10-KSB/A on May 7, 1998.
** As filed herewith.
Reports on Form 8-K
The Company filed the following reports with the SEC on FORM 8-K
(A) November 16, 1998 -- Reporting a change in Company's independent
accountants, with Deloitte Touche Tohmatsu Jaiyos replacing
BDO Binder (Thailand) Ltd.
(B) January 14, 1999 -- A Form 8-K/A, which amended the Form 8-K filed on
November 16, 1998.
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 9th day of April,
1999.
KING POWER INTERNATIONAL GROUP CO., LTD.
By: /s/ Vichai Raksriaksorn
-----------------------
Vichai Raksriaksorn
Group Chairman, Chief Executive Officer and Director
By: /s/ Viratana Suntaranond
-------------------------
Viratana Suntaranond
Group Executive Director, Chief Financial Officer, Secretary,
Director and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Vichai Raksriaksorn Group Chairman, Chief Executive April 9, 1999
------------------- Officer and Director
Vichai Raksriaksorn
/s/ Viratana Suntaranond Group Executive Director, Chief April 9, 1999
-------------------- Financial Officer, Secretary and
Viratana Suntaranond Director
/s/ Group Managing Director April __, 1999
------------- and Director
Antares Cheng
/s/ Aimon Boonkhundha Deputy Group Managing Director April 9, 1999
----------------- and Director
Aimon Boonkhundha
/s/ Director April __, 1999
Dharmnoon Prachuabmoh
/s/ Director April __, 1999
---------------
Suwan Panyapas
/s/ Benjamin B. Fattedad Group Director of Operation April 9, 1999
-------------------- and Director
Benjamin B. Fattedad
54