UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from -------------- to --------------
Commission File Number: 333-99419
Kingsgate Acquisitions, Inc.
------------------------------
(Name of small business
issuer in its charter)
Delaware 6770 98-0211672
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
Wolfgang Schwarz
KINGSGATE ACQUISITIONS, INC.
c/o Look Models International, Inc.
Passauerplatz #1
Vienna 1010, Austria
011-43-1-533-5816
------------------------------------------------------------
(Address and telephone number of principal executive offices,
principal place of business,
and name, address and telephone number of agent
for service of process)
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. NA
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of January 15, 2003, there
are 12,500,000 shares of common stock issued and outstanding. Transitional Small
Business Disclosure Format (Check one): Yes [ ] No [X]
KINGSGATE ACQUISITIONS, INC.
SEPTEMBER, 2002 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page Number
Special Note Regarding Forward Looking Information..................... 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................... 4
Item 2. Management's Discussion and Analysis........................... 14
Item 3. Controls and Procedures........................................ 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 23
Item 2. Changes in Securities and Use of Proceeds...................... 23
Item 3. Defaults Upon Senior Securities................................ 23
Item 4. Submission of Matters to a Vote of Security Holders............ 23
Item 5. Other Information.............................................. 23
Item 6. Exhibits and Reports on Form 8-K............................... 23
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
To the extent that the information presented in this Quarterly Report on
Form 10-QSB for the quarter ended September 30, 2002 discusses financial
projections, information or expectations about our products or markets, or
otherwise makes statements about future events, such statements are forward-
looking. We are making these forward-looking statements in reliance on the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Although we believe that the expectations reflected in these forward-looking
statements are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements. These risks and uncertainties are described, among
other places in this Quarterly Report, in "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
In addition, we disclaim any obligations to update any forward-looking
statements to reflect events or circumstances after the date of this Quarterly
Report. When considering such forward-looking statements, you should keep in
mind the risks referenced above and the other cautionary statements in this
Quarterly Report.
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2002
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 12,603
Trade accounts receivable, net 324,361
Inventories 126,576
Prepaid expenses and other current assets 216,839
---------------------
Total current assets 680,379
---------------------
Property and equipment, net 58,253
Intangible assets, net 100,740
Deposit 16,281
---------------------
175,274
---------------------
Total assets $ 855,653
=====================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade liabilities $ 656,505
Accrued expenses and other current liabilities 195,168
Advances payable, related party 747,117
Short-term borrowings 1,678,536
---------------------
Total liabilities (all current) 3,277,326
---------------------
Commitments and contingencies:
Shareholders' deficit
Preferred stock, $0.001 par value; 5,000,000
shares authorized; none issued
Common stock, $0.001 par value; 45,000,000
shares authorized; 12,500,000
shares issued and outstanding
12,500
Additional paid-in capital 3,117,988
Accumulated deficit (5,624,068)
Accumulated other comprehensive income 71,907
---------------------
Total shareholders' deficit (2,421,673)
---------------------
Total liabilities and shareholders' deficit $ 855,653
=====================
See notes to consolidated financial statements.
4
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
Three Three Nine Nine
months ended months ended months ended months ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
------------------- -------------------- -------------------- -------------------
Sales $ 244,349 $ 206,546 $ 709,101 $ 538,400
Cost of sales (13,760) (92,239) (237,071) (205,756)
------------------- -------------------- -------------------- -------------------
Gross profit 230,589 114,307 472,030 332,644
------------------- -------------------- -------------------- -------------------
Selling expenses (205,419) (124,077) (562,726) (618,609)
Administrative expenses (213,162) (762,714) (505,364) (1,106,018)
------------------- -------------------- -------------------- -------------------
(418,581) (886,791) (1,068,090) (1,724,627)
------------------- -------------------- -------------------- -------------------
Loss from operations (772,484) (1,391,983)
(187,992) (596,060)
------------------- -------------------- -------------------- -------------------
Other income (expense):
Interest expense (34,947) (11,749) (82,510) (33,651)
Other, net 779 1,537 (27,128) 3,101
------------------- -------------------- -------------------- -------------------
(34,168) (10,212) (109,638) (30,550)
------------------- -------------------- -------------------- -------------------
Net loss $ (222,160) $ (782,696) $ (705,698) $ (1,422,533)
=================== ==================== ==================== ===================
Net loss per share -
basic and diluted $ (0.02) $ (0.06) $ (0.06) $ (0.12)
=================== ==================== ==================== ===================
Average shares of common
stock outstanding
12,491,136 12,376,869 12,469,962 12,181,250
=================== ==================== ==================== ===================
See notes to consolidated financial statements.
5
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
AND COMPREHENSIVE INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
Accumulated
Common stock Additional other
paid-in Accumulated comprehensive
Shares Amount capital deficit income (loss) Total
Balances at January 1, 2002 12,454,625 $ 12,455 $ 2,922,249 $ (4,918,370) $ 305,397 $ (1,678,269)
Sale of common stock pursuant to
private placements, net 45,375 45 45,739 45,784
Salary waived by CEO and majority
shareholder 150,000 150,000
Comprehensive income (loss):
Net loss (705,698) (705,698)
Foreign currency translation adjustment (233,490) (233,490)
--------------
Comprehensive loss (939,188)
---------- -------- ------------ ------------ ------------ --------------
Balances at September 30, 2002
(unaudited) 12,500,000 $ 12,500 $ 3,117,988 $ (5,624,068) $ 71,907 $ (2,421,673)
========== ========= =========== ============= =========== ==============
Note:Shares of common stock have been retroactively restated to reflect the
recapitalization of the Company resulting from the merger of Kingsgate
Acquisitions, Inc. and Look Models International, Inc. which was completed
on September 6, 2002 (Note 3) (unaudited).
See notes to consolidated financial statements.
6
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
September 30, September 30,
2002 2001
----------------- ------------------
Cash flows from operating activities:
Net loss $ (705,698) $ (1,422,533)
----------------- ------------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 18,516 7,458
Issuance of shares for service - 270,000
Salary waived by majority shareholder 150,000 -
Changes in assets and liabilities:
Increase in accounts receivable (19,488) (192,447)
Decrease in inventories 48,073 14,532
(Increase) decrease in prepaids and other current assets (83,855) 388,699
Decrease in trade liabilities (138,625) (123,497)
(Decrease) increase in accrued expenses and other liabilities (88,019) 31,418
(Decrease) increase in advances payable related party (112,403) 492,740
Decrease in deferred income - (28,932)
----------------- ------------------
(225,801) 859,971
----------------- ------------------
Net cash used in operating activities (931,499) (562,562)
----------------- ------------------
Cash flows from investing activities:
Capital expenditures (21,367) (32,960)
----------------- ------------------
Net cash used in investing activities (21,367) (32,960)
----------------- ------------------
Cash flows from financing activities:
Increase in short-term borrowings 911,114 27,068
Proceeds from issuance of common stock 45,784 28,950
----------------- ------------------
Net cash provided by financing activities 956,898 56,018
----------------- ------------------
Effect of exchange rate changes in cash and cash equivalents (37,632) 11,698
----------------- ------------------
Net decrease in cash (33,600) (527,806)
----------------- ------------------
Cash and cash equivalents, beginning 46,203 557,665
----------------- ------------------
Cash and cash equivalents, ending $ 12,603 $ 29,859
================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 82,510 $ 33,651
================= ==================
See notes to consolidated financial statements.
7
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The interim financial statements:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months and
nine months periods ended September 30, 2002, are not necessarily indicative of
the results that may be expected for the year ending December 31, 2002.
2. Management's plans:
The Company's financial statements for the years ended December 31, 2001
and 2000 (not included herein) and for the nine months ended September 30, 2002
and 2001 (unaudited) show that the Company has suffered net losses of
$1,725,950, $1,680,438, $705,698 and $1,422,533, respectively, and the Company
has a shareholders' deficit and a working capital deficiency of $2,421,673 and
$2,596,947, respectively, as of September 30, 2002 (unaudited). The Company has
experienced uncertainty in meeting its liquidity needs and has relied on outside
investors and its principal shareholder to provide funding. Management's plans
in connection with these criteria are as follows:
a. The Company's president and majority shareholder has agreed to postpone his
claim for amounts owed to him by the Company and to utilize funds from
capital raised from redemption of outstanding warrants, future equity
transactions or profitable operations as a means of repayment. At September
30, 2002 (unaudited), such amounts were $747,117 (unaudited). In addition,
the president and majority shareholder has agreed to fund 25% of the
operating expenses for 2002, and to forego salary in 2002 until such time
as profitable operations, capital raised from redemption of outstanding
warrants, or future equity transactions provide the Company the ability to
pay his salary in accordance with his employment agreement.
b. In 2001, the Company entered into an International Production and
Distribution Agreement with a German corporation, whereby the Company
obtained, among other things, the worldwide exclusive right to promote and
distribute a patented cosmetics dispenser under the Company's Look Models
and Catwalk labels. Further, the Company entered into a three-year Product
Distribution Agreement with Models Prefer Ltd., a Connecticut corporation.
Under this agreement, the Company has granted exclusive distribution
rights, as defined, to Models Prefer Ltd. for the distribution of the
dispenser over televised distribution channels. Under the terms of the
Product Distribution Agreement, the Company is guaranteed minimum purchases
of the dispenser, which are expected to generate revenues to the Company of
approximately $575,000, $900,000 and $1,200,000, over each of the three
contract years ending November 2002, 2003 and 2004, respectively. In
addition, the exclusivity provision of this agreement provides that the
above revenues will double in the event that the purchaser exercises its
exclusivity rights.
c. The Company is negotiating additional equity funding from foreign
investors, as well as the possibility of a U.S. private placement, and in
September 2002 completed the reverse acquisition of a U.S. publicly traded
development stage company which management believes will provide access to
the U.S. capital markets.
8
3. Merger:
On September 6, 2002, Look Models International, Inc. (LMI) the Company
completed a merger with Kingsgate Acquisition ("Kingsgate"), a development stage
corporation, organized on September 28, 1999 as a vehicle to acquire or merge
with a business.
Pursuant to the Agreement, the shareholders of LMI sold to Kingsgate 100%
of all the issued and outstanding shares of LMI, in exchange for 10,500,000,
$.001 par value, newly issued shares of voting common stock of Kingsgate.
Additionally, 1,000,000, $.001 par value common shares held by Kingsgate's
founders were issued to the president and majority shareholder of LMI.
The transaction was accounted for as a reverse acquisition of Kingsgate by
LMI, since the shareholders of LMI own approximately 85.2% of the post
acquisition common shares of the consolidated entity immediately after the
completion of the transaction. For accounting purposes, the acquisition has been
treated as an acquisition of Kingsgate by LMI and as a recapitalization of LMI.
Shares of preferred stock authorized, and common stock authorized, issued and
outstanding have been retroactively restated to present the capital structure of
Kingsgate.
4. Inventories
Inventories consist of cosmetic products ready for sale and are valued by
using the first-in, first-out (FIFO) method at the lower of cost or market.
5. Property and equipment, net:
Property and equipment consists of:
September 30,
2002
(unaudited)
Office and computer equipment $ 115,313
Less accumulated depreciation (57,060)
-------------------
$ 58,253
==================
9
6. Short-term borrowings:
Short-term borrowings consisted of:
September 30,
2002
(unaudited)
Line of credit, interest of 6.00%; outstanding balance due in March 2003;
collateralized by the Company's receivables and guaranteed
by the Company's president $169,615
Line of credit, interest of 6.00%; outstanding balance due in March 2003;
collateralized by the Company's receivables and guaranteed by the
Company's president 419,426
Line of credit, interest of 8%; outstanding balance due in March 2003;
collateralized by the Company's receivables and guaranteed by the
Company's president 145,825
Overdraft on bank accounts 943,670
------------------
$ 1,678,536
==================
7. Income taxes:
The reconciliation between the effective tax rate and the statutory U.S.
federal income tax rate is as follows:
September 30, September 30,
2002 2001
(unaudited) (unaudited)
Computed "expected" tax benefit 34.00% 34.00%
Operating losses for which a benefit
has not been recognized (34.00%) (34.00%)
----------- ----------
$ - $ -
============ ===========
10
At September 30, 2002 (unaudited), the Company's deferred tax assets are as
follows:
September 30,
2002
(unaudited)
Net operating loss carry forwards (foreign) $ 773,103
Net operating loss carry forwards (U.S.) 838,051
Deferred tax asset valuation allowance (1,611,154)
-------------------
Net deferred tax assets $ -
====================
In foreign tax jurisdictions, the Company is subject to income tax on an
entity basis on income arising in or derived from the tax jurisdiction in which
each entity is domiciled. The Company's Bahamian subsidiary is not liable for
income tax. The Company's Austrian and Czech Republic operations are subject to
income tax at 34%. Other European operations are not significant.
At December 31, 2001 and September 30, 2002 (unaudited), the Company has
foreign operating loss carryforwards of approximately $1,865,000 and $2,274,000
(unaudited), respectively, and U.S. operating loss carryforwards of
approximately $2,168,000 and $2,465,000 (unaudited), respectively. Effective
January 2001, the Austrian tax law was changed so that loss carryforwards can
only be used to offset up to 75% of the taxable income of a single year.
Austrian tax losses are available for offset indefinitely, and U.S. tax losses
are available for offset through 2022.
7. Related parties:
Advances payable, related party, represent amounts advanced to the Company
by the Company's president and principal shareholder. The advances are
unsecured, payable on demand and do not bear interest. The Company's president
has agreed to postpone his claim for amounts owed to him by the Company through
2002, or until funds are acquired through redemption of outstanding warrants or
future equity transactions which will provide the means for repayment.
11
8. Shareholders' equity:
In connection with its recapitalization, the Company issued 2,000,000
shares of common stock. During the year ended December 31, 2001 and the nine
months ended September 30, 2002 (unaudited), the Company issued an additional
570,182 and 45,375 shares of common stock for $358,619 and $45,784 (unaudited),
net, respectively. A total of 73,624 and 45,375 shares were issued in private
placements at prices ranging from $0.02 to $2.00 per share. Different prices
arose as the Company concluded individual negotiations with each of the
Company's investors. In addition, in 2001, 496,558 were issued in exchange for
legal and professional services and in repayment of certain liabilities. These
shares were valued at $288,000, the fair value of the services received and
liabilities paid, which management considers to be the most reliable
measurement.
Included in shares issued for services are 250,000 shares valued at
$240,000, which were issued to a member of the Board of Directors.
During the nine months ended September 30, 2002 the Company's president and
majority shareholder waived salary of $150,000 (unaudited) due under the terms
of his employment contract with the Company. The Company has accounted for the
waived salary as a capital contribution by the majority shareholder resulting in
an increase in additional paid-in capital of $150,000 (unaudited).
9. Operating segments:
The Company classifies its businesses into three operating segments. The
segments have been defined by the services each segment offers. The services
offered are described below:
Eventmanagement:
Look Eventmanagement GmbH handles the sourcing of new models and their
development, and the organization of promotional events. It was founded 1986
under its former name Wolfgang Schwarz Sport- und Kulturveranstaltungen GmbH,
Vienna.
Model management:
Look Model Management GmbH is a model agency operating in Austria.
Cosmetics:
In 2000, the Company started a new operating segment by entering into the
cosmetics business. The products include Eau de toilette, perfumes, body milk
and body splash. In 2001, the Company introduced the sale of sunscreens.
12
A summary of sales by country is as follows:
Nine months ended September 30, 2002 (unaudited)
Event- Model
management management Cosmetics Total
Austria $ 87,944 $ 99,307 - $ 187,251
United States of America 17,812 - $ 100,451 118,263
Other countries 97,241 306,346 - 403,587
---------------- --------------- --------------- ---------------
$ 202,997 $ 405,653 $ 100,451 $ 709,101
================= ================= ================= =================
Nine months ended September 30, 2001 (unaudited)
Event- Model
management management Cosmetics Total
Austria $ 41,957 $ 315,572 $ 1,045 $ 358,574
United States of America - - - -
Other countries 179,826 - - 179,826
---------------- --------------- --------------- ---------------
Totals $ 221,783 $ 315,572 $ 1,045 $ 538,400
================= ================= ================= =================
Three months ended September 30, 2002 (unaudited)
Event- Model
management management Cosmetics Total
Austria $ 30,351 $ 19,020 - $ 49,371
United States of America 9,609 - $ 1,997 11,606
Other countries 36,565 146,807 - 183,372
---------------- --------------- --------------- ---------------
Totals $ 76,525 $ 165,827 $ 1,997 $ 244,349
================= ================= ================= =================
Three months ended September 30, 2001 (unaudited)
Event- Model
Management management Cosmetics Total
Austria $ 14,974 $ 137,713 $ 75 $ 152,762
United States of America - - - -
Other countries 53,784 - - 53,784
---------------- ---------------- ----------------- -----------------
Totals $ 68,758 $ 137,713 $ 75 $ 206,546
================= ================= ================= =================
Information about the Company's operating segments:
Nine months ended September 30, 2002 (unaudited)
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 202,997 $ 405,653 $ 100,451 $ - $ 709,101
Profit (loss) from operations (453,962) 69,485 85,334 (296,916) (596,060)
Interest expense (67,418) (15,092) - - (82,510)
Net income (loss) (553,560) 59,444 85,334 (296,916) (705,698)
Shares issued for services - - - - -
Capital expenditures 10,078 11,289 - - 21,367
Depreciation and amortization 4,466 2,393 - 11,657 18,516
Nine months ended September 30, 2001 (unaudited)
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 221,783 $ 315,572 $ 1,045 $ - $ 538,400
Profit (loss) from operations (380,460) (128,785) (2,851) (879,887) (1,391,983)
Interest expense (24,328) (9,323) - (33,651)
Net income (loss) (403,267) (136,528) (2,851) (879,887) (1,422,533)
Shares issued for services - - - 270,000 270,000
Capital expenditures 1,896 - - 16,355 18,251
Depreciation and amortization 4,390 3,068 - - 7,458
Three months ended September 30, 2002 (unaudited)
Event- Model
management Management Cosmetics Corporate Total
Total revenue $ 76,525 $ 165,827 $ 1,997 $ - $ 244,349
Profit (loss) from operations (222,799) 117,120 1,971 (73,283) (176,991)
Interest expense (29,043) (5,904) - - (34,947)
Net income (loss) (253,731) 113,883 1,971 (73,283) (211,160)
Shares issued for services - - - - -
Capital expenditures 919 9,661 - - 10,580
Depreciation and amortization 1,489 798 - 10,552 12,839
Three months ended September 30, 2001 (unaudited)
Event- Model
management Management Cosmetics Corporate Total
Total revenue $ 68,758 $ 137,713 $ 75 $ - $ 206,546
Profit (loss) from operations (11,534) (62,807) 1,800 (699,943) (772,484)
Interest expense (8,379) (3,370) - - (11,749)
Net income (loss) (22,088) (62,465) 1,800 (699,943) (782,696)
Shares issued for services - - - - -
Capital expenditures - - 3,743 3,743
Depreciation and amortization 8,170 1,022 - - 9,192
13
ITEM 2. MANAGEMENT"S DISCUSSION AND ANALYSIS
You should read the following discussion and analysis together with the
accompanying introduction and notes, as well as the consolidated financial
statements and their accompanying notes. This discussion and analysis is a
presentation by the management of Look Models of their financial condition and
result of their operations, as our company has assumed their business
operations.
Certain statements contained under this caption regarding matters that are
not historical facts are forward-looking statements. All statements that address
operating performance, events or developments that the management of Look Models
expects to incur in the future, including statements relating to sales and
earning growth or statements expressing general optimism about future operating
results are forward-looking statements. These forward-looking statements are
based on Look Models management's current views and assumptions regarding future
events and operating performance. Many factors could cause actual results to
differ materially from estimates contained in these forward-looking statements.
The differences may be caused by a variety of factors, including, but not
limited to, adverse economic conditions, competitive pressures, inadequate
capital, unexpected costs, lower revenues or net income, the possibility of
fluctuation and volatility of our operating results and financial condition,
inability to carry out marketing and sales plans and loss of key executives,
among other things.
14
Results of Operations
- ----------------------------------
Nine months ended September 30, 2002 compared with the nine months ended
September 30, 2001
For the nine months ended September 30, 2002, revenue increased from the
nine months ended September 30, 2001. Revenue for the nine months ended
September 30, 2001 was $538,400 and revenue for the nine months ended September
30, 2002 was $709,101 (a 32% increase). Management believes that the increase in
revenue was a result of a feeling of being able to "get-back-to-business" and
gradual increased travel after the effect of the September 11th crisis. The
increase can also be attributed to the higher margin from sales of sunscreen
products, in particular. The cost of sales of $237,071 for the nine months ended
September 30, 2002 is higher than the cost of sales of $205,756 for the nine
months ended September 30, 2001. However, there was an increase in Look Models'
gross profit for the nine months ended September 30, 2002. Specifically, the
gross profit for the nine month period ended September 30, 2001 was $332,644 or
62%, and for the nine months ended September 30, 2002, the gross profit was
$472,030, or 67%. This increase in gross margin can be primarily attributed to
the higher gross margin from sales of sunscreen products during the nine months
ended September 30, 2002. There were no sales of sunscreen products during the
nine months ended September 30, 2001. Selling expenses for the nine months ended
September 30, 2002 as compared to the selling expenses for the nine months ended
September 30, 2001 show a decrease from $618,609 to $562,726, or 9%.
Administrative expenses decreased for the nine months ended September 30, 2002
compared to those for the nine months ended September 30, 2001. Administrative
expenses were $505,364 for the nine months ended September 30, 2002, and were
$1,106,018 for the nine months ended September 30, 2001, an 54% decrease. Look
Models' posted a net loss for the nine months ended September 30, 2002 of
$705,698. The net loss for the nine months ended September 30, 2002 was a
decrease of 50% over the net loss for the nine months ended September 30, 2001
of $1,422,533.
The loss for the nine months ended September 30, 2002 can be divided into a
loss from U.S. operations, and a loss from European operations. The loss for the
nine months ended September 30, 2002 from U.S. operations was $296,916, while
the loss from European operations was $299,144. The loss from operations in
Europe of $299,144 was lower for the nine months ended September 30, 2002 than
it was for the nine months ended September 30, 2001. For the nine months ended
September 30, 2001 the net loss from Europe was $542,646. For the nine months
ended September 30, 2002, the net loss from U.S. operations of $509,785 is less
than the net loss from U.S. operations of $879,887 for the nine months ended
September 30, 2001.
15
Three months ended September 30, 2002 compared with the three months ended
September 30, 2001
For the three months ended September 30, 2002, revenue increased from the
three months ended September 30, 2001. Revenue for the three months ended
September 30, 2001 was $206,546 and revenue for the three months ended September
30, 2002 was $244,349 (an 18% increase). Management believes that the increase
in revenue was a result of a feeling of being able to "get-back-to-business" and
gradually increased travel after the effect of the September 11th crisis. The
increase can also be attributed to the higher margin from sales of sunscreen
products, in particular. The cost of sales of $13,760 for the three months ended
September 30, 2002 is less than the cost of sales of $92,239 for the three
months ended September 30, 2001. There was an increase in Look Models' gross
profit for the three months ended September 30, 2002. Specifically, the gross
profit for the three month period ended September 30, 2001 was $114,307 or 55%,
and for the three months ended September 30, 2002, the gross profit was 230,589,
or 94%. This increase in gross margin can be primarily attributed to the higher
gross margin from sales of sunscreen products during the three months ended
September 30, 2002. There were no sales of sunscreen products during the three
months ended September 30, 2001. Selling expenses for the three months ended
September 30, 2002 as compared to the selling expenses for the three months
ended September 30, 2001 show an increase from $124,077 to $205,419, or 66%.
Administrative expenses decreased for the three months ended September 30, 2002
compared to those for the three months ended September 30, 2001. Administrative
expenses were $213,162 for the three months ended September 30, 2002, and were
$762,714 for the three months ended September 30, 2001, a 72% decrease. Look
Models' posted a net loss for the three months ended September 30, 2002 of
$222,160. The net loss for the three months ended September 30, 2002 was a
decrease of 72% over the net loss for the three months ended September 30, 2001
of $782,696.
The loss for the three months ended September 30, 2002 can be divided into
a loss from U.S. operations, and a loss from European operations. The loss for
the three months ended September 30, 2002 from U.S. operations was $73,283,
while the loss from European operations was $137,777. The loss from operations
in Europe of $137,877 was higher for the three months ended September 30, 2002
than it was for the three months ended September 30, 2001. For the three months
ended September 30, 2001 the net loss from Europe was $83,203. For the three
months ended September 30, 2002, the net loss from U.S. operations of $73,283 is
less than the net loss from U.S. operations of $699,943 for the three months
ended September 30, 2001.
16
Liquidity and Capital Resources
- -------------------------------
Working Capital, Debt and Liquidity.
- ------------------------------------
Although Look Models had a shareholders' deficit as of September 30, 2002,
of $2,421,673, Look Models believes that it will have the capital resources for
the next twelve (12) months in order to operate its business due to:
(1) Funding Commitment. The commitment from its President and majority
shareholder to fund up to one-quarter (1/4) of Look Models' annual
operating expenses for the 2002 financial year,
(2) There are several trends and events that have, or are reasonably
likely to have, a material impact on Look Models' short-term or
long-term liquidity Look Models is currently negotiating to obtain
financing from a private equity fund. Look Models believes that it is
currently at the due diligence stage of these negotiations. Look
Models is negotiating additional equity funding from foreign investors
and has completed the combination with Kingsgate Acquisitions, Inc.,
which is expected to provide access to the U.S. capital markets.
Additional funding is intended to increase both the short-term, and
the long-term liquidity position of Look Models.
17
Look Models intends to use this financing for working capital, and to
cover the transaction costs it will incur in the next several months,
as well as to complete an acquisition of a modeling agency in a major
market. (See Planned Acquisitions, below). Look Models believes that
its Internet booking system, as well as the maturity in age of its
models database, and the execution of several pending licensing
transactions will add to its short-term liquidity. Look Models is
attempting to license its "Look" and "Catwalk" brands for franchise
purposes, and to increase the number of licensees of its brands.
Turkey and Russia are two markets where the "Look" brand will be
developed and the "Catwalk" products will be sold. Look Models is not
aware of other known trends, events or uncertainties, other than
general business upswings or downturns that will have a material
impact on its short-term or long-term liquidity.
(3) Look Models' internal and external sources of liquidity are as
follows:
Externally, Look Models hopes to continue its past strategy of
obtaining funding from the sale of its stock to outside investors,
some of whom are already current shareholders of Look Models.
Internally, Look Models expects to fund its operations from revenues
and acquisitions using stock, and expects to increase its revenues,
while stabilizing its expenses. Look Models has entered into an
International Production and Distribution Agreement with a German
corporation, whereby Look Models has obtained, amongst other things,
the worldwide rights to promote and distribute a patented cosmetics
dispenser under the "Look Models" and "Catwalk" brands, and to
distribute the dispenser in the United States under additional brand
names. Accordingly, Look Models has entered into a three-year Product
Distribution Agreement with Models Prefer, a U.S. company. Pursuant to
this agreement, Look Models has granted distribution rights to Models
Prefer for the distribution of the dispenser over televised
distribution channels. Under the terms of the Product Distribution
Agreement, Look Models is contractually promised certain minimum
purchases of the dispenser, which is expected to generate net revenues
to Look Models of a minimum of $575,000.00, $900,000.00, and $1.2
million, over each of the three years ending November 30, 2002, 2003
and 2004, respectively. In addition, the exclusivity provisions of
this agreement provide that the above revenues will double in the
event that Models Prefer Ltd. exercises rights to exclusive supply of
the dispenser in the United States.
18
(4) Non-Cash Expenses. As reflected in the Statement of Changes in
Shareholder's Deficit and Comprehensive Income there are charges
associated with the Kingsgate transaction and for payments made using
stock that are reflected in the administrative expenses. These
expenses are primarily professional and other fees relating to the
transaction, including fees necessary to provide adequate
documentation of international contracts and agreements, developing
its licensing and brand extension business, negotiations with
Kingsgate, etc.
(5) Deferred Repayment. The President and majority shareholder of Look
Models has deferred repayment of loans due to him for one (1) year, or
until Look Models returns to profitability, or is successful in
securing follow-on financing. An example of follow-on financing that
would be used to repay Mr. Schwarz' loan is through warrant exercise.
If this offering is fully subscribed, there will be 2,000,000 warrants
outstanding. Upon exercise of these 2,000,000 warrants, Look Models
will receive gross proceeds of $3,500,000. We intend to use 25% of the
warrant proceeds to pay outstanding officer loans and 75% of the
warrant proceeds for marketing our cosmetics and accessory lines.
There can be no assurance that the warrants will be exercised or that
Look Models will return to profitability. Mr. Schwarz has not
guaranteed the extension of this loan and could, potentially, seek
some loan repayment out of revenues generated.
(6) Lines of Credit and Overdrafts. Look Models has the following lines of
credit from Tiroler Sparkasse Bank, Austria:
At September 30, 2002 short-term borrowings consisted of:
September 30,
2002
------------------
(unaudited)
Line of credit, interest of 6.00%; outstanding balance due in March
2003; collateralized by the Company's receivables and guaranteed
by the Company's president $ 169,615
Line of credit, interest of 6.00%; outstanding balance due in March 2003;
collateralized by the Company's receivables and guaranteed by the Company's
president 419,426
Line of credit, interest of 8%; outstanding balance due in March 2003;
collateralized by the Company's receivables and guaranteed by the
Company's president 145,825
Overdraft on bank accounts 943,670
-----------------
$ 631,358
=================
19
Net Cash Used in Investing Activities
- -------------------------------------------------------
Look Models has no material commitments for capital expenditures, as it has
already expended the majority of necessary funding in developing its licensing
and brand extension businesses, but Look Models will need working capital to
continue to purchase inventory of dispensers, perfume, eau de toilette and body
splash. Look Models is currently developing a new range of products, and is
attempting to negotiate royalty based contracts with large cosmetic companies
for these products. Look Models also intends to license products under its brand
names, particularly to licensees that will sponsor the LOOK MODEL SEARCH
International Final. Look Models also has commitments to various entities and
individuals for transactional fees, disbursements, professional fees, and other
related costs in conjunction with completing this transaction. These costs are
not expected to exceed $150,000, and Look Models intends to partly finance these
expenditures internally from revenue, but primarily, Look Models intends to use
financing and offering proceeds to make such expenditures.
Seasonality
- ------------------------------------------------------
There are seasonable aspects that can have a material effect on the
financial condition or results of operation of Look Models, such as lower demand
during off-season periods. Partially offsetting the seasonality is the fact that
Look Models has a presence in various markets. A slowdown in one market is
sometimes offset by buoyancy in another market, resulting in such fluctuations
having less of an overall effect on Look Models' annual revenue stream. For
example, the different seasons result in the need for models in different
venues. Spring and fall bring the need for models to display fashions for the
industry retail viewers. Summer and Winter require models in on-site swimwear
and Winter sports shoots.
20
Business
- --------
Planned Acquisitions
- ----------------------
As Look Models believes it would be more cost effective to acquire existing
agencies in certain markets, rather than to open up new offices in said markets.
Look Models plans to form strategic alliances, through either commission
agreements or acquisitions of modeling agencies in some of the world's modeling
centers, such as New York, London, Paris, Milan, and Munich. Look Models may
also seek to purchase companies, or assets that will benefit, or assist its
production and distribution capabilities in its cosmetics business. Look Models
intends to use its stock, in large part, to finance these acquisitions. Look is
not currently involved in negotiations to acquire any agency.
Planned Ventures
- ----------------
Look Models has commenced preliminary discussions with Fashion T.V., a
media company, which is televised worldwide through cable and satellite and has
approximately 300 million viewers. The two companies are collaborating a deal
whereby Fashion T.V. would cover all Look Models' national model contests as
well as the International final event. This collaboration would allow Look
Models to have a participating partner to share the expenses of the event, while
maximizing revenue by increasing visibility of the event through greater media
coverage of the event.
21
Description of Material Risks and Management's strategy of offset risk
- ----------------------------------------------------------------------
Look Models effectively invests in the future of young models in the hope
that it will benefit when these models develop in their careers. Look Models may
never receive a return on its investment in a significant number of its models
due to a variety of factors, such as changing consumer tastes, personal
difficulties of the models, emotional inability to perform in the modeling
world, lack of modeling assignments, economic downturns, more affordable
replacements for models, to name a few. Look Models also faces the risk that its
models may dishonor contracts they have with the agency, refuse to sign
contracts with the agency, or leave the agency to join another agency. While
Look Models plans to issue shares of stock to each of its models as an incentive
to remain with Look Models, and to build loyalty and an ownership mentality in
its models, management has not worked out the specifics of this program. It is
anticipated that this program will be a privately issued employee stock plan
issued pursuant to an exemption from registration under the Securities Act of
1933. Additionally, management intends to closely marshal and enforce its
contractual relationships with all its models, and with the outside agencies
with which Look Models shares bookings, and, therefore, fees.
22
ITEM 3. CONTROLS AND PROCEDURES
On November 25, 2002, the Company's management concluded its evaluation of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. As of the Evaluation Date, the Company's Chief
Executive Officer and its Chief Financial Officer concluded that the Company
maintains disclosure controls and procedures that are effective in providing
reasonable assurance that information required to be disclosed in the Company's
reports under the Securities Act of 1934 (Exchange Act) is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and its Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company's management necessarily applied its judgment in
assessing the costs and benefits of such controls and procedures, which, by
their nature, can provide only reasonable assurance regarding management's
control objectives. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the Evaluation Date.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
No legal proceedings were brought, are pending or are threatened during the
quarter.
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.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 99.1 Form 906 Certification
Form 8-K disclosing a change in auditors was filed with the Securities and
Exchange Commission on December 5, 2002. Form 8-K disclosing the acquisition of
Look Models International, Inc. was filed with the Securities and Exchange
Commission on December 5, 2002.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.
/s/Wolfgang Schwarz
- -------------------------- Dated: February 10, 2003
Wolfgang Schwarz
President, Director
/s/Uli Petzold
- -------------------------- Dated: February 10, 2003
Uli Petzold
Secretary, Director
24
CERTIFICATION PERSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Wolfgang Schwarz, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Kingsgate
Acquisitions, Inc.;
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 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; and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of that date;
5. The registrant's other certifying officers and I have disclosed 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.
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.
Date: February 10, 2003
/s/ Wolfgang Schwarz
Principal Executive Officer,
Principal Financial Officer,
Principal Accounting Officer
25
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kingsgate Acquisitions, Inc.
(the "Company") on Form 10-QSB for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Wolfgang Schwarz, President, Chief Executive Officer, and Chief Financial
Officer certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 12(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company,
as of, and for the periods presented in the Report.
/s/ Wolfgang Schwarz
Principal Executive Officer,
Principal Financial Officer,
Principal Accounting Officer
February 10, 2003
26