10-Q 1 king10q093002.txt FORM 10-Q -------------------------------------------------------------------------------- For the quarterly period ended September 30, 2002 (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES ------ EXCHANGE ACT 0F 1934 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ------ EXCHANGE ACT OF 1934 For the transition period from______to ______ -------------------------------------------------------------------------------- Commission File Number: 1-13205 KING POWER INTERNATIONAL GROUP CO., LTD. (Exact name of registrant as specified in its charter) Nevada 75-2641513 (State of incorporation) (IRS Employer ID number) 25th-27th Floor, Siam Tower, 989 Rama 1 Road, Patumwan, Bangkok 10330 Thailand ------------------------------------------------------------------------------ (Address of principal executive offices) 011 (662) 658-0090 ------------------ (Registrant's telephone number, including area code) -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 6th September, 2002: 20,250,000 1 KING POWER INTERNATIONAL GROUP CO., LTD. Form 10-Q for the Quarterly ended September 30, 2002 Table of Contents Page Part I - Financial Information Item 1 Financial statements 3 Item 2 Management's Discussion and Analysis or Plan of Operation 25 Item 4 Controls and Procedures 31 Part II - Other Information Item 1 Legal Proceeding 31 Item 2 Changes in Securities 32 Item 3 Defaults Upon Senior Securities 32 Item 4 Submission of Matters to a Vote of Securities Holders 32 Item 5 Other Information 32 Item 6 Exhibits and Reports on Form 8-K 33 2 Part I - Financial Information Item 1 Financial statements Independent Accountants' Review Report The Board of Directors and Shareholders King Power International Group Co., Ltd. and Subsidiaries We have reviewed the consolidated balance sheet of King Power International Group Co., Ltd. and Subsidiaries (a Nevada Corporation) as of September 30, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for the three months and nine months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of King Power International Group Co., Ltd. and Subsidiaries A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principals. SMITH, GRAY, BOYER & DANIELL A Professional Limited Liability Company Dallas, Texas November 13, 2002 3

The accompanying notes are an integral part of these consolidated financial statements See Accountants' Review Report 4

The accompanying notes are an integral part of these consolidated financial statements See Accountants' Review Report 5

The accompanying notes are an integral part of these consolidated financial statements See Accountants' Review Report 6

The accompanying notes are an integral part of these consolidated financial statements See Accountants' Review Report 7

The accompanying notes are an integral part of these consolidated financial statements See Accountants' Review Report 8

The accompanying notes are an integral part of these consolidated financial statements See Accountants' Review Report 9

The accompanying notes are an integral part of these consolidated financial statements See Accountants' Review Report 10 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report 1. BASIS OF PRESENTATION King Power International Group Co., Ltd. (formerly Immune America, Inc.) (here in the "Company") was incorporated under the laws of the State of Nevada on July 30, 1985. On June 12, 1997, the Company exchanged 18,800,000 shares of its common stock for 99.94% of the issued and outstanding common shares of King Power Tax Free Company Limited [(formerly J.M.T. Group Company Limited)-KPT thereafter] and 95% of the issued and outstanding common shares of King Power Duty Free Company Limited [(formerly J.M.T. Duty Free Company Limited)-KPD thereafter]. This exchange of the Company's common stock to the former KPT and KPD shareholders resulted in those former shareholders obtaining a majority voting interest in the Company. Generally accepted accounting principles require that the company whose stockholders retain the majority interest in a combined business be treated as the acquirer for accounting purposes. Consequently, this transaction was accounted for as a "reverse acquisition" for financial reporting purposes and KPT and KPD were deemed to have acquired 94% of equity interest in the Company as of the date of acquisition. The relevant acquisition process utilized the capital structure of Immune America, Inc., and the assets and liabilities of KPT and KPD were recorded at historical cost. Concurrent with the reverse acquisition, the Company changed its corporate name from Immune America, Inc. to King Power International Group Co., Ltd. KPD is a Thailand-based corporation engaged in selling duty free merchandise to the traveling public under the supervision of Thai customs, in stores located in the international terminals of the various airports located in Thailand. KPD holds from the Airports Authority of Thailand, an exclusive license to operate duty free stores for all stores of this specific nature. Prior to January 1, 2002, KPD held a non-exclusive license to operate duty free stores of this specific nature (see Note 7). For the duty free store operation, KPD is exempt from input value added tax on purchases of import merchandise and from output value added tax on sales of merchandise. KPT is a Thailand-based corporation engaged in selling various souvenirs and consumer products to the general public in the international and domestic terminals of the various airports located throughout Thailand. KPT holds the operating license granted by the Airports Authority of Thailand for all shops of this specific nature. For the tax free operation, KPT is subject to input value added tax on purchases of merchandise and is exempt from output value added tax on sales of merchandise for shops within Bangkok International Airport's departure halls. On October 10, 1997, the Company acquired 4,900 shares of common stock in King Power International Group (Thailand) Company Limited (KPG Thai), equivalent to 49% of the registered capital. KPG Thai was established in Thailand on September 11, 1997, and has registered capital totaling Baht 1 million divided into 10,000 shares of common stock with Baht 100 per share. On the same date, KPT acquired 5,093 shares of common stock in KPG Thai, equivalent to 50.93% of the registered capital. Ultimately, the Company owns 99.93% of equity interest in KPG Thai. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements, which include the accounts of the Company and its subsidiaries, are prepared in accordance with accounting principles generally accepted in the United States of America. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in other companies under 20% of interest are accounted for using the cost method. At December 31, 2001 and 2000, these investments have been written down due to an assumed permanent impairment of their value. The consolidated financial statements are presented in U.S. dollars. Cash and Cash Equivalents - The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Merchandise Inventories - Merchandise inventories are stated at the lower of cost or market. Cost is determined on a weighted average basis. Provision for Doubtful Accounts - Estimated collection losses of the Company are provided for based on the Company's collection experience together with a review of the financial position of each debtor. Where the Company determines reserves are necessary, it will provide a provision for the total receivable and accrued interest outstanding. 11 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report Marketable Securities - Securities held for trading are marked to market at year-end with the resulting gain or loss being included in current income. Foreign Currency Translation and Transactions - The financial position and results of operations of the Company's foreign subsidiaries are determined using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the prevailing exchange rates in effect at each period end. Contributed capital accounts are translated using the historical rate of exchange when capital was injected. Income statement accounts are translated at the average rate of exchange during the year. Translation adjustments arising from the use of different exchange rates from period to period are included in the cumulative translation adjustment account in shareholders' equity. Gains and losses resulting from foreign currency transactions are included in operations. Gains or losses on foreign exchange transactions are recognized as incurred in the consolidated statements of income. Differences between the forward rate and the spot rate in forward exchange contracts are amortized as revenue and expense over the period of the contract. The exchange rates at September 30, 2002 and December 31, 2001 were $1= Baht 43.364 and Baht 44.227, respectively. The average exchange rates for the nine months ended September 30, 2002 and 2001 were $1= Baht 43.0152, Baht 44.4083, respectively. Property, Plant and Equipment - Property, plant and equipment are stated at cost. Depreciation is computed by using the straight-line method over the estimated useful lives of the assets as follows: Buildings 20 Years Leasehold improvements Term of lease Selling office equipment and fixtures 5 Years Vehicles 5 Years Maintenance, repairs and minor renewals are charged directly to expense as incurred. Store Pre-Opening Costs - Store pre-opening costs are expensed as incurred. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Revenue Recognition - The Company recognizes revenue from sales of merchandise at the point of sale. Concession Fees - According to the concession agreement with the Airports Authority of Thailand, KPT is required to pay concession fees, rental and services fees, and other related expenses at the fixed charges per month defined in the concession agreement. According to the concession agreement with the Airports Authority of Thailand, KPD is required to pay concession fees at a fixed percentage of sales, greater than or equal to the fixed charges as defined in the concession agreement, and pay rental and service fee and other related expenses. Concentrations of Credit Risk - The Company's retail businesses are cash flow businesses. Most sales take place with cash receipts or credit card payments. The Company maintains its cash accounts with various financial institutions. In Thailand, such accounts are insured for the full amount of their value by the Thai government. U.S. bank deposits are within Federal insurance limits. In addition, see Note 11 with respect to loans and advances to directors and affiliated companies. Fair Value of Financial Instruments - The carrying amount of cash, trade accounts receivable, notes receivable, trade accounts payable, and accrued payables are reasonable estimates of their fair value because of the short maturity of these items. The carrying amounts of the Company's credit facilities approximate fair value because the interest rates on these instruments are subject to fluctuate with market interest rates. Income Taxes - The Company accounts for income taxes using the liability method, which requires an entity to recognize the deferred tax liabilities and assets. Deferred income taxes are recognized based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, that will result in taxable or deductible amounts in future years. Further, the effects of enacted tax laws or rate changes are included as part of deferred tax expense or benefits in the period that covers the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. 12 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report The Company does not provide for United States income taxes on unlimited earnings of its Thailand-based subsidiaries since the Company's intention is to reinvest these earnings in their operations. Earnings Per Share - Basic earnings per share has been computed based on the average number of common shares outstanding for the period. There are no potentially dilutive securities outstanding. Reclassification - Certain amounts in the 2001 financial statements and related footnotes have been reclassified to conform with 2002 presentation. 3. RESTRICTED FIXED DEPOSITS September 30, 2002 December 31, 2001 ------------------ ----------------- Restricted fixed deposits $ 15,219,721 $ 11,650,467 Interest rates 0.75%-3.50% 1.00%-4.00% As of September 30, 2002 and December 31, 2001, the restricted fixed deposits with maturities from three to twelve months were pledged as collateral to a commercial bank for bank credit facilities of subsidiaries. As these are current obligations of the Company, the deposits are shown as current assets. 4. REFUNDABLE VALUE ADDED TAX For Thailand-based subsidiaries, refundable value added tax (VAT) represents, on a cumulative basis, the excess of input tax (charged by suppliers on purchases of merchandise and services) over the output tax (charged to customers on sales of merchandise and services). Value added tax is levied on the value added at each stage of production and distribution, including servicing, generally at the rate of 10% effective August 16, 1997. The Minister of Finance, however, declared a new value added tax at the rate 7% commencing April 1, 1999, in order to stimulate the domestic economy.

13 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report As of September 30, 2002 and December 31, 2001, the Company has an overdraft facility with commercial banks in Thailand totaling Baht 80.74 million ($ 1,861,913) and Baht 80.74 million ($ 1,825,582), respectively, bearing interest at the Minimum Overdraft Rate ("MOR") plus 1.00% - 1.50% per annum. For the nine months ended September 30, 2002, the average rate of MOR was 7.50% - 8.00% per annum, and for the year ended December 31, 2001 the average rate MOR was 7.75% - 8.25% per annum. Available lines of credit for the bank overdrafts are guaranteed by certain directors and collateralized by fixed deposits. (Note 3) As of September 30, 2002 and December 31, 2001, trust receipts incurred by KPD and KPT bear interest at the rates varying from 3.355% - 8.00% and 4.56% - 9.00% per annum, respectively, and are collateralized by fixed deposits, KPD's land, and guaranteed by two directors of KPD, together with a related company. As of September 30, 2002 and December 31, 2001, the Company has a short-term loan with various commercial banks in Thailand, bearing interest at rates of 2.56% - 7.50% and 2.875% - 8.75%per annum, respectively, and are collateralized by fixed deposits and guaranteed by a director.

As of September 30, 2002, and December 31, 2001, land and building are pledged as collateral for credit lines, trust receipts, and a long-term loan from a bank. (Notes 6 and 8) 14 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report 7. CONCESSION FEES Accrued concession fees to the Airport Authority of Thailand as of September 30, 2002, and December 31, 2001, respectively, were $4,603,778and $2,737,366. Concession fee expense for the nine months ended September 30, 2002 and 2001, was $23,940,152 and $16,173,612, respectively. In order to obtain the necessary rights to operate at the international and domestic airports in Thailand, the Company has entered into various agreements with the Airports Authority of Thailand and the Customs Department of Thailand, which included the right to rent office space. Both KPD and KPT are required to pay concession fees, rental and service fees, property tax, and other expenses, and to pledge cash or obtain a local commercial bank letter of guarantee, as collateral under the aforementioned agreements with the Airports Authority of Thailand. A summary of the concession and rental fees payable and the value of collateral for the remaining period of the agreement (as amended) are as follows (see Notes 11 and 12):

On March 20, 2001, the Airports Authority of Thailand awarded the Company a contract, beginning January 1, 2002, to operate the duty free retail space of other operator. 8. LONG-TERM LOANS, NET Long-term liabilities as of September 30, 2002 and December 31, 2001 consist of the following:

As of September 30, 2002 and December 31, 2001, long-term loans consist of loans from banks carrying interest rates of 7.00% - 7.25% per annum,The long-term loans are secured by the Company's land and building and guaranteed by a director of the Company. (See Note 5) 15 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report Loans are due as follows: September 30, 2002 December31, 2001 ------------------ ------------------ Installment purchase obligation 2002 $ 3,481 $ 4,659 2003 12,026 -- 2004 12,026 -- 2005 12,026 -- 2006 8,017 -- ------------------ ------------------ Total $ 47,576 $ 4,659 ================== ================== Long-term loan installment payments 2002 209,954 28,616 2003 579,841 30,915 2004 121,269 33,395 Thereafiter -- 75,935 ------------------ ------------------ Total $ 911,064 $ 168,861 ================== ================== 9. SHAREHOLDERS'EQUITY (a) Per the reverse acquisition agreement, the two Thailand-based companies together received a total of 18,800,000 shares of common stock of Immune America, Inc. which represented 94% of equity interest as of the date the reverse acquisition agreement was effective. Therefore, the 18,800,000 shares were assumed to be issued and outstanding as of January 1, 1996, for the purpose of presenting comparative financial statements. (b) Per the reverse acquisition agreement, 752,000 shares out of the total 18,800,000 shares were put in escrow subject to certain requirements including that the Company shall have financial statements prepared in accordance with U.S. GAAP and shall have reached certain criteria of financial performance as of December 31, 1997. If, as of December 31, 1997, the Company failed to satisfy any of these conditions, the 752,000 shares were to be released to a financial consultant who was also a party to the reverse requisition agreement. During the first quarter of 1998, these shares were released from escrow and issued to the financial consultant. (c) Per the reverse acquisition agreement, 1,200,000 shares of common stock as of June 12, 1997, when the reverse acquisition was effective, represented the other 4% of equity interests. These 1,200,000 shares of common stock were represented by the following components:

16 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report (d) On August 18,1997, the Company issued 250,000 shares of its common stock to two foreign entities, 125,000 shares each, at a price of $8.00 per shares with net of proceeds of $1,887,000. Both entities are located in Taipei, Taiwan, Republic of China. One half of these shares (125,000) were placed in escrow until May 1, 1998, subject to an additional payment by the purchaser of $4.00 per share on all 250,000 shares issued or ($1,000,000) in the event that the earnings per share for the Company for the calendar year ended December 31, 1997, exceeded a certain amount per share. If the earnings per share for fiscal year 1997 were below the specified goal, then the shares under escrow were to be released to the purchasers without further consideration. These shares have been released from escrow without further consideration. No underwriter or placement agent was used. The issuance was conducted pursuant to Regulation S promulgated under the United State Securities Act of 1933, as amended. (e) Dividend Declaration and Legal Reserve At its ordinary shareholders' meeting held on August 1, 2001, KPD passed a resolution to pay a dividend at the rate of Baht 40 per share for a total of Baht 80,000,000 ($1.8 million), based on the results of its operations for 1999. Further, in accordance with Thai law, a legal reserve was created, equal to 5% of the total net profit for the year on which the dividend is based. The 5% net profit reserve is required by Thai law each time dividend is declared; until such reserve reaches 10% of the Company's authorized share capital. 10. INCOME TAX The Company accounts for income taxes using the liability method, which requires an entity to recognize the deferred tax liabilities and assets. Deferred income taxes are recognized based on the differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Further, the effects of enacted tax laws or rate changes are included as part of deferred tax expense or benefits in the period that covers the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. The provision for income taxes consists of the following: September 30, 2002 September 30, 2001 ------------------ ------------------ Current income tax (payable) United States $ -- $ (20,542) Foreign (4,999,260) (2,336,902) ------------------ ------------------ (4,999,260) (2,357,444) Deferred income tax United States -- -- Foreign (181,944) (95,826) ------------------ ------------------ (181,944) (95,826) ------------------ ------------------ Net income tax expense $ (5,181,204) $ (2,453,270) ================== ================== Pre-tax income for foreign companies for the quarters ended September 30, 2002, was $17,269,400. Current taxes payable are included in current liabilities.

17 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report As a result, the effective income tax rate for the subsidiaries is different from the standard income tax rate. The following reconciliation shows the differences between the effective and standard rates. For nine months ended September 30, 2002 2001 --------------- --------------- Standard income tax rate 35.00% 35.00% Foreign tax rate difference (5.28%) (0.16%) Less: valuation allowance 1.97% -- --------------- --------------- Effective income tax rate 31.69% 35.56% =============== =============== As of September 30, 2002, and December 31, 2001, the Company has deferred income tax assets relating to net operating loss carry forwards for income tax purposes of $322,040 and $20,714, respectively, that expire in years 2001 through 2004. A valuation allowance on the United States loss carry forward has been provided, as the Company has determined that it is more likely than not that this deferred income tax asset will not be realized. 18 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report 11. RELATED PARTY AND DIRECTOR TRANSACTIONS The Company and its subsidiaries have business transactions with and have advanced funds to various entities affiliated by common ownership and control and to its officers, directors and shareholders. Where management has considered it necessary, reserves have been provided for losses on collection of these balances. In certain instances, advances to affiliated companies have been, in turn, advanced to other related parties, including directors and shareholders of the company. Of the $8,954,634 and $12,105,524 shown in the following schedule as receivable from King Power International Co., Ltd. (KPI), as of September 30, 2002, and December 31, 2001, respectively, reserves have been provided for $1,292,698 and $1,293,470, respectively. Of the $3,639,262 and $3,455,458 shown on the following schedule as receivable from King Power On Board Sales and Services Co., Ltd. (KPO), as of September 30, 2002, and December 31, 2001, respectively, reserves have been provided for $1,035,765 and $1,090,540, respectively. KPO's operating license expired in April, 2002, and it has ceased operations, but it has not been liquidated. It does not have assets adequate to pay its obligation to the Company. The payment of the net, unreserved receivables from KPI and KPO are personally guaranteed by two officer/director/ shareholders of the Company who have collateralized their guarantee by the pledge of 9,373,000 shares of the Company's stock. The guarantors have agreed to begin payments of Approximately $115,000 per month in January, 2003, to retire KPO's debt. Balances at September 30, 2002, and December 31, 2001, with related companies and directors are as follows (in $000s)

Additionally, the Airports Authority of Thailand owns 5% of KPD common shares. As of September 30, 2002, and December 31, 2001, KPD has accrued concession fees amounting to $4,603,534 and $2,737,366, respectively 20 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report Effective July 1, 2001, KPD and KPT increased the interest rate charged for new loans to related companies from a range of 2.00%-4.90% to 8.12%, reflecting the increase in borrowing costs to KPD and KPT. The new rates apply to total loans outstanding of each related company that borrowed additional funds from KPD or KPT during 2001 and 2002. For related companies that did not require additional loans from KPD and KPT, the interest rate charged to them did not change. The Company had operating transactions with related parties and directors as follows (in $000s): For the nine months ended September 30, 2002 2001 ----------------- ----------------- Related Companies Sales $ 634 $ 565 Interest income 850 385 Management fee income 352 332 Purchases 10,414 1,556 Concession fees 16,811 9,669 Purchases - assets 64 -- Service $ 577 $ -- 12. COMMITMENTS AND CONTINGENT LIABILITIES (see Note 7) Lease commitments As of September 30, 2002, KPD and KPT had leasing commitments for office space under non-cancelable operating lease agreements in excess of one year. The obligations of the subsidiary companies under these lease agreements are set forth as follows: KPT KPD ----------------- ----------------- 2002 $ 12,453 $ 102,767 2003 49,811 347,828 2004 $ 12,453 $ -- Letters of guarantee As of September 30, 2002, and December 31, 2001, KPT and KPD were contingently liable for bank guarantees totaling $17.17 million and $16.95 million, respectively, issued in favor of the Excise Department and the Airports Authority of Thailand as a performance bond. Unused letters of credit As of September 30, 2002, and December 31, 2001, KPD and KPT have unused letters of credit totaling $1.17 million and $7.99 million, respectively. Land Acquisition On June 17, 2002, KPD contracted to acquire two tracts of land for a total price of 311.34 million Baht ($7,179,701 at September 30, 2002, exchange rates), of which 120.03 million Baht ($2,768,058) has been paid directly to the seller or deposited with KPD's agent for payment in September and is included in Investments and Other Assets in the accompanying balance sheet. Under the terms of the contract, KPD will owe the balance of 0.2 million Baht ($4,612 at September 30, 2002 exchange rates) on the first tract on December 14, 2002. The balance of 191.11 million Baht ($4,407,031 at September 30, 2002, exchange rates) owed on the second tract is due between the first and second anniversaries of the contract. If KPD fails to complete the payments, all amounts deposited by KPD will be forfeited. If the seller cannot complete the transfer of the land, all amounts deposited are to be refunded. 21 KING POWER INTERNATIONAL GROUP CO., LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001 See Accountants' Review Report 13. ACQUISITION OF MINORITY INTERESTS On October 15, 2001, the Company announced that shareholders holding 88.6% of the Company's stock (the Majority Shareholders) intented to acquire all of the outstanding minority interest shares through a merger of the Company into a newly formed Nevada corporation to be owned by the Majority Shareholders. The acquisition price is to be set through negotiations between the Majority Shareholders and a Special Committee appointed to represent the holders of minority interests. The negotiations are ongoing and a final price has not been agreed upon by the two groups. In the third quarter of 2002, three separate lawsuits seeking class action have been filed against the Company and its directors alleging that the directors are breaching their fiduciary duty by not obtaining the highest price for the minority stock. They also seek to enjoin the Company from consummating the merger. Management believes these suits are without merit and intends to defend them. The ultimate outcome to the actions and their effect on the merger are not known. 14. SEGMENT FINANCIAL INFORMATION The following segment information of the Company for 2002 and 2001 are disclosed in accordance with Statement of Financial Accounting Standard No.131 ("SFAS 131"). Each legal entity is classified as a reportable segment under SFAS 131 because each entity is reported separately by management (in $000s).

15. SUBSEQUENT EVENT On October 1, and November 7, 2002, KPD issued discounted bills of exchange with a face value of 600 million Baht ($13,836,362) and 500 million Baht ($11,530,302), respectively. These bills mature 500 million Baht on each of the first and second anniversaries of issue and 100 million Baht on the third anniversary of issue. They are discounted to bear interest at annual rates varying from 3.6% to 4.7632%, depending on the length of maturity. The proceeds will be used to reduce bank debt, enabling the Company to both reduce its interest expense and lengthen the maturities of its debt. 23 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (1) Caution Regarding Forward-Looking Information This quarter report contains certain forward-looking statements and information relating to the Company that is based on the beliefs of the Company or management as well as assumptions made by and information currently available to the Company or management. When used in this document, the words "anticipate", "believe", "estimate", "expect", and "intend" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company regarding future events and are subject to certain risks, uncertainties and assumptions, including the risks and uncertainties noted. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. In each instance, forward-looking information should be considered in light of the accompanying meaningful cautionary statements herein. (2) Effects on the Change in Foreign Currency Exchange System On July 2, 1997, the Thai Government announced that the Thai Baht would thereafter be converted to a "Managed Float" system for the relationship of the Baht to other international currencies. This change had an immediate impact on the Company's operations and the results of its operations. The Company's subsidiaries conduct their business with selling and purchase prices based on Thai Baht, US Dollars, and other currencies. Sales are made both in Thai Baht and other currencies, but eventually will be converted into Thai Baht. Accordingly, the Company bears foreign currency transaction risks between the date of purchase of goods for resale and the ultimate payment of the goods in the appropriate negotiated currency. The overall effect of the Thai Baht devaluation was an increase in the attractiveness of Thailand as a tourist destination. This increase in tourists had a direct impact on increasing the Company's sales in the post-devaluation time period. In accordance with generally accepted accounting principles, the Company has separately presented the following items in its statement of income for the quarter ended September 30, 2002: Loss on foreign exchange, net $(66,800) The calculation of loss on foreign exchange, net of $(66,800) is shown in charts labeled A and B, respectively. 24

(3) Results of operations, comparing nine months ended September 30, 2002 and 2001 Sales revenue for the nine months ended September 30, 2002, was approximately $123.2 million compared to approximately $85.0 million for 2001. This increase is directly attributable to the Company's ability to obtain additional space from the AAT to operate the Duty Free business throughout international airports in Thailand, beginning January 1, 2002. Furthermore, according to the statistical compilation provided by the Bangkok International & Domestic Airport, the number of passengers traveling through its premises from January to September, 2002, has increased 2.51% from the same period last year or from 23.2 million passengers in 2001 to 23.8 million passengers in 2002. The cost of merchandise sold for the nine months ended September 30, 2002 and 2001, was approximately $60.7 million and $40.8 million, respectively. The principal factor causing this increase is directly related to the increase in merchandise sold. The ratio of the concession fees paid to the AAT, comparing the nine months ended September 30, 2002, to the same period in 2001, increased from 19.03% in 2001 to 19.44% in 2002. This increase is due to the concession fee structure of KPT being based on fixed amount with additional annual increment. The volume of sales generated by KPT for the nine months ended September 30, 2002, has not kept up with such increment, thus causing the increase in the ratio of the concession fees paid to the AAT. However, due to the increase in sales volume generated from the KPD's operation, such percentage increase of concession fee has been kept at minimal. Management anticipates that a reduction in the ratio of these fees may result from the continuing increase in sales volume generated from the KPD's operation. 27 Selling and administrative expenses were approximately $22.5 million for the nine months ended September 30, 2002, and approximately $21.3 million for the same period in 2001. In terms of percentage of sales, 2002 expenses were approximately 18.26% of sales and 2001 expenses were approximately 25.05% of sales. This decrease is associated with decrease in sales promotional campaign, which is in-line with Management's expectation as the competition has been lessened due to the Company's ability to expand the shopping space at the international airports in Thailand. Net income for the nine months ended September 30, 2002, was approximately $10.6 million, or $0.52 per share (basic), and approximately $4.3 million, or $0.21 per share (basic), for the nine months ended September 30, 2001. The ratio of inventory divided by revenue for the nine months ended September 30, 2002 and 2001, was approximately 26.40% and 26.02%, respectively. This increase is caused by the larger volume of merchandised orders required by the Company's suppliers for their financial viability to support the new and improved lines of products developed and initiated by the Company. (4) Results of operations, comparing three months ended September 30, 2002 and 2001 Sales revenue for the three months ended September 30, 2002, was approximately $38.9 million compared to approximately $27.1 million for 2001. This increase is directly attributable to the Company's ability to obtain additional space from the AAT to operate the Duty Free business throughout international airports in Thailand, starting from January 1, 2002. Furthermore, according to the statistical compilation provided by the Bangkok International & Domestic Airport, the number of passengers traveling through its premises from July to September, 2002, has increased 2.46% from the same period last year or from 7.7 million passengers in 2001 to 7.9 million passengers in 2002. The cost of merchandise sold for the three months ended September 30, 2002 and 2001, was approximately $20.2 million and $12.7 million, respectively. The principal factor causing this increase is directly related to the increase in merchandise sold. The ratio of the concession fees paid to the AAT, comparing the three months ended September 30, 2002, to the same period in 2001, increased from 19.26% in 2001 to 20.64% in 2002. This increase is due to the concession fee structure of KPT being based on fixed amount with additional annual increment. The volume of sales generated from KPT for the three months ended September 30, 2002, has not kept up with such increment thus caused the increase in the ratio of the concession fees paid to the AAT. However, due to the increase in sales volume generated from the KPD's operation, such percentage increase of concession fee has been kept at minimal. Management anticipates that a reduction in the ratio of these fees may result from the continuing increase in sales volume generated from the KPD's operation. 28 Selling and administrative expenses were approximately $8.5 million for the three months ended September 30, 2002, and approximately $6.5 million for the same period in 2001. In terms of percentage of sales, 2002 expenses were approximately 21.86% of sales and 2001 expenses were approximately 24.07% of sales. This decrease is associated with decrease in sales promotional campaign which is in-line with Management's expectation as the competition has been lessened due to the Company's ability to expand the shopping space at the international airports in Thailand. Net income for the three months ended September 30, 2002, was approximately $1.4 million, or $0.07 per share (basic), and approximately $1.7 million, or $0.08 per share (basic), for the three months ended September 30, 2001. (5) Liquidity and Capital Resources For the quarter ended September 30, 2002, and the year ended December 31, 2001, the Company had working capital of approximately $12.9 million and $5.1 million, respectively. The improvement of this figure is due to the Company's ability to expand operations and to generate increased sales, thereby increasing current assets. Management anticipates that the current positive trend will continue as sales continue to grow and operations are stabilized. (6) Monetary Assets and Liabilities Denominated in Thai Baht As of September 30, 2002, the amount of monetary assets and liabilities which are denominated in Thai Baht are as follows: TYPE OF MONETARY ASSET US DOLLARS Cash and equivalents 774,339 Trade Accounts Receivable 469,902 Refundable value-added-tax 633,473 Advance to related companies / directors 9,015,668 Deferred income tax assets 3,723,057 Restricted deposit 15,219,721 Other current assets 3,356,615 Other non-current assets 2,990,070 29 TYPE OF MONETARY LIABILITY US DOLLARS Bank overdraft & loan 18,635,096 Current portion of long-term debt 660,780 Accounts Payable 8,708,293 Concession fees 4,603,778 Other current liabilities 8,173,233 Long-term loan - net 297,860 (7) Recently Issued Accounting Principles New Accounting Standards Not Yet Adopted - NONE Item 4 - Controls and Procedures Within ninety days prior to the date of this report, our Chief Executive Officer and Chief Financial Officer performed an evaluation of our disclosure controls and procedures, which have been designed so that the information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective. We have made no significant changes in our internal controls or in other factors that could significantly affect our internal controls since the date of that evaluation. Part II - Other Information Item 1 - Legal Proceedings On August 19, 2002, the Company announced in a press release that o its management intended to continue to pursue a merger transaction in which the Company will be taken private by shareholders Vichai Raksriaksorn, Viratana Suntaranond, Aimon Raksriaksorn and Niphon Raksriaksorn (collectively, the "Controlling Shareholders") and certain other shareholders who together with the Controlling Shareholders hold approximately 88.6% of the Company's common shares (collectively, together with the Controlling Shareholders, the "Majority Shareholders"); o the Controlling Shareholders have proposed a merger consideration of US$2.52 per share; and o the proposed merger consideration will be subject to negotiations between the Special Committee and the Controlling Shareholders. On August 30, 2002, the Company announced in a press release that the Special Committee and the Controlling Shareholders met on August 22, 2002 to discuss and negotiate the proposed merger consideration and the terms of the merger, and that as a result of the on-going negotiations between the Special Committee and the Controlling Shareholders on the price and other terms, on August 28, 2002, the Controlling Shareholders had counter-proposed a price of $3.27 per share as 30 the merger consideration. The press release also stated that the foregoing price proposal would be subject to further negotiations between the Special Committee and the Controlling Shareholders. On August 27, 2002, the Company was served with a complaint brought in the District Court of Clark County, Nevada, by Pennsylvania Avenue Partners, LLC against the Company and each of its directors and which seeks class action status. The complaint alleged, among other things, that the directors of the Company had breached their fiduciary duties in pursuing the proposed merger transaction in which the Company would be taken private by certain shareholders and in allegedly failing to obtain the highest price per share. The lawsuit seeks to enjoin the proposed merger transaction and seeks payment of fees of plaintiff's counsel and experts. On September 16, 2002, the Company was served with a complaint brought in the District Court of Clark County, Nevada, by Sean Collins against the Company and each of its directors and which seeks class action status. The complaint alleged, among other things, that the directors of the Company had breached their fiduciary duties in pursuing the proposed merger transaction in which the Company would be taken private by certain shareholders and in allegedly failing to obtain the highest price per share. The lawsuit seeks to enjoin the proposed merger transaction, damages not in excess of $75,000, and payment of fees of plaintiff's counsel and experts. On September 26, 2002, the Company was served with a complaint brought in the District Court of Clark County, Nevada, by Byron Mikalson against the Company and each of its directors and which seeks class action status. The complaint alleged, among other things, that the directors of the Company had breached their fiduciary duties in pursuing the proposed merger transaction in which the Company would be taken private by certain shareholders and in allegedly failing to obtain the highest price per share. The complaint also alleged that the defendants and companies related to the defendants obtained loans from the Company that were later forgiven. The lawsuit seeks to enjoin the proposed merger transaction and seeks payment of fees of plaintiff's counsel and experts. The Board has authorized and empowered a Special Committee, consisting of independent directors and acting in the interest of shareholders other than those certain shareholders taking the Company private under the proposed merger transaction, to review and negotiate the merger consideration and terms of the proposed merger and to make a recommendation to the full Board of Directors and the Company's shareholders. The Special Committee is also advised by its own independent financial advisor and legal counsel. The Company believes that each of the lawsuits is without merit, and intends to vigorously defend each suit. With respect to the first complaint brought by Pennsylvania Avenue Partners, LLC, on October 30, 2002, the Company filed a motion to dismiss for failure to state a claim. Item 2 - Changes in Securities None Item 3 - Defaults Upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders None Item 5 - Other Information None 31 Item 6 - Exhibits and Reports on Form 8-K Current Report on Form 8-K dated August 30, 2002 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned who are duly authorized. KING POWER INTERNATIONAL GROUP CO., LTD. By: /s/ Vichai Raksriaksorn ---------------------------------------------------------- Vichai Raksriaksorn, President and Chief Executive Officer November 14th, 2002 By: /s/ Viratana Suntaranond ---------------------------------------------------------- Viratana Suntaranond, Chief Financial Officer November 14th, 2002 32 I, Vichai Raksriaksorn, certifies that: 1. I have reviewed this quarterly report on Form 10-Q of September 30th, 2002; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Vichai Raksriaksorn ----------------------- Vichai Raksriaksorn Chief Executive Officer November 8th, 2002 33 I, Viratana Suntaranond, certifies that: 1. I have reviewed this quarterly report on Form 10-Q of September 30th, 2002; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Viratana Suntaranond ------------------------ Viratana Suntaranond Chief Financial Officer November 8th, 2002 34

KING POWER INTERNATIONAL GROUP CO LTD 10-Q