SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
August 6, 2003
Pre-effective Amendment No. 7
to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
KINGSGATE ACQUISITIONS, INC.
----------------------------
(Name of small business
issuer in its charter)
Delaware 5999 98-021167
- ------------------------ --------------------------- -----------------
(State of incorporation (Primary Standard Industrial (I.R.S. Employer
or jurisdiction Classification Code Number) Identification No.)
of organization)
Passauerplatz #1 Agents for Delaware Corporations, Inc.
Vienna 1010, 15 Loockerman Street
Austria Dover, Delaware 19904
011-43-1-533-5816
------------------ ------------------------------------
(Address and telephone number of (Name, address and telephone
principal executive offices) number of agent for service)
Copies to:
Wolfgang Schwarz
c/o Look Models International, Inc.
Passauerplatz #1
Vienna 1010,
Austria
And to:
Sheila G. Corvino, Attorney at Law
811 Dorset West Road
Dorset, Vermont 05251
Phone: (802) 867-0112
Fax: (802) 867-2468
Approximate date of proposed sale to the public: as soon as practicable
after the effective date of the registration statement and date of the
prospectus.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that it shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933,
as amended, or until the registration statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
CALCULATION OF REGISTRATION FEE
Title of each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities Being To be Offering Price Aggregate Registration
Registered Registered Per Security Offering Amount Fee
- ------------------- ---------- ---------------- ---------------- ------------
Units 3,000,000 $1.00 $3,000,000 $834.00
Each Unit comprised of
Common Stock 3,000,000
Class A Warrants 3,000,000
Class B Warrants 3,000,000
Common Stock underlying
class A warrants (1) 3,000,000 $1.00 $3,000,000 $ 834.00
Common Stock Underlying
class B warrants (1) 3,000,000 $1.25 $3,750,000 $1,042.00
--------- ---------- ----------
TOTAL 18,000,000 $9,750,000 $2,710(2)
========== =========== ============
(1) Pursuant to Rule 416 there are also registered hereby such additional
number of shares as may become issuable by reason of the anti-dilution
provisions of the class A redeemable warrants and class B redeemable
warrants. These additional shares are not issuable by reason of the
anti-dilution provisions of other derivative securities we may issue in the
future.
(2) Pursuant to Rule 457, the registrant, Kingsgate Acquisitions, Inc (file no
333-91485), previously paid a fee of $1,410 on November 23, 1999. The
current fee of $2,710 was offset against this previously paid fee and an
additional fee of $1,300 was paid on February 7, 2003. Therefore, no
additional fee is due with this filing.
KINGSGATE ACQUISITIONS, INC.
(A Delaware Corporation)
3,000,000 units consisting of
3,000,000 shares of common stock
6,000,000 two-year redeemable warrants
We are a Delaware corporation, organized on September 28, 1999. On
September 6, 2002, we acquired Look Models International, Inc. ("Look Models").
We are offering units of our common stock, class A redeemable warrants and
class B redeemable warrants. The warrants are exercisable into shares of our
common stock until two years after the date of this prospectus. The exercise
price for the class A redeemable warrants is $1.00 per share and the exercise
price for the class B redeemable warrants is $1.25 per share. Our units are
being offered through our president, Wolfgang Schwarz, without the use of a
professional underwriter on a best efforts basis. We will not pay commissions on
unit sales. There are no minimum purchase requirements.
This offering will expire one year from the date of this prospectus, unless
we decide in our sole discretion to extend the offering for an additional one
year term.
No public market currently exists for our units, shares, warrants or the
shares underlying our warrants. The offering price may not reflect the market
price of our units after this offering. Our shares are not listed on any
securities exchange.
Neither the Securities and Exchange Commission, nor any state securities
commission, has approved or disapproved these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK (SEE "RISK FACTORS" COMMENCING
ON PAGE 5 FOR SPECIAL RISKS CONCERNING US AND THE OFFERING.)
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Offering Information
Per unit Total
--------- -------------
Initial public offering price $1.00 $3,000,000.00
Underwriting discounts/commissions $ .00 $ .00
Estimated offering expenses $ .00 $ .00
Net offering proceeds to
Kingsgate Acquisitions, Inc. $1.00 $3,000,000.00
The date of the Prospectus is --------, 2003.
TABLE OF CONTENTS
Page
----
Prospectus Summary......................................... 3
Summary Financial Information.............................. 4
Risk Factors............................................... 5
Dilution................................................... 7
Plan of Distribution....................................... 8
Use of Proceeds............................................ 10
Business................................................... 12
Management's Discussion and Analysis....................... 26
Management................................................. 38
Management's Statement as to Indemnification............... 42
Market for our Common Stock................................ 42
Certain Relationships and Related Transactions............. 43
Principal Stockholders..................................... 44
Description of Securities.................................. 45
Where You Can Find More Information........................ 48
Legal Proceedings.......................................... 49
Experts.................................................... 49
Financial Statements....................................... F-1
2
PROSPECTUS SUMMARY
We are a Delaware corporation, organized on September 28, 1999. On
September 6, 2002, we acquired Look Models International, Inc., a Delaware
corporation. Look Models, along with its wholly-owned subsidiaries, operates
o a modeling agency,
o a talent scout and talent development business,
o a promotional event management and event licensing business, and
o a product design and distribution business.
Look Models is currently designing a line of cosmetic products,
aromatherapy, clothing, lingerie and accessories under the brand names "Look"
and "Catwalk" aimed at the young female market worldwide. Look Models has begun
distribution of perfume, eau de toilette, body milk, body splash and perfume
towelettes. Look Models is currently designing clothing and accessories lines as
well as fragrance and aromatherapy lines, including bath oil pearls, cream and
scent candles.
We maintain our office at Passauerplatz #1, Vienna 1010, Austria the
present address of Look Models. Our phone number, the present phone number of
Look Models, is 011-43-1-533-5816; the fax number is 011-43-1-535-4255; and the
email address is agency@link2look.com.
The Offering
Securities offered 3,000,000 units each consisting of one
share of our common stock, $0.001 par value,
one class A warrant and one class B warrant.
The shares and warrants are immediately
separable upon issuance. (1)(2)
Offering price $1.00 per unit.
Gross Offering
proceeds $3,000,000
Expiration date The offering will expire one year from
the date of this prospectus unless extended
for an additional one year period.
Common stock outstanding
prior to the offering 12,520,000 shares
Common stock to be
outstanding after the offering
assuming all
shares sold in offering 15,520,000 shares
Warrants to be outstanding
after the offering 3,000,000 class A redeemable warrants
3,000,000 class B redeemable warrants
3
(1) The shares and warrants comprising the units are immediately separable upon
issuance.
(2) The warrants are exercisable into shares of our common stock until two
years after the date of this prospectus. The exercise price for the class A
redeemable warrants is $1.00 per share and the exercise price for the class
B redeemable warrants is $1.25 per share.
(3) We may redeem our warrants, at any time, for $0.001 per warrant, if we
provide 30 days' prior written notice, if the closing bid price of our
common stock, as reported by the market on which our common stock trades,
exceeds 150% of the exercise price per share for any twenty consecutive
trading days ending within ten days prior to the date of the notice of
redemption.
There is no public market for the shares underlying our warrants. Among
other factors, you should determine whether there is a continued trading market
supporting a price at or above the exercise price of your warrants prior to
deciding whether or not to exercise them.
Our founders, officers, directors, current stockholders and affiliates are
able to purchase up to 50% of the offering.
Limited State Registration
--------------------------
Initially, the only state in which our securities may be sold is New York
State. Therefore, you may only resell your shares or warrants in New York State.
In the event we expand the number of states in which our securities will be
sold, we will file a post-effective amendment to the registration statement and
re-circulate prospectuses to all prospective investors to whom prospectuses had
previously been distributed. In addition, we may sell units to investors who
reside in foreign countries, including but not limited to Austria. In that
event, we will register or qualify the sale of our units in such country unless
an exemption from registration or qualification is available.
SUMMARY FINANCIAL INFORMATION
The following is a summary of our financial information and is qualified in
its entirety by our financial statements.
From From
Year ended Year ended 1/1/03 1/1/02
12/31/02 12/31/01 to 3/31/03 to 3/31/02
------------ ---------- ----------- ------------
Statement of Income Data:
Net Sales $ 1,146,849 $ 1,076,237 $ 347,487 $ 255,978
Net Loss $ (1,214,553) $(1,725,950) $ (137,146) $ (205,695)
Net Loss Per Share $ (0.10) $ (0.14) $ (0.01) $ (0.02)
Weighted Average Shares
of Common Stock
Outstanding 12,477,533 12,323,269 12,506,222 12,455,693
Balance Sheet Data
Working Capital $ (3,214,185) $(1,842,854) $ (3,388,062) $ (1,971,292)
Total Assets $ 565,877 $ 755,631 $ 697,005 $ 880,109
Long Term Debt $ 0 $ 0 $ 0 $ 0
Total Liabilities $ 3,614,179 $ 2,433,900 $ 3,924,923 $ 2,687,829
Redeemable Common Stock
Common stock $ 12,500 $ 12,455 $ 12,520 $ 12,462
Additional paid in capital $ 3,167,988 $ 2,922,249 $ 3,235,968 $ 2,984,861
Accumulated deficit $ (6,132,923) $(4,918,370) $ (6,270,069) $ (5,124,065)
Total Stockholders' Equity $ (3,048,302) $(1,678,269) $ (3,227,918) $ (1,807,720)
(Deficit)
4
RISK FACTORS
An investment in our securities involves a high degree of risk. You should
carefully consider, together with the other information appearing in this
prospectus, the following factors in evaluating an investment in our company.
Look Models, has experienced losses and we can give no assurances that Look
Models will become a profitable venture or that its products and services will
achieve commercial acceptance.
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Look Models and its predecessors have experienced losses in the past two
fiscal years, as it has invested heavily in the development of its event
management and licensing business, as well as its product line. We can give no
assurances that Look Models' new products will be accepted in the marketplace or
that these products will generate revenues.
We are dependent on our President, Wolfgang Schwarz, and upon the retention
of additional qualified management and technical personnel. Look Models'
inability to attract additional key employees or the loss of one or more current
key employees could reduce the qualified marketing and manpower so as to
adversely affect it in developing existing products and marketing its products
to existing and future clients.
- --------------------------------------------------------------------------------
Look Models' success is greatly dependent on its president and largest
stockholder, Wolfgang Schwarz, due to his background, experience and contacts in
the industry and his knowledge of the marketplace and its nuances. In addition,
Look Models must attract and retain qualified management for the further
development of its business and improvement and marketing of its products.
Competition for management and marketing personnel is intense. Look Models'
inability to attract additional key employees or the loss of one or more Current
key employees could adversely affect it in developing existing products and
marketing its products to existing and future clients.
The vast majority of Look Models' operations and assets are concentrated
outside the United States. Therefore, a creditor or plaintiff in a lawsuit may
encounter great difficulties in enforcing liabilities in foreign jurisdiction.
Further, an investor should be advised that there are political, economic and
currency risks of operating in foreign countries.
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Look Models' operations are world-wide and its assets are mainly in
Austria. An investor should be aware that a creditor or judgment holder may
encounter great difficulties in enforcing liabilities and attaching assets as
these are held overseas. Further, as the different countries in which Look
Models operates are subject to different economic cycles, political
instabilities and differing values in currency, an investor should be aware that
an investment in Look Models is subject to all of these risks.
5
There is no public market for our securities. This means that there is a
high risk that it may be difficult or impossible for a shareholder to sell his
shares and if he is able to sell them, he might not recoup his investment as the
price of his common stock is subject to great volatility.
- -------------------------------------------------------------------------------
As of this date, there is no public trading market for our common stock.
Given the small size of this offering, and the relatively minimal public float,
there is only a very limited likelihood of any active and liquid public trading
market developing for the shares. If such a market does develop, the price of
our common stock may be volatile. Thus, investors run the risk that they will
never be able to sell their shares. In any event, there are additional state
securities laws preventing resale transactions.
We may need additional financing. We cannot assure you that we will be able
to obtain this financing at favorable rates, if at all. If such financing cannot
be raised, we may be unable to fund the operations of our company.
- --------------------------------------------------------------------------------
While the president of Look Models has guaranteed to fund the operating
expenses for 2003 if required to support operations, there is no guarantee to
fund operations in later years and thus the company may have to seek support
through alternative means of financing. No other officers, directors or
affiliates have agreed to lend money to Look Models. In order to achieve and
maintain our planned growth rate after the merger, which growth plan includes
financing acquisitions, Look Models may have to obtain additional bank financing
or sell additional debt or equity securities in public or private financing. Any
such financing could dilute the interest of current shareholders. There can be
no assurance that any such additional financing will be available or, if it is
available, that it will be in such amounts and on the terms that will be
satisfactory to Look Models.
There was no independent valuation of our shares. Thus, the price of our
shares of our common stock we are offering by this prospectus may bear little or
no relation to their actual value.
- --------------------------------------------------------------------------------
The price of our shares was determined in good faith by our board of
directors. We have not obtained either an appraisal of our securities or an
opinion that the price of our securities is fair from a financial perspective.
Thus, the price of our securities may not necessarily bear any relationship to
our asset value, net worth or other established criteria of value and may not be
considered indicative of the actual value of Look Models.
6
The following are estimated expenses, incurred in connection with this
registration statement, which are payable by Look Models and will be recouped
out of the proceeds of this offering:
Securities and Exchange Commission Registration Fee....... $ 2,710
Legal Fees.................................................. $100,000
Accounting Fees............................................ $110,000
Edgarization, Printing and Engraving........................ $ 20,000
Miscellaneous............................................... $ 14,500
Transfer Agent Fees......................................... $ 2,500
--------
TOTAL....................................................... $249,710
DILUTION
The difference between the initial public offering price per share of
common stock and the net tangible book value per share after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share of common stock is determined by dividing our net tangible book value,
which is total tangible assets less total liabilities, by the number of shares
of common stock outstanding.
As of March 31, 2003, our net tangible book value (deficit) was
$(3,328,221) or ($0.27) per share of common stock. Net tangible book value
represents the amount of our total assets, less any intangible assets and total
liabilities. Assuming sale of all 3,000,000 shares pursuant to this offering,
net tangible book value (deficit) per share will be $(0.04). The result will be
an immediate increase in pro forma net tangible book value (deficit) of $0.23
per share to our present shareholders and an immediate decrease of $1.04 per
share to the public investors on a post-offering basis assuming 3,000,000 shares
of our common stock are sold pursuant to this offering.
7
The following table illustrates this dilution:
100% 75% 50% 25% 16 2/3%
---- ----- ----- ----- --------
Public offering
price per share $ 1.00 $ 1.00 $ 1.00 $1.00 $1.00
Net tangible book
value per share $(0.27) $(0.27) $(0.27) $(0.27) $(0.27)
before the offering
Increase per share
attributable
to new investors $ 0.23 $ 0.18 $ 0.12 $ 0.06 $0.03
Pro forma net tangible
book value
per share after
the offering $(0.04) $(0.09) $(0.15) $(0.21) $(0.24)
Dilution per share to
new investors $ 1.04 $ 1.09 $1.15 $ 1.21 $ 1.24
PLAN OF DISTRIBUTION
Conduct of this offering
------------------------
This is a best efforts, self-underwritten offering of 3,000,000 units. Each
unit is comprised of one share of common stock, one class A warrant and one
class B warrant. The common stock and warrants are immediately separable upon
issuance of the units. We will accept subscriptions, in our sole discretion, on
a first come, first served basis. We will not pay any compensation to any person
for the offer and sale of the units. There is no minimum offering amount that we
must raise in order to continue with this offering.
Wolfgang Schwarz, our president and treasurer, shall conduct this unit
offering. He plans to distribute prospectuses related to this offering. We
estimate that we will distribute approximately 200 prospectuses to
acquaintances, friends and business associates.
As of the date of this prospectus, we have not retained a broker for the
sale of securities being offered. In the event we retain a broker we will file a
post-effective amendment to our registration statement. Mr. R. Scott Barter
acted as a finder in the acquisition of Look Models by Kingsgate. He had no
material relationship with Kingsgate, its officers, directors or affiliates at
the time of this transaction. He was awarded 125,000 shares of Kingsgate's
common stock. While Mr. Barter acted as a finder for the company, he has no
other relationship with Look Models, its officers, directors or affiliates.
8
The Penny Stock Rules Could Make Selling Our Securities More Difficult.
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The Securities Enforcement and Penny Stock Reform Act of 1990 applies to
stock characterized as "penny stocks," and requires additional disclosure
relating to the market for penny stocks in connection with trades in any stock
defined as a penny stock. The Securities and Exchange Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
The exceptions include exchange-listed equity securities and any equity Security
issued by an issuer that has:
o Net tangible assets of at least $2,000,000, if the issuer has been in
continuous operation for at least three years;
o Net tangible assets of at least $5,000,000, if the issuer has been in
continuous operation for less than three years; or
o Average annual revenue of at least $6,000,000, for the last three years.
Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the associated risks.
Until such time as the market price of our common stock increases to, and
stays above $5.00, or we are able to meet the above tests and, trading in our
common stock will be covered by Rules 15g-1 through 15g-6 and 15g-9 promulgated
under the Securities Exchange Act. Under those rules, broker-dealers who
recommend such securities to persons other than their established customers and
institutional accredited investors must make a special written suitability
determination for the purchaser and must have received the purchaser's written
agreement to a transaction prior to sale. These regulations would likely limit
the ability of broker-dealers to trade in our common stock and thus would make
it more difficult for purchasers of common stock to sell their securities in the
secondary market. The market liquidity for the common stock could be severely
affected.
Method of subscribing
---------------------
Persons may subscribe for units by filling in and signing the subscription
agreement and delivering it to us prior to the expiration date. Subscribers must
pay $1.00 per unit by check, bank draft or postal express money order payable in
United States dollars to "Kingsgate Acquisitions, Inc." You may not pay in cash.
This is a self-underwritten offering made on a best efforts basis.
Our officers, directors, current stockholder and any of their affiliates or
associates may purchase up to 50% of the units. Units purchased by our officers,
directors and principal stockholder will be acquired for investment purposes and
not with a view toward distribution.
Expiration date
The offering will end the earlier of the receipt of subscriptions for
3,000,000 units or one year from the effective date of the prospectus, unless we
decide in our sole discretion to extend this offering for an additional one year
period.
9
USE OF PROCEEDS
The gross proceeds of this offering if fully subscribed will be $3,000,000.
In this case, proceeds will be used as follows:
In the event $3,000,000 is raised pursuant to this offering, proceeds will
be used as follows:
Amount Percentage
of the offering of net proceeds
-------------- ---------------
Offering expenses $ 250,000 8.33%
Internet Related Marketing
Including Web design updates $ 150,000 5.00%
Marketing of New Products
Designed and Developed $ 300,000 10.00%
Marketing to Acquire and
Place Models and
Build Brand Awareness* $ 575,000 19.17%
Partial Extinguishment of
Short-Term Bank Borrowings $ 500,000 16.67%
Product Design and Development** $1,000,000 33.33%
Salary for Chief Financial Officer* $ 100,000 3.33%
Finance the ongoing operating
Expenses in Prague and
Bratislava and other working
capital needs $ 125,000 4.17%
---------- -------
Total $3,000,000 100.00%
10
In the event $2,250,000 is raised pursuant to this offering, proceeds will
be used as follows:
Amount Percentage
of the offering of net proceeds
--------------- ----------------
Offering expenses $ 250,000 11.11%
Internet Related Marketing
Including Web design updates $ 150,000 6.67%
Marketing of New Products
Designed and Developed $ 200,000 8.89%
Marketing to Acquire and
Place Models and
Build Brand Awareness* $ 425,000 18.89%
Partial Extinguishment of
Short-Term Bank Borrowings $ 500,000 22.22%
Product Design and Development** $ 500,000 22.22%
Salary for Chief Financial Officer***$ 100,000 4.44%
Finance the ongoing operating
Expenses in Prague and
Bratislava and other working
capital needs $ 125,000 5.56%
---------- -------
Total $2,250,000 100.00%
In the event $1,500,000 is raised pursuant to this offering, proceeds will
be used as follows:
Amount Percentage
of the offering of net proceeds
-------------- -----------------
Offering expenses $ 250,000 16.67%
Internet Related Marketing
Including Web design updates $ 50,000 3.33%
Marketing of New Products
Designed and Developed $ 100,000 6.67%
Marketing to Acquire and
Place Models and
Build Brand Awareness* $ 175,000 11.67%
Partial Extinguishment of
Short-Term Bank Borrowings $ 500,000 33.33%
Product Design and Development** $ 200,000 13.33%
Salary for Chief Financial Officer*** $ 100,000 6.67%
Finance the ongoing operating
Expenses in Prague and
Bratislava and other working
capital needs $ 125,000 8.33%
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Total $1,500,000 100.00%
11
In the event $500,000 is raised pursuant to this offering, proceeds will be
used as follows:
Amount Percentage
of the offering of net proceeds
-------------- -----------------
Offering expenses $250,000 50%
Marketing $100,000 20%
Product Design and Development** $125,000 25%
Working capital $ 25,000 5%
Total $500,000 100%
In the event $250,000 is raised pursuant to this offering, proceeds will be
used as follows:
Amount Percentage
of the offering of net proceeds
--------------- ----------------------
Offering expenses $250,000 100%
Total $250,000 100%
If less than $250,000 is raised in this offering, we shall apply this
figure towards offering expenses.
* In the event our company is able to raise funds and re-open negotiations
with Munich Models, these funds would be directed towards the costs
associated with the acquisition and integration costs of this agency. These
costs would consist of legal and accounting fees as well as the fees
associated with dual office consolidation, staffing fees and marketing and
promotional fees.
** Product Design and Development Expenses consist of the following: selection
of new fragrances; design of packaging, both package shape, materials used
and label artwork for our perfume and body care lines; design of our
accessory line including back packs, jackets, tee-shirts, hats, lingerie,
bathing suits; development of other items in our accessory line.
*** On May 26, 2003, Look Models retained Andreas Seiser as Chief Financial
Officer and Treasurer. Currently, Mr. Seiser has agreed to work without pay
until after the effective date of this offering and after such time as we
have had an opportunity to complete fundraising activities. Thereafter, we
will use these funds to pay his salary. This is a verbal commitment. Mr.
Seiser does not have a written contract with Look Models.
BUSINESS
Forward-looking Statements
--------------------------
Certain statements contained under this caption and elsewhere in this
prospectus 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 earnings 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.
12
History of our company
----------------------
We were organized on September 28, 1999 as a blank check company, which is
essentially a vehicle to pursue a business combination. We offered our
securities to the public pursuant to Rule 419 and closed our offering, raising
proceeds of $100,000 on July 27, 2000. After we closed our offering, we located
Sky E-Com, a company our management believed to be a suitable acquisition
target, entered into an agreement to acquire it and filed a post-effective
registration statement documenting the transaction. However, after receiving
comment from the Securities and Exchange Commission that Sky E-Com was an
unsuitable target as it might not be considered to be an operating business, we
terminated the transaction. After this transaction was terminated, our officers
and directors continued their search for an acquisition candidate. In early July
2001, we learned of an international modeling agency that was seeking to be a
public company. Negotiations were commenced and an initial securities purchase
agreement between the parties was signed on July 25, 2001. None of our officers
or directors had any preliminary contact or discussions with any representative
of Look Models regarding a business combination until subsequent to the close of
our offering.
Rule 419 required that we complete an acquisition within eighteen months of
the effective date of our registration statement. As we were unable to complete
an acquisition within this time frame, we were required to refund the balance of
our escrow account to our investors. In accordance with Rule 419, we utilized
10% of the proceeds of our offering ($10,000) for expenses relating to updating
our financial statements, and preparing our first post-effective amendment.
Pursuant to our escrow agreement with Chittenden Bank, we advised Chittenden to
refund the balance of our escrow agent to our investors, and Chittenden Bank has
advised us that it did so on March 20, 2002. We deregistered our company on
September 6, 2002. We completed our acquisition of Look Models on September 6,
2002, prior to the submission of this registration statement. Our acquisition
provided the following:
o All issued and outstanding shares of common stock of Look Models were
exchanged for an aggregate of 10,500,000 of our shares of common stock, in
proportion to the holdings of the Look Models stockholders. In addition,
our founding stockholders transferred to Wolfgang Schwarz, 1,000,000 of
their shares. The former stockholders of Look Models now own 11,500,000
shares of our common stock representing 92% of the combined entity.
o Our founders transferred a portion of their shares to the following parties
in consideration of various services. R. Scott Barter acted as a finder for
this transaction. The founders have transfered 125,000 shares of their
founders' stock to him. Jack Rubinstein acted as a finder for this
transaction and will act as advisor to the company in respect to locating
key executives and strategic alliances as well as in the provision of
product marketing advice. The founders have transfered 125,000 shares of
their founders' stock to him. Mr. Richard Cohen acted as a finder for this
transaction and will act as an advisor to the company in connection with
the management and marketing expertise gained from his business experience,
including but not limited to his service as the former president of General
Media, Inc. The founders have transfered 125,000 shares of their founders'
stock to him.
13
Description of the Business of Look Models International, Inc.
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Business Development:
---------------------
In 1986, Mr. Wolfgang Schwarz, president, chief executive officer and
chairman of the board of Look Models International, Inc. and its subsidiaries,
formed an Austrian company under the name Wolfgang Schwarz Sport- und
Kultwveranstaltungen GmbH, Vienna. This company later changed its name to Look
Eventmanagement GmbH, and is now a wholly owned subsidiary of Look Models
International. In 1986, the company started the Look of the Year contest in
Austria and Hungary, and achieved considerable success with that concept. In
1989, Mr. Schwarz and John Casablancas of the Elite Modeling Agency in New York,
one of the leading model agencies in the world, agreed to develop the Look of
the Year contest in 18 countries in Central and Eastern Europe. This Eastern
European venture with Elite Modeling Agency ended on good terms in 1999.
From 1994 to the present, Mr. Schwarz has built Look Models into a European
contest platform and modeling agency, while continuing to discover and promote
new faces. He has helped discover top models like Teresa Maxova, Nina Moric,
Svetlana, Tatjana Dragovic, Natasa Vojnovic, Kristina Chrastekova, Viera
Shottertova and others, and has launched the careers of many others. Look Models
currently represents high profile models, such as Naomi Campbell, Linda
Evangelista, Karolina Kurkova and Viera Shottertova, Ana Beatriz in Europe, as
well as many rising stars. Mr. Schwarz has formed several affiliated companies
through which he operates the following businesses:
o a modeling agency
o a talent scout and talent development business,
o a promotional event management and event licensing business, and
o a product development and distribution business.
The corporate structure of Kingsgate Acquisitions, Inc. (successor to Look
Models International, Inc.) and its affiliates is as follows:
------------------------------------------
Kingsgate Acquisitions, Inc.
Delaware, USA
-----------------------------------------
100%
Look Models International, Inc
Delaware, US
100%
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Fordash Holdings Ltd
Bahamas
100%
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Look Eventmanagement GmbH
Vienna, Austria
-----------------------------------------
100% 100%
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Look Model Management GmbH Look Model Management spol sro
Vienna, Austria Prague, Czech Republic
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14
Look Models International, Inc. is a holding company that was organized
under the laws of the State of Delaware on June 12, 2000. On September 26, 2000,
Look Models acquired all the issued and outstanding stock of Fordash Holdings
Ltd., a Bahamian holding company organized in July 1999 and 100% owner of all
Look Models affiliates. As originally intended, Mr. Schwarz wanted an equity
partner who would share in the company's operations, fund-raising and
management. Mr. Schwarz anticipated that Look Models would be used as the
vehicle to accomplish this goal, that the interests would be divided up and that
as a bonus, Mr. Schwarz through Fordash would receive an equity distribution of
one million dollars. This transaction was terminated and Mr. Schwarz
extinguished the $1,000,000 payable having determined that it was not in the
best interest of the company to take a distribution at that time. Instead, the
transfer was treated as a recapitalization, as the shareholders of Look Models
acquired all the stock of Fordash. In addition, Mr. Schwarz determined that a
Delaware holding company would be a good vehicle through which to enter the U.S.
equity marketplace. On September 6, 2002, Look Models became our wholly owned
subsidiary.
The remaining elements of the Look Models' family of companies are as
follows: Fordash owns all the issued and outstanding stock of Look
Eventmanagement GmbH, an Austrian company organized in 1986 under the name
Wolfgang Schwarz Sport- und Kultwveranstaltungen GmbH, Vienna. Look
Eventmanagement owns all the issued and outstanding stock of two companies, Look
Model Management GmbH, an Austrian company, 1975 and Look Model Management
spolsro, 1998 a Czech Republic company.
Operations of Look Models
- -------------------------
Look Models and its subsidiaries operate its business in three segments:
Event Management, Model Management and Product Development and Distribution.
Event Management:
-----------------
Look Eventmanagement GmbH operates an event management and model scouting
business. It sources new models and organizes model search and contest events.
While we have not secured any significant sponsorship contracts, our events have
been sponsored by a wide variety of companies, including hotels, manufacturers
and national airlines. Our events are attended by agents and industry
professionals in the hope of signing on new models. The selected models'
contracts are signed through Look Model Management. In addition to hosting these
events itself, Look Eventmanagement licenses to third parties the right to
operate these events, and obtains a license fee and continued royalties pursuant
to such licenses.
Prior to the year 2000, Look Eventmanagement and its predecessor company,
acted as a licensee of Elite Model Management. As a licensee, it organized
approximately 150 events in 27 countries in Central & Eastern Europe. It granted
sub-licenses to local organizers and generated sponsorships and license fees for
the years 1997, 1998 and 1999 as follows: In 1997, gross revenue from
sponsorships was $55,700 with net income to the Look Eventmanagement of $22,800.
In 1998, gross revenue from sponsorships was $125,700 with net income to the
Look Eventmanagement of $50,280 and gross revenue from license fees was $86,600
with net income to the Look Eventmanagement of $69,280. In 1999, gross Revenue
from sponsorships was $297,560 with net income to the Look Eventmanagement of
$119,024 and gross revenue from license fees was $155,600 with net income to the
Look Eventmanagement of $124,000.
15
Our license with Elite ended January 2000. Look decided to develop brand
awareness for the "Look" name, its products, and its business model.
Accordingly, Look, through Look Eventmanagement, launched a new event, "Look
Models Search" instead of "Elite Model Look". Look Eventmanagement organized
national and international model search and contest events. Initially, the
company funded the majority of these events itself, in order to enhance its
reputation and build its brand. Look Models intends to generate continued
revenue from these relationships by entering into licensing agreements and
sponsorship deals. Each license is limited as follows: (i) Geographic
limitations (by country), (ii) Number of events (one event per year) (iii)
Duration (one year with option for two more years) (iii) Adherence to strict
guidelines regarding quality in order to protect our image and the Look brand.
Such guidelines include: Look having the right to approve over each sponsor,
Look having the right to review and approve all advertising, use of Look logos
and adherence to Look guidelines for the proper attire for the model and way in
which the event is presented.
The licensing deals are promoted by word of mouth and are targeted towards
companies with expertise in event promotion. Look has entered into approximately
ten license agreements to date. The license is limited to a country and the term
of the license is one year. Licensees organize the model search and contest
events with the guidance and under the oversight of Look Eventmanagement. The
structure of a licensing deal is that Look Eventmanagement is paid an initial
licensing fee between $15,000 and $50,000 and retains a portion of the Revenue
generated from sponsors of the events. For the year 2000, we derived an
aggregate of $135,937 in event fees (12.63% of gross revenue), $113,952 was
generated through sponsorship fees and $21,985 through licensing fees. For the
year 2001, we derived an aggregate of $107,609 in event fees (8.81% of gross
revenue), $7,267 was generated through sponsorship fees and $100,342 through
licensing fees. For the year 2002, we derived an aggregate of $41,056 in event
fees (5.79%), $38,969 was generated through sponsorship fees and $2,086 through
licensing fees. Look has not generated any license fees during the three months
ended March 31, 2003.
The role of the sponsor is to finance the event. The sponsors finance these
events in order to gain media attention and consumer support. They gain
advertising space, are included in a promotional package prepared for the event
and gain Internet coverage on the Look website. Typical terms of a contract with
a sponsor would state that the sponsor would provide financing for the event.
Generally, there are tiers of sponsorship, ranging from 40% to 100% of the cost
of the event from prominent sponsors, down to much lesser amounts from smaller
sponsors. Print space, as well as Television and Internet coverage and air-time
granted is allocated in accordance with amount paid by the sponsor. Local events
range in cost from $100,000 to $150,000. The International Final costs between
$350,000 and $500,000. The financing from the international sponsorships is paid
directly to Look Eventmanagement. Upon receipt, we pay over 50 to 70 % of this
amount to the licensee. We retain the remainder as our income. The financing
from local (the country of the event) is paid directly to the licensee. Look
Eventmanagement is paid a commission of between 10 and 30% of the total amount.
16
In the event marketing, licensing and sponsorship businesses, Look Models
targets companies with expertise in event marketing, and is focusing its efforts
to sign up licensees in major European markets. In 2002, Look Models through
Look Eventmanagement targeted several countries in which it has already
developed strategic licensing relationships, including Slovakia, Czech Republic,
Hungary, Turkey, Portugal, Poland, Ukraine, Luxemburg, Romania and the Baltic
nations. While Look Models has secured no significant license agreements, it has
developed small licensee relationships in each of these countries. Look Models
also intends to solicit franchises in these countries for the Look and Catwalk
branded products. In addition, the event management company is designing a new,
worldwide Internet oriented model contest in order to further generate revenues
through licenses and sponsorship fees. The purpose of the Internet oriented
model contest is to be a virtual scout for Look Models. Management of Look
Models believes that a worldwide Internet oriented model contest will open up a
worldwide venue for its search for modeling talent. A young model in any far off
country will be able to scan a picture of herself onto the Look Models web-site
and be included in our model contest. In addition to the model gaining access to
a professional search event without incurring the expense of travel, we believe
sponsors will look upon this as a worldwide venue for their advertising
promotions.
The model search and contest process also provides Look Models with a
steady stream of young models that join its portfolio of faces for future
placement. We believe our core markets of eastern and central Europe are
currently the biggest sources for new modelling talent. Our belief is evidenced
by current trends such as the current VH-1 model of the year Karolina Kurkova
from Czech Republic as featured by American Vogue and as currently represented
by our company in Europe. In addition top designers like Chanel, Louis Vuitton,
Nina Ricci, Gucci and Prada have all chosen Eastern European models for their
campaigns.
Model Management:
-----------------
Look Model Management GmbH ("Look Model Management") operates a model
agency in Austria, and through offices leased by Event Management, it operates
model agencies in Slovakia. Look Model Management spol sro operates a model
agency in the Czech Republic ("LMM Czech"). These Companies, like the rest of
the industry, contract with models and place them at other agencies around the
world as well as directly with clients, such as public relations firms,
cosmetics and clothing companies, fashion event organizers, consumer goods
companies, the media, airlines, and so forth. Examples of other agencies with
which Look Model Management has contracts and has placed models include:
Wilhelmina, Ford, IMG, Vision and Elite. Examples of clients which with Look
Models Management has contracted for the direct placement of models are Nina
Ricci Paris, Chanel, Mango, Grey Worldwide, Unilever and P&G.
The revenue that Look generates from its model agencies generally mirrors
the following formula, which is industry standard. Look, like other model
agencies, books models in two different ways. It can book the model directly
with a client. In this case Look earns between 40 and 45 % commission, 20 to 25%
of the modeling fee from the model and 20% of such fee from the client. Look`s
models can also be booked through another agency. Where Look's models are booked
through other agencies, the two agencies enter into a commission agreement.
Examples of agencies with which Look Model Management has commission agreements
according to the following terms include: Wilhelmina, Ford, IMG, Vision and
Elite. Pursuant to these commission agreements, the two agencies share fees as
follows: for local bookings (meaning the locality where the other agency
exists), Look receives a commission of 10 % from the model's gross fee and the
other agency receives a commission of 30% of the model's gross fee. Where there
is an international campaign, such as a worldwide advertising campaign for a
fashion designer or internationally recognized brand such as Levis, the
commissions is split between. The fee paid to us pursuant to the commission
agreement is called the mother agency fee.
17
For the year 2000, we derived an aggregate of $860,849 in model bookings
$409.438 of which were our commission fees. $752,352 (87.4%) of these bookings
(300,940) (73.5%) of our commission fees) was generated through the placement of
models directly with clients and $108,497 (12.6%) of these bookings (108,497
(26.50%) of our commissions) was generated through commission agreements with
other agencies. For the year 2001, we derived an aggregate of $443,848 in model
bookings $273,250 of which were our commission fees. $284,329 (64.06%) of these
bookings (113,731 (41.62%) of our commission fees) was generated through the
placement of models directly with clients and $159,519 (35.94%) of these
bookings (159,519 (58.38%) of our commissions) was generated through commission
agreements with other agencies. For the year ended December 31, 2002, we derived
an aggregate of $ 582,401 in bookings, $ 329,639 of which being our commission
fees, $ 443,545 (76.16%) in bookings ($ 190,783 (57.87%) in our commission fees)
was generated through the placement of models directly with clients and $138,856
(23.84%) ($ 138,856 (42.12%) in our commission fees) was generated through
commission agreements with other agencies. For the three months ended March 31,
2003, we derived an aggregate of $100,350 in model bookings $36,042 (36%)
through direct bookings and $64,308 (64%) through commission agreements with
other agencies.
Currently, Look Models through Look Model Management and LMM Czech, LMM
Bratislava, LMM Belgrade and its franchisee Mango Models Warsaw has contracted
with approximately 350 models worldwide, which it books directly through all the
Look branches and places them worldwide through other agencies pursuant to
commission sharing arrangements. The amount of revenues generated by business
from Austria was $912,541 in 2000 (75% of total revenue), $466,141 in 2001 (43%
of total revenue), $242,914 in 2002 (21% of total revenue) and $146,388 (42% of
total revenue) for the three months ended March 31, 2003. The rest was
international income. Look Models currently represents high profile models,
among others , such as Naomi Campbell, Linda Evangelista, Karolina Kurkova, Ana
Beatriz, Isabeli, Viera, Natasa Vojnovic in Eastern and Central Europe,
including Austria, Slovakia, Hungary, Czech Republic, Poland, Germany,
Yugoslavia. LMM has booked Ms. Campbell's services approximately five times. LMM
has booked Ms. Claudia Schiffer services's approximately four times and Ms.
Evangilista's services approximately three times. Generally, Look Models through
Look Model Management have derived an approximate aggregate of 20% of their
total revenue from bookings of the high profile models. Although no assurance
can be given, Look expects to continue to offer services to such high profile,
established models. However, Look Models' strategy, through Look Model
Management is to invest in the future of young models in the hope that it will
benefit when these models develop in their careers. Until today Look founded and
built the careers of young top models like: Kristina Chrastekova, Anna Tokarska,
Viera Schottertova, Petra Kvapilova, Alzbieta Syrovatkova, Barbara Temova and
many others. However, no assurance can be given that Look Models will ever
receive a return on its investment in a significant number of its models due to
a variety of factors. Some factors include changing consumer tastes, personal
difficulties of the models, emotional inability to perform in the modeling
world, lack of modeling assignments, economic downturns and more affordable
replacements for models.
Look Models has constructed what it believes to be the first Internet
portal with a copyrighted proprietary software that enables worldwide bookings
online. The website has been operational since July 2002. Look Models utilizes
the booking portal as an additional avenue to find new talent and as a way to
book this talent with all its traditional clients. Look Models has digitized
photographs, biographies and booking calendars for its modeling talent. Other
modeling agencies as well as direct clients can apply for a code that will
enable them to gain access to the models' files. The potential clients will be
able to select a model, access her calendar and directly book the model's
services through her online calendar. Time and money associated with travel,
scheduling and meetings can be thereby greatly reduced. Look Models believes
that the savings of time and money as well as the convenience of online booking
will provide increased bookings and thereby increased revenues for Look Models.
The web-site is located at www.link2look.com. Look Models intends to use its
portal web-site aggressively and, while no assurance can be given, believes,
based on cost and time savings, that this global booking structure is the future
of the business. Clients have already taken advantage of utilizing Look Models'
new software such as Nina Ricci, Paris, Grey Worldwide, TRIUMPH international,
Chanel, many mail order companies and the major fashion magazines, such as
Vogue, Elle, Glamour and Marie Claire. In 2002, 76.16% ($ 443,545) of the
overall Model Management's revenue ($ 582,401) resulted from international
bookings. For the three months ended March 31, 2003, 64% ($64,308) of the
overall Model Management's revenue ($100,350) resulted from international
bookings. The software allows the Company to enhance model movement activities
and to create demand in those markets where the software permits the direct
booking of models. Although we are just beginning to utilize our software, model
management revenues increased by more than 55% in 2002 compared to 2001. For the
three months ended March 31, 2003, model management revenues were $100,350
compared to $106,032 for the three months ended March 31, 2002, a 5% decrease.
Management does not view this decrease as significant.
18
In addition, part of Look Models' business plan is to form, acquire and/or
develop strategic relationships with other model agencies in the world's top
markets. This strategy involves seeking out other model agencies with solid
organizations and good reputations that enable them to place models with top
commercial clients. In November 2002, Mr. Schwarz executed a contract to acquire
Munich Models GmbH, a privately owned German model agency. This contract was
subsequently terminated by the parties because Look Models did not have the
finances to complete the acquisition. Look Models still continues to do business
with Munich Models Gmbh and considers its relationship with Munich Models to be
a good one. The letter of termination from Munich Models did not address the
possibility of entering into a merger agreement at a later time. In the event
our company is able to raise funds and re-open negotiations with Munich Models,
we would like to use proceeds from this offering for the costs associated with
the acquisition and integration costs of this agency. We are not currently
involved in a negotiation to acquire any other agency.
It is already standard in the industry to form affiliations with other
model agencies pursuant to commission agreements. We will continue to develop
these affiliations as well as attempt to acquire certain agencies where there
are strong synergies between the parties and we believe it to be an economically
sound move. While Look Models is not currently in negotiation to acquire any
agency, Look Models anticipates that additional acquisitions could be made
through an exchange of stock with the target, or if funds are required, such
funds would come out of revenue or working capital, if available, or could be
raised through subsequent offerings. These relationships would allow Look Models
to place its local talent at larger international agencies, and potentially
increase its Revenue revenue generation. Look Models believes that combined with
its Internet booking services, such strategic relationships will give it an
increased share of the global marketplace. The Internet booking services have
been operational since July 2002 and allows our models worldwide to exchange
information with partner agencies.
Licensing.
----------
Look Models licensed the use of its name to a restaurant, known as the
"Look Bar" from which it derived an annual license fee in the amount of $7,267.
While the fee was subject to increase in successive years, Look terminated this
license on October 10, 2002 as the Look Bar was not promoting the image Look
wants to project. However, Look will seek other similar relationships. Look
intends to seek other suitable licensees of Look Bars. In addition to filing
trademark applications to extend its trademark protection to the name "Look
Bar". Look Models intends to further protect the use of its name and image
through a License Agreements.
Product Design and Distribution:
--------------------------------
Look Models is currently designing a line of cosmetic products, lingerie
and accessories under the brand names "Look" and "Catwalk" aimed at the young
female market worldwide. Look Models works with Uli Petzold, an internationally
renowned designer who is a director of Look Models, in the creation of these
products. Look Models has applied much of its 1999, 2000, 2001 and 2002 revenues
to finance its product line and web site development, as management believes
this is a good investment in future revenue production. Look Models has already
begun distribution of perfume, eau de toilette, body milk, body splash and
perfume towelettes and has produced 35,000 units of the fragrance and cream
products, and 500,000 promotional perfume towelettes. The manufacture of the
products we select and design is outsourced. Our cosmetic and fragrance products
are currently being distributed on a non-exclusive basis in Austria on a
non-exclusive basis by Douglas Parfumerie, a purveyor of fragrances and
cosmetics that has approximately 800 locations in Europe, and one store in the
US, located at Grand Central Station in New York. To date, our non-exclusive
distribution arrangement with Douglas Parfumerie is limited to Austria until
such time as we authorize otherwise. We distribute our products in Czech
Republic and Slovakia through Fann, a.s. on a non-exclusive basis. Our
non-exclusive contract with both Douglas Parfumerie and Fan provide the
following: We have approval rights over their methods of distribution and
presentation of our product. The contract has an indefinite term subject to a
right of termination by either party upon 90 days written notice. Both companies
charge industry standard mark-ups on our products.
Look Models has negotiated a deal with Coty Beauty, a division of Coty, to
develop a fragrance line under the Pret-a-Porter brand. The parties are
currently drawing up a written license agreement. Look Models has received a
letter dated March 28, 2003, from Massimillano Ferari, Marketing Director of
Coty Beauty confirming Coty's intent to finalize their agreement with Look
Models.
19
On November 15, 2001, Look Models entered into a five year, renewable
International Production and Distribution Agreement with Dialpack, Inc., a
German corporation, pursuant to which it has obtained, among other things, the
worldwide right to promote and distribute a patented cosmetics dispenser under
our Look Models and Catwalk labels. The product is a two cartridge dispenser
that can adjust the amount of filler dispensed from each cartridge with the turn
of a dial. Look Models intends to distribute a line of sunscreen products in
this dispenser that can deliver any range of sun protection factor (SPF) by
dialing the front of the container. It also anticipates distributing a
foundation makeup that can range in shade according to a turn of the dial.
Pursuant to the agreement, Look Models will also act as Dialpack's exclusive
distributor in Eastern Europe for all uses of the product and in the rest of the
world for model-related uses and for products under the Catwalk label. The
agreement contains a right of first refusal on behalf of Look Models, such that
in the event that Dialpack receives an offer to sell or determines to sell its
company, the product line or the patents underlying the product line, then Look
Models shall have the right of purchase at the same price and terms as has been
offered to Dialpack. The agreement between Look Models and Dialpack can be
terminated in the event a party is declared bankrupt, is subject to liquidation
or dissolution. The agreement is terminable by Look Models if Dialpack
distributes a similar product into the Look Models' market and Look Models is
protected by a non-circumvention clause. The agreement is terminable by Dialpack
if Look Models fails to promote the product, fails to sell agreed to minimum
quantities of the product or promotes or distributes the product in certain
territories under non-model-related labels or labels other than Catwalk. Failure
to reach minimum purchase requirements of 300,000 units will result in
termination of the agreement. Look has purchased 200,000 units and was required
to purchase an additional 100,000 prior to the end of 2002 in order to reach its
minimum purchase requirement. Look has not purchased this last 100,000 units as
a result of negotiations a dispute between Dialpack and Look Models regarding
the non-circumvention and termination clauses in the contract and the purchase
requirements by Models Prefer as discussed below. Look has alleged that Dialpack
has breached its non-circumvention clause. Dialpack has not yet but may
terminate the contract as a result of Look Models refusal to purchase the
minimum purchase requirement. The parties are currently in discussion about
potential breaches. No formal legal action has yet to be commenced by either
party. Look Models is currently considering its legal remedies but has not yet
decided on its course of action. As fees generated under this agreement are not
guaranteed, they and may be significantly less if the minimum purchase
requirements are not met.
As a result of the agreement with Dialpack, on December 5, 2001 Look Models
entered into a three-year Product Distribution Agreement with Models Prefer,
Inc., a Connecticut corporation. Look Models and Models Prefer are not
affiliated. Under this agreement, Look has granted exclusive North American
distribution rights for the distribution of a moisturizing make up, or other
such products, in the Dialpack dispenser so long as it meets pre-set milestones.
The agreement grants distribution rights in the United Kingdom as well, but only
with respect to sales made through QVC. Models Prefer anticipates marketing its
products over televised distribution channels, such as QVC. In addition, the
agreement provides minimum purchase requirements on the part of Models Prefer to
maintain distribution rights as well as pre-set purchase milestones in order to
maintain exclusivity. Models Prefer's failure to reach minimum purchase
requirements may result in termination of the agreement. Thus, fees generated
under this agreement are not guaranteed and may be significantly less if the
minimum purchase requirements are not met. The minimum purchase requirement for
year one (December 1, 2001 to November 30, 2002) was two hundred thousand
(200,000) units, which was met. We began distribution and delivered the Dialpack
product to Models Prefer, which resulted in revenue of $550,000. The minimum
purchase requirement increased in year two (December 1, 2002 to November 30,
2003) to three hundred thousand (300,000) units, which would result in revenue
of $900,000. According to the contract between the parties, by December 1, 2002,
Models Prefer was required to purchase one hundred fifty thousand (150,000)
Units, which would result in revenue of $450,000. This requirement has not been
met. Although the contract is still in force, Models Prefer has notified Look
Models that it will not be purchasing additional products in the immediate
20
future. The parties are currently in discussion about potential breaches. Look
Models is seeking to ensure that the non-circumvention provision of its contract
with Models Prefer has not been breached. No formal legal action has yet to be
commenced by either party. Look Models is currently considering its legal
remedies but has not yet decided on its course of action. The minimum purchase
requirement increases in year three (December 1, 2003 to November 30, 2004) to
four hundred thousand (400,000) units, which would result in revenue of
$1,200,000. The requirement to maintain exclusivity for year one is the purchase
of four hundred thousand (400,000) units by July 1, 2002, which would result in
revenue of $1,200,000. The requirement to maintain exclusivity for year two is
the purchase of six hundred thousand (600,000) units by June 1, 2003, which
would result in revenue of $1,800,000. The exclusivity purchase requirement for
year three is the purchase of eight hundred thousand (800,000) units, which
would result in revenue of $2,400,000. The agreement also contains a
non-circumvention provision on the part of Look Models prohibiting it from
having dealings with any vendor, producer, supplier and/or distributor of the
dispenser.
The company also intends to build value in its brand names so that it can
license its brand name to other manufacturing and distribution companies. Look
Models may form a wholly owned subsidiary to conduct these operations.
Distribution methods of the products or services
- ------------------------------------------------
Through Look Eventmanagement, a scouting network is utilized to source and
contract with the models. Look Eventmanagement's employee's and independent
contractors travel to various events to find new models. They call, write and
meet with various companies to sponsor these events and to license the right to
hold Look Model contests.
Look Models presently distributes its cosmetic products through Douglas
Parfumerie and FANN. It will seek the services of other distributors as well as
use its in-house staff and its president to market its products to large
cosmetic companies, department stores and catalogue companies.
Look Models has negotiated a deal with Coty Beauty, a division of Coty, to
develop a fragrance line under the Pret-a-Porter brand. The parties are
currently drawing up a written license agreement. Look Models has received a
letter dated March 28, 2003, from Massimillano Ferari, Marketing Director of
Coty Beauty confirming Coty's intent to finalize their agreement with Look
Models.
Look Modelmanagement booking agents use phone, fax, in person meetings and
the Internet to place models with other agencies as well as directly with
clients.
Look Models also anticipates utilizing its web-site as a distribution tool
to market is products as well as place its models.
Look Models also intends to build value in its brand names in order to
build sales and attract sponsors and licensees. Its model contests have been
televised in many countries such as Poland, Germany, Romania, Czech Republic,
Slovakia, Serbia, Portugal, Austria, Hungary and many others. The international
final for 2000 took place in Vienna, Austria and for 2001, in Istanbul, Turkey.
Our 2002 final took place in Prague, Czech Republic. We are planning additional
events contemplating "fashion days" that will focus on local and international
designers and will culminate in a world-wide event.
21
Competition
-----------
Event and Model Management:
---------------------------
Both our event management and model management sectors are dependent upon
the modeling business. The modeling business is highly competitive, globalized
and fragmented, and is also subject to changing demands and preferences. In the
modeling industry, there is a low capital requirement to begin operations, and
consequently Look Models has estimated that there are over twelve thousand
(12,000) modeling agencies worldwide. There is a high cost to the clients for
use of models, and the fixed costs tend to be uniform worldwide. There is often
little loyalty between models and agencies, and reputation and local connections
are some of the key factors that distinguish agencies. There is no barrier to
the over twelve thousand modeling agencies worldwide to enter into event
promotion as a way to find new talent and to generate different sources of
revenue.
In the case of Look Eventmanagement, our competitors in modeling
competitions are Ford, Elite and Metropolitan.
Look Modelmanagement is a small player in the direct placement of modeling
talent. However, we believe that our Internet booking portal will expand our
capabilities in different marketplace. In addition, while Look is a competitor
in the modeling business, it is also a supplier.
Product Design and Distribution:
--------------------------------
We face intense competition with respect to marketing our own brand of
fragrance, cosmetic items and health and beauty aid products. We compete with
major health and beauty aid companies, as well as fragrance and cosmetic
companies who have well-established product lines, spend large sums for
advertising and marketing and have far greater financial and other resources
than we do. We also compete with these companies for shelf space and product
placement in various retail outlets. The distribution of health and beauty aid
products is also extremely competitive. We compete with pharmaceutical
wholesalers that carry health and beauty aid products, as an accommodation for
their customers. Many of these wholesalers have greater financial and other
resources than we do.
The apparel industry is highly competitive and fragmented, and is subject
to rapidly changing consumer demands and preferences. We believe that our
success will depend in large part upon our ability to anticipate, gauge and
respond to changing consumer demands and fashion trends in a timely manner and
upon the appeal to consumers of the Look and Catwalk brand image. We will
compete with numerous apparel manufacturers and distributors and several
well-known designers. Many of our competitors have greater financial resources
than we do. Although the level and nature of competition differ among our
product categories, we believe that we will compete on the basis of our brand
image, quality of design, workmanship and product assortment.
22
Sources and availability of raw materials
- -----------------------------------------
Look Models relies on its scouting network to source new faces and contract
with these models. Approximately 50% of our scouts are exclusive and 50% are
freelance. No scouts can sign contracts on behalf of Look Models or its
affiliates. Look Models negotiates fees separately with each of the scouts.
Generally, a scout will receive a 5% fee of the client bookings for a limited
period of time.
We source products through numerous suppliers. We seek to achieve the most
efficient means for timely delivery of our high quality products.
We design our own product lines with our creative director, Mr. Uli
Petzold. The products we design include our clothing and accessory line as well
as the packaging for all of our cosmetics products. We purchase our cosmetic and
fragrance products from foreign and domestic manufacturers and suppliers
selected by our creative director. Many of these companies also manufacture and
supply health and beauty aid products, fragrances and cosmetics for many of our
competitors. The products we distribute are manufactured by independent foreign
and domestic companies. We do not own any production equipment. We are presently
sourcing manufacturers of our clothing and accessory line. Manufacturers of
cosmetics and fragrances are subject to foreign and domestic regulation. We do
not manufacture cosmetics and fragrances ourselves and therefore do not require
governmental approval for their sale.
Patents, trademarks, licenses, franchises, concessions, royalty agreements or
labor contracts, including duration.
- --------------------------------------------------------------------------------
Look Models has filed a trademark application with the United States Patent
and Trademark Office for the mark "Look Models" in International Class 2003.
This application was filed on January 19, 2001, and has been assigned Serial
Number 76/199318. Look Models has also registered the mark "Look Models" in
Belgium, the Netherlands, Luxembourg, Bosnia and Herzegovina, Bulgaria, Croatia,
Czech Republic, France, Germany, Hungary, Italy, Latvia, Poland, Portugal,
Romania, Russian Federation, Slovakia, Slovenia, Spain, Switzerland, Yugoslavia,
Lithuania, and the United Kingdom, under the Madrid Agreement and the Madrid
Protocol. The mark is filed in International Classes 003, 35, 41 and 42. The
Registration Number is 739 473, and the date of the registration is May 2, 2000.
Accounting Treatment
--------------------
Although we are the parent corporation, for accounting purposes, our
acquisition of Look Models has been treated as the acquisition of us by Look
Models. This is known as a reverse acquisition and a recapitalization of Look
Models. Look Models is the acquirer for accounting purposes because the former
Look Models stockholders received the larger percentage of our common stock and
voting rights than our prior stockholders. The fiscal year has remained the same
as both our company and Look Models have the same fiscal year, December 31.
Employees
---------
Our subsidiary Look Models has twenty-three (23) total employees, of which
twenty (20) are full time employees and three (3) are freelance.
23
Properties
---------
We do not own any real estate. Look Models has a protected lease on its
offices in Vienna, Austria, pursuant to Austrian law. A protected lease means
that the tenant has an indefinite leasehold on these properties so long as the
lease payments are made. Under the agreement, if the Company continues to make
lease payments at the current amount, the lease cannot be terminated by the
landlord. The monthly rental including utilities is approximately $1,633 per
month. Additionally, it has a protected lease in Prague, Czech Republic,
pursuant to Czech law. The lease is signed for unlimited period of time. The
monthly rental, is $750 plus utilities. The company has the right to sublease
the premises. Look has a protected lease in Bratislava, Slovakia, pursuant to
Slovakian law. The lease is signed for unlimited period of time. The monthly
rental, is $1,400 plus utilities. The company has the right to sublease the
premises. Look Models previously rented office space in Belgrade, Yugoslavia but
has closed this office. Management has determined that maintaining office space
in Belgrade is unnecessary and that it can currently handle any Yugoslavian
business by phone or through business trips to the country. Management believes
that the closure of this office has no impact on the business of Look Models.
Look Models owns and leases sophisticated computer and graphic production
equipment for photo shoots, Internet activities, and events. It owns other
personal property and business furniture in its business premises.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read the following discussion and analysis as well as the
consolidated financial statements and their accompanying notes, included
elsewhere in this prospectus. This discussion and analysis is a presentation by
management of their financial condition and result of their operations, as our
company has assumed their business operations.
Certain statements contained under this caption and elsewhere in this
prospectus, 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.
24
Critical Accounting Policies and Estimates
- -------------------------------------------
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect our reported assets, liabilities, revenues
and expenses, and our related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those related to
revenue recognition, bad debts, intangible assets and income taxes.
We believe the following critical accounting policies and the related
judgments and estimates affect the preparation of our consolidated financial
statements.
We recognize revenue when it is earned and record accounts receivable at
that time. We do not account for revenue based on contractual arrangements in
advance of their being earned.
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required which
would result in an additional general and administrative expense in the period
such determination was made.
We do not have any of the following:
o Off-balance sheet arrangements.
o Certain trading activities that include non-exchange traded contracts
accounted for at fair value.
o Relationships and transactions with persons or entities that derive
benefits from any non-independent relationships other than related
party transactions discussed herein.
Foreign Exchange Issues
- -----------------------
Foreign currency translation:
- -----------------------------
The financial position and results of operations of Look Models' foreign
subsidiaries are measured using local currency as the functional currency. The
functional currency for most foreign operations is the Austrian Schilling, which
was replaced by the Euro in January 2002. Conversion to the Euro is not expected
to have an impact on Look Models' financial condition and results of operations.
Revenues and expenses of such subsidiaries have been translated into U.S.
dollars at average exchange rates prevailing during the period. Assets and
liabilities have been translated at the rate of exchange at the balance sheet
date. Translation gains and losses are included in other comprehensive income.
Aggregate foreign currency transaction gains and losses are included in the
results of operations as incurred.
25
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.)
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002 AND 2001
AND THREE MONTHS ENDED MARCH 31, 2003 AND 2002
December 31, December 31, March 31, March 31,
2002 2001 2003 2002
------------ ------------ ----------- -----------
Sales $ 1,146,849 $ 1,076,237 $ 347,487 $ 255,978
Cost of sales (784,900) (662,601) (178,409) (92,375)
------------- -------------- ------------ ------------
Gross profit 361,949 413,636 169,078 163,603
------------- -------------- ------------ ------------
Selling expenses (610,018) (430,375) (165,025) (157,715)
Administrative expenses (868,456) (1,648,951) (128,730) (183,555)
------------- -------------- ------------ ------------
(1,478,474) (2,079,326) (293,755) (341,270)
Loss from operations (1,116,525) (1,665,690) (124,677) (177,667)
------------- -------------- ------------ ------------
Interest expense (134,417) (55,826) (15,017) (19,883)
Other, net 36,389 (4,434) 2,548 (8,145)
------------- -------------- ------------ ------------
(98,028) (60,260) (12,469) (28,028)
------------- -------------- ------------ ------------
Net loss $ (1,214,553) $ (1,725,950) $ (137,146) $ (205,695)
============= ============== ============ ============
Net loss per share -
basic and diluted $ (0.10) $ (0.14) $ (0.01) $ (0.02)
============= ============== ============ ============
Weighted average shares of
common stock
outstanding 12,477,533 12,323,269 12,506,222 12,455,693
============= ============== ============ ============
26
Results of Operations
- ---------------------
2002 Compared with 2001
- -----------------------
For the year ended December 31, 2002, revenue increased from the year ended
December 31, 2001. Revenue for the year ended December 31, 2001 was $1,076,237,
and revenue for the year ended December 31, 2002 was $1,146,849 (a 6.6%
increase). Management believes that the increase can be attributed to the
globalization of its model mediating activities resulting in an increased number
of models Look Models has placed internationally and the ensuing increase in
mother agency fees. In 2002, 75% of the overall revenue resulted from
international bookings, compared to 5% in 2001. Management believes that its
models had an increased willingness to travel internationally after the post
September 11th fear of travel began to wane. Management also believes that the
increase can be attributed to cost cutting measures and more successful model
placement. Management also attributes the increase in revenue to the higher
margin from sales of sunscreen products. The cost of sales of $784,900, for the
year ended December 31, 2002, is higher than the cost of sales of $662,601 in
the year ended December 31, 2001 (an 18.5% increase). The increase in the cost
of sales is due to additional development fees associated with the Look and
Catwalk brand identity and costs associated with the development Look's
event-management concept based on the Internet and "fashion days". Accordingly,
there was a decrease in Look Models' gross margin for the year ended December
31, 2002. Specifically, the gross profit for the year ended December 31, 2001
was $413,636, or 38.4%, but, for the year ended December 31, 2002, the gross
profit was $361,949,or 31.6%. This decrease in gross margin can be primarily
attributed to the higher cost of sales in gross margin from sales of sunscreen
products. There were no sales of sunscreen products during the year ended
December 31, 2002. Selling expenses for the year ended December 31, 2002, as
compared to the selling expenses for the year ended December 31, 2001 show an
increase from $430,375 to $610,018, or 41.7%. These higher costs are due
increased salaries, increased travel and telecommunication expenses, which
includes installation and connection fees for our Internet portal.
Administrative expenses decreased in 2002 compared to those of 2001.
Administrative expenses were $1,648,951 in 2001, and were $868,456 in 2002, a
47.2% decrease. This is because the company did not re-incur certain costs
attributed to preparing for its public registration, and in upgrading its
accounting and financial controls. Look Models posted a net loss for the year
ended December 31, 2002 of $1,214,553. The net loss for 2002 was a decrease of
29.6% over the net loss in 2001 of $1,725,950. The 2002 loss includes $200,000
of non-cash foregone salary imputed to the company's president.
The loss in 2002 can be divided into a loss from U.S. operations, and a
loss from European operations. The loss in 2002 from U.S. operations was
$580,149, while the loss from European operations was $634,404. The U.S.
operations are those of the holding company, which received funds from non U.S.
investors and dispensed funds to its European subsidiaries for working capital
purposes, and paid obligations to both U.S. and non-U.S. vendors, primarily in
satisfaction of transaction based expenses. Other than the distribution of
products to Models Prefer, Ltd. ("Models Prefer") there are no operations
currently being conducted in the U.S. The loss from operations in Europe of
$634,404 was lower in 2002 than it was in 2001. In 2001 the net loss from Europe
was $652,992. The 2002 loss from U.S. operations of approximately $580,149 is
significantly less than the 2001 loss from U.S. operations of $1,072,958.
27
Three months ended March 31, 2003 compared with the three months ended
March 31, 2002
For the three months ended March 31, 2003, revenue increased from the three
months ended March 31, 2002. Revenue for the three months ended March 31, 2002
was $255,978, and revenue for the three months ended March 31, 2003 was
$347,487(a 35.8% increase). This increase is due to two factors, first, the
purchase of a large stock of our cosmetics by Coty Beauty and, second, to a
large commission fee earned from the placement of Naomi Campell. The cost of
sales of $178,409 for the three months ended March 31, 2003 is higher than the
cost of sales of $92,375 in the three months ended March 31, 2002. This increase
is due to the costs underlying the sale of our cosmetics to Coty Beauty and the
costs surrounding Ms. Campell's placement. Accordingly, there was an increase in
Look Models' gross profit for the three months ended March 31, 2003.
Specifically, the gross profit for the period ended March 31, 2002 was $163,603,
or 63% and for the three months ended March 31, 2003, the gross profit was
$169,078, or 48.7%. This decrease in gross margin results primarily from the
Company's cosmetic segment. Selling expenses for the three months ended March
31, 2003 as compared to the selling expenses for the three months ended March
31, 2002 show a slight increase from $157,715 to $165,025, or 5%. Management
does not view this as material. Administrative expenses decreased for the three
months ended March 31, 2003 compared to those for the three months ended March
31, 2002. Administrative expenses were $128,730 for the three months ended March
31, 2003, and were $183,555 for the three months ended March 31, 2002, a 29.9%
decrease. This is because the Company did not re-incur certain costs attributed
to preparing for its public registration. It is also a result of the Company's
upgrading its accounting and financial controls. Look Models posted a net loss
for the three months ended March 31, 2003 of $137,146. The net loss for the
three months ended March 31, 2003 was a decrease of 33.3% over the net loss for
the three months ended March 31, 2002 of $205,695.
The loss for the three months ended March 31, 2003 can be divided into a
loss from U.S. operations, and a profit from European operations. The loss for
the three months ended March 31, 2003 form U.S. operations was $174,567, while
the profit from European operations was $37,421. For the three months ended
March 31, 2002, the Company incurred a loss from European operations of $73,647
and a loss from U.S. operations of $132,048. The loss from U.S. operations for
the three months ended March 31, 2003 of $174,567 shows an increase of 32%
compared to the loss for the three months ended March 31, 2002. The increase is
mainly due to costs incurred from the organization of the International Fashion
Day event in Prague. Management allocates costs and earnings from an
international event like the International Fashion Days showcasing international
talent to U.S. operations.
While Look Models has experienced uncertainty in meeting its cash flow
needs and has relied on outside investors and its principal shareholder to
provide funding, Look Model's management plans to attain profitability and meet
cash flow needs going forward as follows:
a. Look Models' president and majority shareholder, Wolfgang Schwarz, has made
a firm commitment to fund the operating expenses for 2003 and to forego
salary in 2003 until such time as profitable operations, capital raised
from redemption of outstanding warrants, or future equity transactions
provide Look Models the ability to pay his salary in accordance with his
employment agreement. Mr. Schwarz has certified this commitment to Look
Models in writing. This funding, if necessary, will be made as an at-market
interest bearing loan to Look Models.
b. Mr. Schwarz has agreed to postpone his claim for amounts owed to him by
Look Models and to utilize funds from capital raised from redemption of
outstanding warrants, future equity transactions or profitable operations
as a means of repayment. At December 31, 2002 and March 31, 2003 such
amounts were $892,121 and $1,051,081 respectively.
c. Management believes that the increase in revenue Look Models has
experienced will continue. For the three month ended March 31, 2003, Look
Models' revenue was $347,487 compared to $255,978 for the three months
ended March 31, 2002.
d. From Look Models' operating segments, the following developments are
anticipated to increase revenues and cash flows in year 2003:
Model management:
-----------------
Pursuant to its growth strategy, Look Model's began to globalize its model
mediating activities. In 2002, 75% of the overall revenue resulted from
international bookings, compared to 5% in 2001. This trend is expected to
continue in 2003. The software allows Look Models to enhance model movement
activities and to create demand in those markets where the software permits the
direct booking of models. Although Look Models is just beginning to utilize this
software, model management revenues increased by more than 40 % compared to
2002.
28
Cosmetics:
----------
Look Models is finalizing a license contract for its fragrance line with
one of the world's largest fragrance producers, Coty. Look Models will produce
and market fragrance products.
Look Model Search/Event-management:
-----------------------------------
In 2003, Look Models expects to increase significantly the number of
participating countries in its international model search activities. Look
Models' licensees organized events in Austria, Yugoslavia, Czech Republic,
Slovakia, Hungary, Poland, Macedonia, Bosnia, Lithuania, Latvia, Romania and
Portugal. Due to the Look Models' Internet portal scouting system, contestants
from an increasing number of countries, including the USA, South America and
Asian countries, apply and take part in the events. Look Models' new
event-management concept is based on the Internet and "fashion days", revolving
around the promotion of local designers. This new concept proved to be very
successful in our final show of 2002 in Prague. This event gained significant
media attention, and Look Models is evaluating offers from venue sponsors in
Dubai and Monte Carlo for future international shows.
e. Look Models is seeking to eliminate non-recurring expenses. See Liquidity
and Capital Resources, below.
f. Look Models is seeking to eliminate non-cash charges, such as payment in
stock for services rendered to Look Models.
Liquidity and Capital Resources
- -------------------------------
Working Capital, Debt and Liquidity.
- ------------------------------------
Although Look Models had a shareholders' deficit as of December 31, 2002
and March 31, 2003 of $3,048,302 and $3,227,918, respectively, Look Models
believes that it will have the capital resources for the next twelve (12) months
in order to operate its business due to:
29
(1) Funding Commitment. Look Models' president and majority shareholder,
Wolfgang Schwarz, has guaranteed to fund the operating expenses for 2003
and to forego salary in 2003 until such time as profitable operations, if
necessary, capital raised from redemption of outstanding warrants, or
future equity transactions provide Look Models the ability to pay his
salary in accordance with his employment agreement. Mr. Schwarz has
certified this commitment to Look Models in writing. This funding, if
necessary, will be made as an at-market interest bearing loan to Look
Models.
(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.Look Models
intends to use this financing for working capital, and to cover the
transaction costs it will incur in the next several months. 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. For
the three month ended March 31, 2003, Look Models' revenue was $347,487
(unaudited) compared to $255,978 for the three months ended March 31, 2002.
Additionally, Look Models' has outstanding claims against third parties
which management believes will result in cash receipts and debt
extinguishment during 2003 totaling approximately $165,000. The $165,000 is
comprised of $115,000 withheld from Dialpack payments as compensation for
Dialpack's breach of contract and $50,000 reimbursement for stolen goods
from a transportation company.
(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.
30
(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 our offering, which is
currently in registration is fully subscribed there will be 6,000,000
warrants outstanding. Upon exercise of these 6,000,000 warrants, Look
Models will receive gross proceeds of $6,250,000. 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 March 31, 2003 short-term borrowings consisted of:
Line of credit, interest at 4.5%; outstanding balance
due in September 2003; collateralized by the Company's
receivables and guaranteed by the Company's president $ 195,808
Line of credit, interest at 4.5%; outstanding balance
due in September 2003; collateralized by the Company's
receivables and guaranteed by the Company's president 475,915
Line of credit, interest at 7.875%; outstanding balance
due in September 2003; collateralized by the Company's
receivables and guaranteed by the Company's president 156,610
Overdraft on bank accounts, interest at 4.5% 1,171,456
----------
$ 1,999,789
=============
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 $250,000, 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.
31
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.
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. In general,
Look Models intends to use stock in large part to finance acquisitions. If funds
are required, such funds would come out of revenue or working capital, if
available, or could be raised through subsequent offerings. In November 2002,
Mr. Schwarz executed a contract to acquire Munich Models GmbH, a privately owned
German model agency. This contract was subsequently terminated by the parties
because Look Models did not have the finances to complete the acquisition. Look
Models still continues to do business with Munich Models and considers its
relationship with the company to be a good one. The letter of termination from
Munich Models did not address the possibility of entering into another agreement
at a later time. In the event our company is able to raise funds and re-open
negotiations with Munich Models, we would like to use proceeds from this
offering for the costs associated with the acquisition and integration costs of
this agency. We are not currently involved in negotiations to acquire any other
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.
Expected Market, Product, Region of Influence
- ----------------------------------------------
Look Models anticipates that its services will continue to be demanded by
many young girls from Eastern Europe seeking to enter the modeling world. Look
Models also anticipates it will be sought out by aspiring models in the Western
world once it has established a presence in one or more major modeling markets.
Look Models currently represents high profile models as well as new talent. An
expected market is the development of young models. In the event marketing,
licensing and sponsorship businesses, Look Models targets companies with
expertise in event marketing, and is focusing its efforts to sign up licensees
in major European markets. In 2002 Look Models signed agreements in Portugal,
Germany, Czech Republic, Slovakia, Turkey, Poland, Hungary, Yugoslavia.
32
In the cosmetics business, Look Models targets the young female market in
Europe. Look Models hopes to establish a brand name in Europe before launching
its products in the United States. Look Models plans to extend its product line
to develop products that are identified with its models, such as handbags,
accessories, sunglasses, and so forth. Look Models is developing four sample
collections of "cult items" such as leather jackets, caps, model backpacks,
workout outfits and lingerie.
Look Models has negotiated a deal with Coty Beauty, a division of Coty, to
develop a fragrance line under the Pret-a-Porter brand. The parties are
currently drafting a written license agreement. Look Models has received a
letter dated March 28, 2003, from Massimillano Ferari, Marketing Director of
Coty Beauty confirming Coty's intent to finalize their agreement with Look
Models.
Projected Financial Information and Management
- ----------------------------------------------
Expectation on the Nature of Future Business1
- ---------------------------------------------
Investors should not place undue certainty on projections. We can provide
no assurances that any of our projections will ever be met.
1. Licenses and Sponsoring:
- ---------------------------
Beginning in 1999 and continuing through 2002, Look Models decided to
create awareness for its brand name, its products, and its business model.
Accordingly, Look Models invested in, and developed partnerships with outside
parties for the purpose of organizing national and international model search
events. Initially, Look Models funded all the model search events itself, in
order to develop a reputation as a leader in the search for new faces. The model
search process also provides Look Models with a steady stream of young models
that join Look Models' portfolio of faces for future placement. Look Models now
intends to generate revenue from these relationships by entering into licensing
and sponsorship deals. In 2003, Look Models is focusing on exploiting both
existing and new markets, and expects to negotiate licensing and sponsorship
deals.
The structure of a licensing deal is as follows:
Look Models is paid an initial licensing fee of anywhere from $15,000.00 -
$50,000.00 per country, and retains a portion of the revenue from sponsors at
the events.
2. Merchandising:
- ------------------
Look Models has invested heavily in product development and marketing, and
has developed a line of products that will utilize its "Look Models", and its
"Catwalk" brands. The products are aimed at the young female market worldwide.
The products being developed are perfume, eau de toilette, body milk, body
splash, perfume towelettes, aromatherapy, sunscreen, and lingerie. Look Models
works with Uli Petzold, an internationally renowned designer who is a director
of Look Models, in the creation of these products. At this time, Look Models'
products have a presence in Austria, the Czech Republic, Slovakia and Turkey.
--------
1 These notes are arranged by dividing Look Models into four (4) revenue
producing units,
33
3. Modeling and licensing:
- --------------------------
Through the acquisition of agencies in major markets, Look Models hopes to
increase its revenue stream. Additionally, due to the fact that several of its
models will be finishing school this year, Look Models expects to add to its
revenue base from these new faces. These models will be able to generate
additional revenue due to the fact that they will have completed their studies.
Without the acquisition of "big market" agencies, Look Models, based upon
historical figures, would expect to increase its revenue by 30% per annum.
4. E-Commerce:
- --------------
Look Models has constructed what it believes to be the first Internet
portal with a copyrighted proprietary software that enables worldwide bookings
online. The website has been operational since July 2002. Given that this is the
first time that a model agency network has built a fully operating model booking
portal, there are no historical figures to use for revenue projections herein.
We believe that the portal will increase revenues and decrease operating
expenses, without taking revenue from the existing modeling business. The portal
will allow Look Models to book models worldwide by electronic means without
interfering with the models' local agency's office and the current base of
operation of the models. As these transactions will be new, they will not be
taking revenue from Look Models' existing modeling business. Look Models will
promote its portal aggressively and believes that this global booking structure
is the future of the business.
Clients have already taken advantage of utilizing Look Models' new software
such as Nina Ricci, Paris, Grey Worldwide, TRIUMPH international, Chanel, many
mail order companies and the major fashion magazines, such as Vogue, Elle,
Glamour and Marie Claire. In 2002, 76.16% ($ 443,545) of the overall Model
Management's revenue ($ 582,401) resulted from international bookings. For the
three months ended March 31, 2003, 64% ($64,308) of the overall Model
Management's revenue ($100,350) resulted from international bookings. The
software allows the Company to enhance model movement activities and to create
demand in those markets where the software permits the direct booking of models.
Although we are just beginning to utilize our software, model management
revenues increased by more than 55% in 2002 compared to 2001.
The sources of income for the e-commerce division are:
1. Modeling commissions; 2. Portal advertising revenue; 3. Revenue from
portal links; and 4. Product sales.
34
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.
Significant Accounting Policies
- -------------------------------
Stock-based compensation:
- -------------------------
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" allows companies to choose whether to account for
employee stock-based compensation on a fair value method, or to account for such
compensation under the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company has chosen to account for employee stock-based
compensation using APB 25.
Segment reporting:
- ------------------
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). The Company's results of
operations and financial position were not affected by the implementation of
SFAS No. 131.
Operating segments:
- -------------------
The Group classifies its businesses into three operating segments. The
segments have been defined by the services each segment offers. The services
offered are described below:
Event management:
- -----------------
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.
35
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.
A summary of sales by country is as follows:
Year ended December 31, 2002
----------------------------
Event- Model
Management Management Cosmetics Total
------------ ---------- --------- ----------
Austria $ 103,717 $ 138,856 $ 341 $ 242,914
USA 26,488 - 309,603 336,091
Other countries 124,299 443,545 - 567,844
------------ ---------- --------- ----------
Totals $ 254,504 $ 582,401 $ 309,944 $ 1,146,849
============ =========== ============ ============
Year ended December 31, 2001
----------------------------
Event- Model
Management Management Cosmetics Total
------------ ---------- --------- ----------
Austria $ 72,601 $ 392,497 $ 1,043 $ 466,141
USA 74,473 - 277,029 351,502
Other countries 247,772 - 10,822 258,594
------------ ---------- --------- ----------
Totals $ 394,846 $ 392,497 $ 288,894 $ 1,076,237
============ =========== ============ ============
36
Three months ended March 31, 2003
---------------------------------
Event- Model
Management Management Cosmetics Total
------------ ---------- --------- ----------
Austria $ 110,264 $ 36,042 $ 82 $ 146,388
USA 4,217 - - 4,217
Other countries 48,097 64,308 84,477 196,882
----------- ---------- ---------- ----------
Totals $ 162,578 $ 100,350 $ 84,559 $ 347,487
Three months ended March 31, 2002
---------------------------------
Event- Model
Management Management Cosmetics Total
------------ ---------- --------- ----------
Austria $ 40,475 $ 44,192 $ - $ 84,667
USA - - 93,201 93,201
Other countries 16,270 61,840 - 78,110
----------- ---------- ---------- ----------
Totals $ 56,745 $ 106,032 $ 93,201 $ 255,978
Information about the Company's operating segments:
Year ended December 31, 2002
----------------------------
Event- Model
management Management Cosmetics Corporate Total
-----------------------------------------------------------------------------
Total revenue $ 254,504 $ 582,401 $ 309,944 - $ 1,146,849
Profit (loss) from
operations (439,967) (178,524) 82,115 $(580,149) (1,116,525)
Interest expense (108,140) (26,277) - - (134,417)
Net income (loss) (524,549) (191,970) 82,115 (580,149) (1,214,553)
Salary waived by CEO 200,000 200,000
and majority
shareholder
Capital expenditures 13,443 14,240 - - 27,683
Depreciation and
amortization 12,326 10,161 - 15,543 38,030
Year ended December 31, 2001
----------------------------
Event- Model
management Management Cosmetics Corporate Total
-----------------------------------------------------------------------------
Total revenue $ 394,846 $ 392,497 $ 288,894 - $1,076,237
Profit (loss) from
operations (368,282) (313,551) 89,101 $ (1,072,958 (1,665,690)
Interest expense (44,103) (11,723) - - (55,826)
Net income (loss) (415,489) (326,604) 89,101 (1,072,958) (1,725,950)
Shared issued for services - - - 270,000 270,000
Capital expenditures 7,472 - - 16,534 24,006
Depreciation and
amortization 9,030 7,388 - 15,544 31,962
37
Three months ended March 31, 2003
---------------------------------
Event- Model
management Management Cosmetics Corporate Total
-----------------------------------------------------------------------------
Total revenue $ 162,578 $ 100,350 $ 84,559 $ - $ 347,487
Profit(loss) from 22,533 28,231 (874) (174,567) (124,677)
operations
Interest expense (11,746) (3,271) 0 0 (15,017)
Net income(loss) 15,341 22,954 (874) (174,567) (137,146)
Salary waived by CEO 50,000 50,000
and majority shareholder
Capital expenditures - 615 - - 615
Depreciations and 3,279 1,994 - 3,885 9,158
amortization
Event- Model
management Management Cosmetics Corporate Total
-----------------------------------------------------------------------------
Total revenue $ 56,745 $ 106,032 $ 93,201 $ - $ 255,978
Profit(loss) from (103,456) (20,077) 77,914 (132,048) (177,667)
operations
Interest expense (15,719) (4,164) 0 0 (19,883)
Net income(loss) (127,320) (24,241) 77,914 (132,048) (205,695)
Salary waived by CEO - - - 50,000 50,000
and majority shareholder
Capital expenditures 6,996 458 - - 7,454
Depreciations and 1,883 2,650 - 3,333 7,866
amortization
MANAGEMENT
Our officers and directors and further information concerning them are as
follows:
Name Age Position
---- --- --------
Wolfgang Schwarz 52 President,
Passauerplatz #1 and a Director
Vienna 1010, Austria
Uli Petzold 42 Secretary and a
Passauerplatz #1 Director
Vienna 1010, Austria
Andreas Seiser 41 Treasurer and
Passauerplatz #1 Chief Financial Officer
Vienna 1010, Austria
Below are the biographies of the officers and directors of Look Models:
Wolfgang Schwarz, 52 - Chief Executive Officer, President, Chairman of the
Board and Treasurer of Look Models and its subsidiaries since their inception:
Mr. Schwarz is an Austrian entrepreneur and of Kingsgate from September 6, 2002.
He will serve a five year term. In 1974, after a short modeling and acting
career, he founded a modeling agency called "The Girls and Boys" in Austria. The
Girls and Boys thereafter expanded its business activities to Germany. The Girls
and Boys is solely owned by Mr. Schwarz. While it still exists, it no longer
conducts operations. In 1979, Mr. Schwarz launched a series of European contests
for models using the name "The face of the 80's". In 1986 he started the Look of
the Year contest in Austria and Hungary, and achieved considerable success with
that concept. In 1986, he formed an Austrian company under the name Wolfgang
Schwarz Sport- und Kultwveranstaltungen GmbH, Vienna. This company later changed
its name to Look Eventmanagement GmbH, and is now a wholly owned subsidiary of
Look Models International. In 1987, Mr. Schwarz established the first eastern
European modeling agency in Hungary using the name "The Girls and Boys", which
also became a market leader. In 1989, Mr. Schwarz and John Casablancas of the
Elite Modeling Agency in New York, one of the leading model agencies in the
world, agreed to develop the Look of the Year contest in 15 countries in Central
and Eastern Europe. Since 1993, Look has been a large supplier of new faces to
the modeling world. From 1994 to the present, Mr. Schwarz has built Look Models
into a European contest platform and modeling agency, while continuing to
discover and promote new faces. He has helped discover top models like Teresa
Maxova, Nina Moric, Svetlana, Tatjana Dragovic and others, and has helped launch
the careers of supermodels Naomi Campbell, Linda Evangelista and Karen Mulder in
Europe.
38
Uli Petzold, 42, Director and Creative Director from September 6, 2002 (the
date of the merger) and will serve a five year term. Mr. Petzold was born in
Frankfurt Germany and moved to Nuremberg after finishing his high school
education and obtaining his Abitur (an extra educational degree indicating
distinction from a German or Austrian university). There he completed an
apprenticeship as a furrier in the studios of Marco International. From March
1982 to September 1984, he designed furs for Ansel & Ansel in Montreal Canada.
From October 1984 to June 1987, he accepted a call from Balenciaga Paris to head
the fur division under the then director of Karl G. Kunert. The two formed a
team, creating collections that were very successful, first and foremost in
Japan and the United States. In June 1987, at the age of 27, Uli Petzold opened
an atelier, a top floor studio, in the Avenue Victor Hugo, Paris and designed
his own apparel lines under the label Petzold Paris. At the same time, he also
opened for his German customers a studio in Bad Homburg. In September 1988, a
contract with Jindo International to become a chief designer of the European
Division took him back to Asia. Back to Europe in June 1988, he designed a
Petzold women's wear collection that the garment manufacturer Wiedekind licensed
in place of Daniel Hechter Paris. Parallel to the stepwise development and
extension of his own design company in Germany and USA, he ran a Petzold store
under franchise in Germany. In September 1989 to August 1994, Mr. Petzold
designed the trend collection for a period of five seasons for AKZO, wrote copy
for his own column in the Italian fashion press "Nella Moda di Uli Petzold", and
received (as the only German) the "Oscar of the Haute Couture" for furs in 1985
and 1986 from the Academy of Fashion in Turin, Italy. From March 1991 to July
1993, he headed the international Trendtables as official trend advisor for
prestigious trade fair Interstoff in Frankfurt.
Since January 1995 his personal interests on design changed more and more
to graphic, packaging, industrial and interior design. He stared to create his
own home collection and was hired to design special interest products by the
Ritzenhoff AG. Within a short period of time his name became well known in this
business. From February 1996 to September 1997, he was asked by Mercedes Benz AG
to design and develop a new corporate showroom interior. By the November 1997
the first two branches were opened in Germany. The design was licensed by Uli
Petzold to implement the concept worldwide. In July 1998 he moved back to the
USA. Since then he has operated the creative studios of the XODESIGNGROUP in
Frankfurt Germany with his partner Kay Witte, and in Miami Beach, USA.
Currently, Mr. Petzold operates Petzold New York, Inc., which conducts an
international license business in New York, N.Y. Some of Mr. Petzold's clients
include Mercedes Benz, Germany, Procter & Gamble / Cosmetic Division, London,
Dolce & Gabbana / EuroItalia, Sahra Lee, London and Sanyo Fischer Vertriebs
GmbH.
39
Andreas Seiser, 41, Treasurer and Chief Financial Officer from May 26,
2003. From September 1, 1997 to December 31, 1997, Mr. Andreas Seiser was the
Assistant of the executive board of Raiffeisen Centralbank Austria. From January
01, 1998 to December 31, 1998, he was the Head of the Euro transition project of
Raiffeisen Banking Group Austria and the Central- and East European Banking
Network. From January 01, 1999 to December 31, 2000, Mr. Seiser was the Chief
Executive Officer and Chief Financial Officer of Cornus GmbH (internet
marketplaces company) and from January 01, 2002 to June 30, 2002, Mr. Seiser was
the Chief Executive Officer and Chief Financial Officer of Raiffeisen-trade.com
(an internet brokerage and online securities trading company). Since June 30,
2002, Mr. Seiser has been a business consultant to the Foundation of
Projectsurfers Network. Mr. Seiser has a Master of Business Administration
(BGBL.II Nr.68/1998) from the University of Illinois, USA / Danube University,
Austria.
Remuneration
------------
Wolfgang Schwarz has a renewable five year employment agreement with Look
Models dated June, 2000. He is paid a yearly salary of $350,000. Mr. Schwarz was
paid a reduced salary of $200,000 in 2001. As of December 31, 2002, the 2002
loss includes $200,000 of non-cash foregone salary imputed to Mr. Schwarz. Mr.
Schwarz has made a firm commitment to fund the operating expenses for 2003 and
to forego salary in 2003 until such time as profitable operations, capital
raised from redemption of outstanding warrants, or future equity transactions
provide Look Models the ability to pay his salary in accordance with his
employment agreement. The determination as to the appropriate time to re-incur
his salary will be made in good faith by Mr. Schwarz and the board of directors.
Mr. Schwarz has certified this commitment to Look Models in writing. This
funding, if necessary, will be made as an at-market interest bearing loan to
Look Models. Mr. Schwarz has also listed for sale a real estate investment and
has committed to utilize the net proceeds from the sale, estimated to be
$615,000, to support 2003 activities as required.
Mr. Schwarz' employment agreement contained a provision stating that if $5
million dollars was not raised by March 2001, he could terminate his agreement
with twenty days notice. Mr. Schwarz has waived this right. Thus, this provision
is not enforceable.
On May 26, 2003, Look Models retained Andreas Seiser as Chief Financial
Officer and Treasurer. Currently, Mr. Seiser has agreed to work without pay
until after the effective date of this offering and after such time as we have
had an opportunity to complete fundraising activities. Thereafter, we will use
these funds to pay his salary. This is a verbal commitment. Mr. Seiser does not
have a written contract with Look Models.
Audit Committee Financial Expert
--------------------------------
On May 26, 2003, Look Models retained Andreas Seiser as Chief Financial
Officer and Treasurer. Mr. Seiser now serves on our audit committee.
40
The following table sets forth information concerning compensation for
services rendered to Look Models by its President and by its executive officers.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Restricted Securities
Name and Other Annual Stock Underlying LTIP All
Principal Year Salary Bonus Compensation Award(s) Options Payout Other
Position ($) ($) ($) ($) /SARs (#) ($) Compensation
- ---------- ---- ---- ------ ---------- --------- ---------- ---- -------------
Look Models Officers and directors
Wolfgang(1)(2) 3/31/03 -0- -0- -0- -0- -0- -0- -0-
Schwarz, 2002 -0- -0- -0- -0- -0- -0- -0-
Chairman
of The Board,
President,
Treasurer 2001 200,000 -0- -0- -0- -0- -0- -0-
Director 2000 350,000 -0- -0- -0- -0- -0- -0-
Uli 3/31/03 -0- -0- -0- -0- -0- -0- -0-
Petzold, 2002 -0- -0- -0- -0- -0- -0- -0-
Secretary 2001 -0- -0- -0- 250,000 -0- -0- -0-
Director 2000 -0- -0- -0- -0- -0- -0- -0-
Andreas
Seiser (3) 3/31/03 -0- -0- -0- -0- -0- -0- -0-
Chief Financial Officer
Treasurer
(1) Mr. Schwarz agreed to forego his salary of $200,000 in 2002. As of December
31, 2002, the 2002 loss includes $200,000 of non-cash foregone salary
imputed to Mr. Schwarz. Mr. Schwarz has made a firm commitment to fund the
operating expenses for 2003 and to forego salary in 2003 until such time as
profitable operations, capital raised from redemption of outstanding
warrants, or future equity transactions provide Look Models the ability to
pay his salary in accordance with his employment agreement.
(2) Mr. Schwarz may terminate his employment with 60 days written notice. In
the event he raises $5,000,000, he may terminate his employment with 20
days notice. Mr. Schwarz has waived this right. Thus, this provision is not
enforceable.
(3) On May 26, 2003, Look Models retained Andreas Seiser as Chief Financial
Officer and Treasurer. Currently, Mr. Seiser has agreed to work without pay
until after the effective date of this offering and after such time as we
have had an opportunity to complete fundraising activities. Thereafter, we
will use these funds to pay his salary. This is a verbal commitment. Mr.
Seiser does not have a written contract with Look Models.
No Board of Directors' fees have been paid.
Additional Employee Benefits: Employees are provided health insurance.
41
MANAGEMENT'S STATEMENT AS TO INDEMNIFICATION
Section 145 of the Delaware General Corporation Law provides for
indemnification of our officers, directors, employees and agents. Under Article
XI of our by-laws, we will indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, any of our directors,
officers, agents or employees, against all expense, liability and loss
reasonably incurred or suffered by such person in connection with activities on
our behalf. Complete disclosure of relevant sections of our certificate of
incorporation and by-laws is provided in Part II of the registration statement.
This information can also be examined as described in "Further Information."
We have been informed that in the opinion of the SEC, indemnification for
liabilities arising under the Securities Act, which may be permitted to our
directors, officers or control persons pursuant to our certificate of
incorporation and by-laws is against the public policy as expressed in the
Securities Act and is, therefore, unenforceable.
MARKET FOR OUR COMMON STOCK
Prior to the date of the prospectus, no trading market for our common stock
has existed. Pursuant to the requirements of Rule 15g-8 of the Securities
Exchange Act, a trading market will not develop prior to or after the
effectiveness of our registration statement.
Shares Eligible For Future Sale
- -------------------------------
None of our Common Stock is subject to outstanding options or Warrants or
convertible Secirities. We have 12,520,000 shares of common stock outstanding,
none of which are freely tradable without restriction. The resale of these
shares is governed by the resale limitations of Rule 144 adopted under the
Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year, including "affiliates" as that term is defined under the Securities Act,
is entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of
o one percent (1%) of the then outstanding shares of the common stock or
o the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of sale
is filed with the Securities and Exchange Commission.
Sales under Rule 144 are subject to certain requirements relating to manner
of sale, notice and availability of certain current public information about the
company. A person (or persons whose shares are aggregated) who is not deemed to
have been an "affiliate" of the company at any time during the 90 days
immediately preceding the sale and who has beneficially owned shares for at
least two years is entitled to sell such shares under Rule 144(k) without regard
to these limitations.
42
Pursuant to the acquisition between our company and Look Models, the
original Kingsgate shareholders, representing 8% of the combined entity, were
granted pigyback registration rights. This means that we will register these
Shares under the Securities Act if and when we register additional company stock
pursuant to the Securities Act.
Currently, none of our stock is authorized for issuance under an equity
compansation plan.
There are 67 holders of our common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 6, 2002, we acquired Look Models International, Inc. All
issued and outstanding shares of common stock of Look Models have been exchanged
for an aggregate of 10,500,000 of our shares of common stock, in proportion to
the holdings of the Look Models stockholders. In addition, our founding
stockholders transfered to Wolfgang Schwarz, 1,000,000 of their shares. The
former stockholders of Look Models own 11,500,000 shares of our common stock
representing 92% of the combined entity and 74.2% of the combined entity
assuming all 3,000,000 shares are sold pursuant to this offering.
In November 2002, Mr. Schwarz negotiated a deal to purchase Munich Models
GmbH, a German model agency. This contract was subsequently terminated because
Look Models did not have the finances to complete the acquisition. In the event
our company is able to raise funds and re-open negotiations with Munich Models,
we would like to use proceeds from this offering for the costs associated with
the acquisition and integration costs of this agency.
Advances payable, related party, represent amounts advanced to Look Models
by its president and principal shareholder. The advances are unsecured, payable
on demand and do not bear interest. At December 31, 2002 and March 31, 2003,
such amounts were $892,121 and $1,051,081, respectively. Look Models' president,
Wolfgang Schwarz, has agreed to postpone his claim for amounts owed to him by
the Company through 2003, or until funds are acquired through redemption of
outstanding warrants, future equity transactions or profitable operations which
will provide the means for repayment.
43
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth certain information regarding
the beneficial ownership of our common stock as of the date of the prospectus,
and as adjusted to reflect the acquisition of Look Models. As 10,500,000 shares
of our common stock have been issued to Look Models shareholders, and 1,000,000
shares of founder's stock has been transferred to them, they initially received
that number of shares equal to 92% of Kingsgate, Assuming all 3,000,000 shares
are sold pursuant to this offering, they will own or 74.2% of Kingsgate. For
purposes of this table, we have included the holdings of:
+ each person who is known by us to own beneficially more than 5% of our
outstanding common stock;
+ each of our officers and directors; and
+ all of our directors and officers as a group.
Shares of Common
Name/Address Stock Beneficially Owned
Beneficial before sale of 3,000,000 shares Class
In this Offering Owned
- ------------ ------------------------------- -------
Wolfgang Schwarz (1)(2)
Passauerplatz #1, 8,000,000 64.0%
Vienna 1010, Austria
Nautilus Management (3)
Consulting GmbH
Gloriettegasse 29
1130 Wien
Austria 1,600,000 12.8%
AktienInvestor.com (3)
Consulting GmbH
Gloriettegasse 29
1130 Wien
Austria 400,000 3.2%
Ulrich Petzold
1410 West 24th Street
Miami, FL 33140-4523 250,000 2.0%
Total Officers and Directors 10,250,000 66.0%
(2 Persons after acquisition)
44
(1) May be deemed "Promoters" as that term is defined under the Securities Act
and are our only officers and directors.
(2) Mr. Wolfgang Schwarz owns 5,000,000 through Netizen, a Bahamian business
organization located at Goodman's Bay, Corporate Centre, West Bay Street
and Sea View Drive, P.O. Box CB-10976, Nassau, Bahamas. He owns 2,000,000
shares through Monti Fiduciaria S.A., Via Laizzari 2a,6(degree), Piano 6900
Lugano, Switzerland. He received 1,000,000 shares pursuant to the Kingsgate
merger.
(3) Mr. Thomas Roeggla is the control person of Nautilus Management and of
AktienInvestor.com.
None of the current stockholders have received or will receive any extra or
special benefits that were not shared equally by all holders of shares of our
common stock.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 45 million shares of common stock, $.001 par
value per share, of which 12,500,000 shares are issued and outstanding. Each
outstanding share of common stock is entitled to one vote, either in person or
by proxy, on all matters that may be voted upon by their holders at meetings of
the stockholders.
Holders of our common stock
+ have equal ratable rights to dividends from funds legally available
therefor, if declared by our board of directors;
+ are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon our liquidation, dissolution
or winding up;
+ do not have preemptive, subscription or conversion rights, or redemption or
sinking fund provisions; and
+ are entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of our stockholders.
All shares of our common stock which are part of the units, or which
underlie the warrants, will be fully paid for and non-assessable when issued,
with no personal liability attaching to ownership. You and other holders of
shares of our common stock do not have cumulative voting rights, which means
that the holders of more than 50% of outstanding shares voting for the election
of directors can elect all of our directors if they so choose and, in such
event, the holders of the remaining shares will not be able to elect any of our
directors. As a result of our acquisition of Look Models, the officers and
directors and other stockholders of Look Models will beneficially own at least
85.2% of the outstanding shares of our common stock, assuming all of the shares
offered pursuant to this prospectus are purchased, and will be in a position to
control all of our affairs.
45
Preferred Stock
We may issue up to 5,000,000 shares of our preferred stock from time to
time in one or more series. As of the date of the prospectus, we have issued no
shares of preferred stock. Our board of directors, without further approval of
our common stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any series of our preferred stock.
Issuances of additional shares of preferred stock, while providing flexibility
in connection with possible financings, acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of other of our securities and may, under certain circumstances, have
the effect of deterring hostile takeovers or delaying changes in Management
control.
Redeemable Common Stock Purchase Warrants
You and other holders of our warrants which are part of the units may
exercise them for a period of two years commencing on the date of the
prospectus. Our class A warrant entitles the holder to purchase one share of our
common stock at an exercise price of $1.00. Our class B warrant entitles the
holder to purchase one share of our common stock at an exercise price of $1.25.
Our common stock underlying the warrants will, upon exercise of the warrants, be
validly issued, fully paid and non-assessable.
We may redeem our warrants, at any time, for $0.001 per warrant, if we
provide 30 days' prior written notice, if the closing bid price of our common
stock, as reported by the market on which our common stock trades, exceeds 150%
of the exercise price per share for any twenty consecutive trading days ending
within ten days prior to the date of the notice of redemption. If we are unable
to qualify our common stock underlying the warrants for sale in certain states,
holders of the warrants in those states will have no choice but either to sell
their warrants or allow them to expire.
You may exercise your warrants by surrendering the warrant certificate,
with the form of election to purchase printed on the reverse side of the warrant
certificate properly completed and executed, together with payment of the
exercise price, to us or the warrant agent. You may exercise your warrants in
whole or from time to time in part. If you exercise fewer warrants than are
evidenced by a warrant certificate, we will issue a new warrant certificate for
the number of unexercised warrants.
Warrantholders are protected against dilution of the equity interest
represented by the underlying shares of common stock upon the occurrence of
certain events, including stock splits, recapitalizations and the issuance of
stock dividends. If we merge, reorganize or are acquired in such a way as to
terminate the warrants, they may be exercised immediately prior to such action.
In the event of liquidation, dissolution or winding up, holders of the warrants
are not entitled to participate in our assets.
46
For the life of the warrants, holders are given the opportunity to profit
from a rise in the market price of our common stock. The exercise of the
warrants will result in the dilution of the book value of our common stock at
the time of exercise and would result in a dilution of the percentage ownership
of existing stockholders. The terms upon which we may obtain additional capital
may be adversely affected during the period in which the warrants remain
exercisable. Warrantholders may be expected to exercise them at a time when we
would, in all likelihood, be able to obtain equity capital on terms more
favorable than the exercise price of the warrants.
We may not call the warrants for redemption if there does not exist an
effective registration statement relating to the underlying shares.
Warrantholders may not be able to exercise their warrants if they have not been
qualified for sale under the laws of the state where the warrantholder resides.
A call for redemption could force the warrantholder to accept the redemption
price, which, in the event of an increase in the price of the stock, would be
substantially less than the difference between the exercise price and the market
value at the time of redemption.
Reports to Stockholders
We intend to furnish our stockholders with annual reports containing
audited financial statements as soon as practicable after the end of each fiscal
year. Our fiscal year ends on December 31st.
Dividends
Look Models has not shown positive earnings in the past two (2) fiscal
years, and has paid no dividends. The company, in all likelihood, will use its
earnings, if any, to develop its business and does not intend to declare
dividends for the foreseeable future.
Transfer Agent
- --------------
We have appointed American Stock Transfer and Trust Company, New York as
transfer agent for our shares of common stock and warrants.
Certain Income Tax Consequences
- -------------------------------
In our management's opinion, our acquisition of Look Models is intended to
qualify as a "tax-free reorganization" for purposes of the United States federal
income tax so that our stockholders and the stockholders of Look Models subject
to United States taxes will not recognize gain or loss from the transaction. In
addition, the transaction is not intended to result in the recognition of gain
or loss to either us or Look Models in the respective jurisdictions where each
of us is subject to taxation. We have not obtained an opinion of counsel nor a
ruling from the Internal Revenue Service. You should consult your own tax
advisors as to the specific tax consequences of our acquisition.
47
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission under the Securities Act, a
post-effective registration statement relating to this prospectus. We have not
included in the prospectus all of the information in the registration statement
and the attached exhibits. Statements of the contents of any document are not
necessarily complete. Copies of these documents are contained as exhibits to the
registration statement. We will provide to you a copy of any of any Referenced
information if you contact us at Passauerplatz #1, Vienna 1010, Austria,
Attention: Chief Financial Officer, telephone 011-43-1-533-5816.
As of the effective date of the post-effective registration statement, we
will be a reporting company and will be subject to the reporting requirements of
the Securities Exchange Act. We will file periodic reports voluntarily in the
event that our obligation to file such reports is suspended under Section 15(d)
of the Securities Exchange Act. Our filings may be inspected and copied without
charge at the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices: Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
our filings can be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. We have filed this registration statement and will file all
future registration statements and other documents and reports electronically
through EDGAR, the Electronic Data Gathering, Analysis and Retrieval System.
These documents are publicly available through the Commission's Internet World
Wide Web site at http://www.sec.gov/.
We intend to furnish to our stockholders, after the close of each fiscal
year, an annual report relating to our operations containing audited financial
statements examined and reported upon by an independent certified public
accountant. In addition, we may furnish to our stockholders, from time to time,
such other reports as may be authorized by our board of directors. Our year -
end is December 31.
48
You can also call or write us at any time with any questions you may have.
We would be pleased to speak with you about any aspect of our business and the
offering.
LEGAL PROCEEDINGS
We are not a party to, nor are we aware of any existing, pending or
threatened lawsuits or other legal actions.
EXPERTS
Sheila Corvino, Esq., 811 Dorset West Road, Dorset, Vermont is passing upon
the validity of the shares of common stock and the warrants constituting the
units and the shares of common stock underlying the warrants which are being
offered pursuant to this prospectus.
The audited consolidated financial statements of Kingsgate Acquisitions,
Inc. (successor to Look Models International, Inc.) as of December 31, 2002 and
for each of the years in the two-year period then ended included herein and
elsewhere in the registration statement have been audited by Horwath Gelfond
Hochstadt Pangburn, P.C., independent certified public accountants, to the
extent set forth in their report appearing herein and elsewhere in this
registration statement. Such financial statements have been so included in
reliance upon the report of such firm given their authority as experts in
auditing and accounting.
49
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.)
YEARS ENDED DECEMBER 31, 2002 AND 2001
AND THREE MONTHS ENDED
MARCH 31, 2003 AND 2002 (UNAUDITED)
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.)
YEARS ENDED DECEMBER 31, 2002 AND 2001
AND THREE MONTHS ENDED
MARCH 31, 2003 AND 2002 (UNAUDITED)
CONTENTS
Page
----
Independent auditors' report F-1
Financial statements:
Balance sheets F-2
Statements of operations F-3
Statements of shareholders' deficit
and comprehensive income (loss) F-4-5
Statements of cash flows F-6-7
Notes to consolidated financial statements F-8-23
INDEPENDENT AUDITORS' REPORT
Board of Directors
Kingsgate Acquisitons, Inc.
(Succesor to Look Models International, Inc.)
We have audited the accompanying consolidated balance sheet of Kingsgate
Acquisitions, Inc. (successor to Look Models International, Inc.) and
subsidiaries (Note 1) as of December 31, 2002, and the related consolidated
statements of operations, changes in shareholders' deficit and comprehensive
income (loss), and cash flows for each of the years in the two-year period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kingsgate
Acquisitions, Inc. (successor to Look Models International, Inc.) and
subsidiaries as of December 31, 2002 and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
2002, in conformity with accounting principles generally accepted in the United
States of America.
HORWATH GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
March 17, 2003
F-1
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 1)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002
AND MARCH 31, 2003 (UNAUDITED)
December 31, 2002 March 31, 2003
----------------- --------------
(unaudited)
-----------
ASSETS
Current assets
Cash and cash equivalents $ 22,765 $ 5,500
Trade accounts receivable, net 191,141 449,583
Inventories 99,669 17,510
Prepaid expenses and other current assets 86,419 64,268
------------ -----------
Total current assets 399,994 536,861
------------ -----------
Property and equipment, net 46,583 43,560
Intangible assets, net 103,019 100,303
Deposit 16,281 16,281
------------ -----------
165,883 160,144
------------ -----------
Total assets $ 565,877 $ 697,005
============ ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable $ 572,527 $ 602,408
Accrued expenses and
other current liabilities 239,764 271,645
Advances payable, related party 892,121 1,051,081
Short-term borrowings 1,909,767 1,999,789
------------ -----------
Total liabilities (all current) 3,614,179 3,924,923
------------ -----------
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 and
12,520,000 shares issued and outstanding at December 31, 2002 and March 31,
2003 (unaudited), respectively 12,500 12,520
Additional paid-in capital 3,167,988 3,235,968
Accumulated deficit (6,132,923) (6,270,069)
Accumulated other comprehensive income (95,867) (206,337)
------------ -----------
Total shareholders' deficit (3,048,302) (3,227,918)
------------ -----------
Total liabilities and shareholders' deficit $ 565,877 $ 697,005
============ ============
See notes to consolidated financial statements.
F-2
KINGSGATE ACQUISITIONS, INC.
(SUCCESOR TO LOOK MODELS INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
December 31, 2002 December 31, 2001 March 31, 2003 March 31, 2002
----------------- ----------------- -------------- --------------
(unaudited) (unaudited)
-------------- --------------
Sales $ 1,146,849 $ 1,076,237 $ 347,487 $ 255,978
Cost of sales (784,900) (662,601) (178,409) (92,375)
------------- ------------- ------------- ------------
Gross profit 361,949 413,636 169,078 163,603
------------- ------------- ------------- -------------
Selling expenses (610,018) (430,375) (165,025) (157,715)
Administrative expenses (868,456) (1,648,951) (128,730) (183,555)
------------- ------------- ------------- -------------
(1,478,474) (2,079,326) (293,755) (341,270)
Loss from operations (1,116,525) (1,665,690) (124,677) (177,667)
------------- ------------- ------------- -------------
Interest expense (134,417) (55,826) (15,017) (19,883)
Other, net 36,389 (4,434) 2,548 (8,145)
------------- ------------- ------------- -------------
(98,028) (60,260) (12,469) (28,028)
------------- ------------- ------------- -------------
Net loss $ (1,214,553) $ (1,725,950) $ (137,146) $ (205,695)
------------- ------------- ------------- -------------
Net loss per share -
basic and diluted $ (0.10) $ (0.14) $ (0.01) $ (0.02)
============= ============= ============= =============
Weighted average shares of
common stock outstanding 12,477,533 12,323,269 12,506,222 12,455,693
============= ============= ============= =============
See notes to consolidated financial statements.
F-3
KINGSGATE ACQUISITIONS, INC.
(SUCCESOR TO LOOK MODELS INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
Accumulated
Common stock Additional other
--------------------- paid-in Accumulated comprehensive
Shares Amount capital deficit income (loss) Total
---------- --------- ------------ --------------- ------------- -----------
Balances at January 1, 2001 11,884,443 $ 11,884 $ 2,564,201 $ (3,192,420) $ 239,221 $ (377,114)
Sale of common stock pursuant to
private placements, net 73,624 74 70,545 70,619
Issuance of common stock in
exchange for services 475,459 476 269,524 270,000
Issuance of common stock in
exchange for profit
interest payable 21,099 21 17,979 18,000
Comprehensive income (loss):
Net loss (1,725,950) (1,725,950)
Foreign currency
translation adjustment 66,176 66,176
Comprehensive loss (1,659,774)
----------- -------- ------------ ------------ ------------- ------------
Balances at December 31, 2001 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 200,000 200,000
Comprehensive income (loss):
Net loss (1,214,553) (1,214,553)
Foreign currency translation
adjustment (401,264) (401,264)
-----------
Comprehensive loss (1,615,817)
----------- -------- ------------ ------------ ------------- ------------
Balances at December 31, 2002 12,500,000 12,500 3,167,988 (6,132,923) (95,867) (3,048,302)
=========== ======== ============ ============ ============= ============
F-4
KINGSGATE ACQUISITIONS, INC.
(SUCCESOR TO LOOK MODELS INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
AND COMPREHENSIVE INCOME (LOSS) (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
Accumulated
Common stock Additional other
--------------------- paid-in Accumulated comprehensive
Shares Amount capital deficit income (loss) Total
---------- --------- ------------ --------------- ------------- ------------
Balances at December 31, 2002 12,500,000 12,500 3,167,988 (6,132,923) (95,867) (3,048,302)
Sale of common stock pursuant to
private placements, net 20,000 20 17,980 18,000
Salary waived by CEO and majority
shareholder 50,000 50,000
Comprehensive income (loss):
Net loss (137,146) (137,146)
Foreign currency translation
adjustment (110,470) (110,470)
-----------
Comprehensive loss (247,616) (247,616)
------------ -------- --------- ------------ ----------- -----------
Balances at March 31, 2003 12,520,000 $ 12,520 $3,235,968 $(6,270,069) $ (206,337) $ (3,227,918)
============ ======== ========== ============ =========== =============
(unaudited)
See notes to consolidated financial statements.
F-5
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002 AND 2001
AND THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
December 31, 2002 December 31, 2001
----------------- -----------------
Cash flows from operating activities:
Net loss $ (1,214,553) $ (1,725,950)
------------- --------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 38,030 31,962
Issuance of shares for services 270,000
Salary waived by CEO and majority shareholder 200,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 118,560 (182,656)
Decrease in inventories 80,524 9,833
Decrease in prepaid and other current assets 43,833 330,407
(Decrease) increase in trade accounts payable (258,606) 268,244
(Decrease) increase in accrued expenses and
other liabilities (45,601) 66,099
(Decrease) increase in advances payable
related party (6,618) 356,541
Decrease in deferred income (27,804)
------------- --------------
170,122 1,122,626
------------- --------------
Net cash used in operating activities (1,044,431) (603,324)
------------- --------------
Cash flows from investing activities:
Capital expenditures (27,683) (24,006)
------------- --------------
Net cash used in investing activities (27,683) (24,006)
------------- --------------
Cash flows from financing activities:
Increase in short-term borrowings, net 1,038,820 57,919
Proceeds from issuance of common stock 45,784 53,645
------------- --------------
Net cash provided by financing activities 1,084,604 111,564
------------- --------------
Effect of exchange rate changes in cash and cash
equivalents (35,928) 4,304
Net decrease in cash (23,438) (511,462)
Cash and cash equivalents at beginning of year 46,203 557,665
------------- --------------
Cash and cash equivalents at end of year $ 22,765 $ 46,203
------------- --------------
(continued)
F-6
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
AND
THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
December 31, 2002 December 31, 2001
----------------- -----------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 134,417 $ 55,826
------------- --------------
Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock for profit interest
payable $ 18,000
==============
Stock subscriptions receivable (payment received
on January 21, 2002) $ 16,974
==============
March 31, 2003 March 31, 2002
-------------- --------------
Cash flows from operating activities:
Net loss $ (137,146) $ (205,695)
------------- --------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 9,158 7,866
Salary waived by CEO and majority shareholder 50,000 50,000
Changes in assets and liabilities:
Increase in accounts receivable (246,790) (156,785)
Decrease in inventories 84,558 3,921
Decrease in prepaids and other current assets 25,065 92,253
Increase (decrease) in trade accounts payable 9,104 (133,977)
Increase (decrease) in accrued expenses and
other liabilities 21,503 (53,077)
Increase (decrease) in advances payable
related party 137,068 (99,344)
------------- --------------
-
Total adjustments 89,666 (289,143)
------------- --------------
Net cash used in operating activities (47,480) (494,838)
------------- --------------
Cash flows from investing activities:
Capital expenditures (615) (7,454)
------------- --------------
Net cash used in investing activities (615) (7,454)
------------- --------------
Cash flows from financing activities:
Increase in short-term borrowings, net 15,821 487,233
Proceeds from note payable, related party - 70,000
Proceeds from issuance of common stock 18,000 12,619
------------- --------------
Net cash provided by financing activities 33,821 569,852
------------------------------------------
Effect of exchange rate changes in cash and cash
equivalents (2,991) 3,046
Net (decrease) increase in cash (17,265) 70,606
Cash and cash equivalents, beginning 22,765 46,203
------------- --------------
Cash and cash equivalents, ending $ 5,500 $ 116,809
------------- --------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 15,017 $ 19,883
------------- --------------
See notes to consolidated financial statements.
F - 7
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
AND THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
1. Organization, basis of presentation and management's plans:
Organization:
The following depicts the Company and its major subsidiaries:
-----------------------------------------
Kingsgate Acquisitions, Inc.
Delaware, USA
-----------------------------------------
100%
-----------------------------------------
Look Models International, Inc.
Delaware, USA
-----------------------------------------
100%
-----------
Fordash Holdings Ltd.
Bahamas
-----------------------------------------
100%
---------------------
Look Eventmanagement GmbH
Vienna, Austria
-----------------------------------------
100% 100%
----------------------------------- --------------------------------
Look Model Management GmbH Look Model Management spol sro
Vienna, Austria Prague, Czech Republic
----------------------------------- --------------------------------
Kingsgate Acquisitions, Inc. ("Kingsgate" or "the Company") is a Delaware
corporation organized on September 28, 1999.
Look Models International, Inc. ("LMI") is a U.S. holding company that was
incorporated in Delaware in June 2000.
On September 6, 2002, LMI completed a merger agreement (the "Agreement")
with Kingsgate, a development stage corporation, organized 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.
F - 8
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
AND THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
1. Organization, basis of presentation and management's plans (continued):
Organization (continued):
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.
Fordash Holdings Ltd. ("Fordash") is a Bahamas holding company that was
incorporated in Nassau in July 1999.
Look Eventmanagement GmbH ("LEM") handles the sourcing of new models and
their development, and the organization of promotional events on behalf of
a wide variety of customers, including automobile manufacturers and
national airlines. It was founded in 1986 under its former name Wolfgang
Schwarz Sport- und Kulturveranstaltungen GmbH, Vienna.
Look Model Management GmbH ("LMM Austria") reflects the Company's
activities in Austria.
Look Model Management spol sro ("LMM Czech Republic") reflects the
Company's activities in the Czech Republic.
The Company also has operations in other European countries, including
Croatia, Poland, Romania, Yugoslavia and Slovakia. These operations are
included in LEM.
In addition, the Company is developing a portfolio of cosmetic products
(such as perfumes, sun and body cream) and lingerie. These activities are
recorded in LEM.
Basis of presentation:
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("US GAAP").
The consolidated financial statements include the accounts of Kingsgate
Acquisitions, Inc. (successor to Look Models International, Inc.) and it's
wholly-owned subsidiaries Fordash Holdings, Ltd., Look Eventmanagement
GmbH, Look Model Management GmbH and Look Modelmanagement spol sro.
Intercompany balances and transactions are eliminated.
Prior to the merger agreement, Kingsgate had no operations. As such these
financial statements prior to and subsequent to the merger reflect the
activities of LMI to which Kingsgate succeeded.
F-9
1. Organization, basis of presentation and management's plans (continued):
Management's plans:
The Company's financial statements for the years ended December 31, 2002
and 2001 and for the three months ended March 31, 2003 and 2002 (unaudited)
show that the Company has incurred net losses of $1,214,553 and $1,725,950,
$137,146 and $205,695 respectively, and has a shareholders' deficit and a
working capital deficiency of $3,048,302 and $3,214,185, and $3,227,918
(unaudited) and $3,388,062 (unaudited) as of December 31, 2002 and March
31, 2003, respectively. 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 December
31, 2002 and 2001 and March 31, 2003 (unaudited) such amounts were $892,121
and $812,911, and $1,051,081, respectively. In addition, the president and
majority shareholder has guaranteed to fund the operating expenses for
2003, and to forego salary in 2003 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. The loss for the year
ended December 31, 2002 and the loss for the three months ended March 31,
2003 include $200,000 and $50,000 (unaudited), respectively, of non-cash
foregone salary imputed to the Company's president.
b. The Company's president has also listed for sale a real estate investment
and has committed to utilize the net proceeds from the sale, estimated to
be approximately $615,000, to support 2003 activities as required. For the
three months ended March 31, 2003, Company revenue was $347,487 (unaudited)
compared to $255,978 (unaudited) for the three months ended March 31, 2002.
Additionally, the Company has outstanding claims against third parties
which the Company believes will result in cash receipts and debt
extinguishment during 2003 totalling approximately $165,000.
c. From the Company's operating segments, the following developments are
anticipated to increase revenues and cash flows in 2003:
Model management:
Pursuant to its growth strategy, Look began to globalize its model
mediating activities. In 2002, 75% of the overall revenue resulted from
international bookings, compared to 5% in 2001. This trend is expected to
continue in 2003. The Company's unique Internet portal booking software
allows it to administer all its models worldwide and at the same time
exchange information with partner agencies. The software allows the Company
to enhance model movement activities and to create demand in those markets
where the software permits the direct booking of models. Although Look is
just beginning to utilize this software, model management revenues
increased by more than 55% in 2002 compared to 2001.
F-10
1. Organization, basis of presentation and management's plans (continued):
Management's plans (continued):
Cosmetics:
The Company completed a license contract for its fragrance line with one of
the world's largest fragrance producers. This company will produce and
market fragrance products, as well as sponsor Look Model Search activities
and book Look models for its international campaigns. In addition, it will
support Look's efforts to develop new products. This co-operation is
intended to lead to global exposure of the Company's brands, "Look Models"
and "Catwalk", and is considered an important development in the Company's
merchandising concept.
Look Model Search/Event-management:
In 2003, the Company expects to increase significantly the number of
participating countries in its international model search activities.
Look's licensees organized events in Austria, Yugoslavia, Czech Republic,
Slovakia, Hungary, Poland, Macedonia, Bosnia, Lithuania, Latvia, Romania
and Portugal. Due to the Company's Internet portal scouting system,
contestants from an increasing number of countries, including the USA,
South America and Asian countries, apply and take part in the events. The
Company's new event-management concept is based on the Internet and
"fashion days", revolving around the promotion of local designers. This new
concept proved to be very successful in the final show of 2002 in Prague.
This event gained significant media attention, and the Company is
evaluating offers from venue sponsors in Dubai and Monte Carlo for future
international shows.
2. Significant accounting policies:
Foreign currency translation:
The financial position and results of operation of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
The functional currency for most foreign operations is the Euro. Revenues
and expenses of such subsidiaries have been translated into U.S. Dollars at
average exchange rates prevailing during the period. Assets and liabilities
have been translated at the rate of exchange as of the balance sheet date.
Translation gains and losses are included in other comprehensive income.
Aggregate foreign currency transaction gains and losses are included in the
results of operations as incurred.
Cash and cash equivalents:
Cash and cash equivalents comprise cash on hand and in banks with original
maturities of less than three months.
Reclassifications:
Certain amounts reported in the 2001 financial statements have been
reclassified to conform to the 2002 presentation.
F-11
2. Significant accounting policies (continued):
Accounts receivable and concentration of credit risk:
The Company grants credit to its customers, generally without collateral.
At December 31, 2002 approximately $75,686 of net trade receivables were
due from one customer. At March 31, 2003 $295,694 (unaudited) of net trade
receivables were due from three customers. During the year ended December
31, 2002 and 2001 one cosmetics customer accounted for 33% and 25% of
sales, respectively. During the three months ended March 31, 2003
(unaudited) one Eventmanagement, one Model Management and one cosmetics
customer accounted for 32%, 22% and 25% of sales, respectively. During the
three months ended March 31, 2002 (unaudited) one cosmetics customer
accounted for 28% of sales.
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.
Property and equipment:
Property and equipment is stated at cost less accumulated depreciation.
Depreciation expense is recognised using the straight-line method,
primarily over useful lives of 5 years.
Intangible assets:
Intangible assets consist of costs incurred to develop the Company's
website and costs incurred to develop the Look Models and Catwalk
trademarks. These are being amortized using the straight-line method over 4
and 10 years, respectively.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. While SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", it retains many of the fundamental provisions of that Statement. The
Company adopted SFAS No. 144 on January 1, 2002 with no material impact to
its financial statements.
The Company periodically assesses the carrying value of its long-lived
assets for impairment, including operating and office equipment and
intangible assets, when events and circumstances indicate that the carrying
value of an asset may not be recoverable. If such assets are considered to
be impaired, the impairment to be recognised is measured by the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
Based on its review, the Company does not believe that any impairment has
occurred as of December 31, 2002 and March 31, 2003.
Income taxes:
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
F-12
2. Significant accounting policies (continued):
Revenue recognition:
Revenues from cosmetics sales are recognized upon delivery of goods to
customers. Revenues from event and model management are recognized at the
time services are provided. License fee revenues are recognized over the
term of the licensing agreement.
Advertising:
Advertising costs are expensed as incurred. During the years ended December
31, 2002 and 2001 and the three months ended March 31, 2003 and 2002, the
Company incurred approximately $16,000, $52,000, $1,866 (unaudited) and
$1,888 (unaudited), respectively, in advertising expense.
Fair value of financial instruments:
The carrying amounts of the Company's cash and cash equivalents,
receivables, trade liabilities and accrued expenses and other current
liabilities approximate fair values due to the short maturities of these
instruments. The carrying values of the Company's short-term borrowings
approximate fair value based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements. The fair values of the
Company's payables to related parties are not practicable due to the
related party nature of the underlying transactions and indefinite payment
terms.
Stock-based compensation:
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" allows companies to choose whether to account
for employee stock-based compensation on a fair value method, or to account
for such compensation under the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company has chosen to account for employee
stock-based compensation using APB 25.
Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Comprehensive income (loss):
SFAS No. 130, "Reporting Comprehensive Income", establishes requirements
for disclosure of comprehensive income which includes certain items
previously not included in the statements of operations, including minimum
pension liability adjustments and foreign currency translation adjustments,
among others. During the years ended December 31, 2002 and 2001 and the
three months endes March 31, 2003 and 2002 (unaudited), comprehensive
income (loss) represents foreign currency translation adjustments.
F-13
2. Significant accounting policies (continued):
Recently issued accounting standards:
In January 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"), which changes the criteria by which one company includes
another entity in its consolidated financial statements. FIN 46 requires a
variable interest entity ("VIE") to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. The consolidation requirements of FIN 46
apply immediately to VIE's created after January 31, 2003, and apply in the
first fiscal period beginning after June 15, 2003, for VIE's created prior
to February 1, 2003. As the Company does not currently have an interest in
a VIE, management does not expect that the adoption of FIN 46 will have a
significant immediate impact on the financial condition or results of
operations of the Company.
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation Transition and Disclosure". This statement amends SFAS No. 123
"Accounting for Stock-Based Compensation" and establishes two alternative
methods of transition form the intrinsic value method to the fair value
method of accounting for stock-based employee compensation. In addition,
SFAS No. 148 requires prominent disclosure about the effects on reported
net income and requires disclosure for these effects in interim financial
information. The provisions for the alternative transition methods are
effective for fiscal years ending after December 15, 2002 and the amended
disclosure requirements are effective for interim periods beginning after
December 15, 2002. The Company plans to continue accounting for stock-based
compensation under APB 25. Therefore, this pronouncement is not expected to
impact the Company's financial position or results of operations.
In November 2002, the FASB issued SFAS Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees and Indebtedness of Others". FIN 45
elaborates on the disclosures to be made by the guarantor in its interim
and annual financial statements about its obligations under certain
guarantees that it has issued. It also requires that a guarantor recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002,
while the provisions of the disclosure requirements are effective for
financial statements of interim or annual reports ending after December 15,
2002. The Company is currently evaluating the recognition provisions of FIN
45, but does not expect that the adoption of FIN 45 will have a significant
immediate impact on the financial condition or results of operations of the
Company, as the Company has made no guarantees.
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs, Associated
with Exit or Disposal Activities". SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities. This statement supersedes "Emerging Issues Task Force Issue"
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity". The Company does not expect that the
adoption of SFAS No. 146 will have a significant immediate impact on the
financial condition or results of operations of the Company.
F-14
2. Significant accounting policies (continued):
Recently issued accounting standards (continued):
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires
that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Use of the pooling-of-interests
method is prohibited after that date. SFAS No. 142 changes the accounting
for good will from an amortisation method to an impairment-only approach.
The Company adopted the provisions of SFAS No. 141 and 142 on January 1,
2002. The adoption of these standards did not have any effect on the
Company's financial condition and results of operations.
3. Property and equipment:
Property and equipment consists of:
December 31, March 31,
2002 2003
------------- -----------
(unaudited)
Office and computer equipment $ 125,478 $ 126,093
Less accumulated depreciation (78,895) (82,533)
------------ -------------
$ 46,583 $ 43,560
============ =============
Property and equipment is predominantly located in Austria.
4. Intangible assets:
Intangible assets consist of:
December 31, March 31,
2002 2003
------------- -----------
(unaudited)
Website development costs $ 8,900 $ 8,900
Design fees for Look Models
and Catwalk identity 127,175 127,175
------------ -------------
136,075 136,075
Less accumulated amortization (33,056) (35,772)
------------ -------------
$ 103,019 $ 100,303
============ ==============
F-15
5. Short term borrowings:
At December 31, 2002 and March 31, 2003 (unaudited) short-term borrowings
consisted of:
December 31, March 31,
2002 2003
------------- -----------
(unaudited)
Line of credit, interest of 6.5%;
outstanding balance due in June 2003,
collateralized by the Company's receivables
and guaranteed by the
Company's president* $ 184,112 $ 195,808
Line of credit, interest of 6.5%;
outstanding balance due in June 2003,
collateralized by the Company's receivables
and guaranteed by the
Company's president* 458,160 475,915
Line of credit, interest of 7,875%;
outstanding balance due in June 2003,
collateralized by the Company's receivables
and guaranteed by the
Company's president 150,774 156,610
Overdraft on bank accounts,
interest at 7%* 1,116,721 1,171,456
----------- -------------
$ 1,909,767 $ 1,999,789
=========== =============
- -----------------
* Effective January 1, 2003, the interest rates on these loans were reduced
to 4.5%.
6. Profit interest payable:
Pursuant to Austrian law, certain third-party investors were granted a
profit interest in Look Eventmanagement GmbH in 2000 in return for an
investment of $88,888. Under the terms of the agreement, the investors were
to share in profits and losses of the business. In 2001, the Company
decided to terminate the agreement and had provided a liability as of
December 31, 2001 equal to the amount originally invested plus 10%
interest, which was the amount required to terminate the agreement. This
liability was fully repaid in February 2002.
F-16
7. Income taxes:
The reconciliation between the effective tax rate and the statuary U.S.
federal income tax rate is as follows:
December 31, December 31, March 31, March 31,
2002 2001 2003 2002
--------------- --------------- --------------- -----------------
(unaudited) (unaudited)
Computed "expected" tax
benefit 34.00% 34.00% 34.00% 34.00%
Operating losses for which a
benefit has not been
recognized (34.00%) (34.00%) (34.00%) (34.00%)
-------------- -------------- -------------- -----------------
- - - -
================ ================ ================= ==================
At December 31, 2002 and March 31, 2003 (unaudited) the Company's deferred
tax assets are as follows:
December 31, March 31,
2002 2003
------------- -----------
(unaudited)
Net operating loss carry forwards
(foreign) $ 849,052 $ 839,512
Net operating loss carry forwards
(U.S.) 934,351 993,704
Deferred tax asset valuation allowance (1,783,403) (1,833,216)
------------ ------------
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, 2002 the Company had foreign operating loss carryforwards
of approximately $2,497,000 and U.S. operating loss carryforwards of
approximately $2,748,000. At March 31, 2003 (unaudited) the Company had
foreign operating loss carryforwards of approximately $2,469,000 and U.S.
operating loss carryforwards of approximately $2,923,000. Effective January
1, 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 2023.
The income tax returns of the Company's Austrian subsidiaries have been
audited through 1997. The Company does not believe that income tax audits
(if any) for later years will result in any material Austrian income taxes.
F-17
8. Related parties:
Advances payable, related party, represent amounts advanced to the
Company by the Company's CEO and majority 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 2003, or until funds are acquired
through redemption of outstanding warrants or future equity
transactions which will provide the means for repayment.
9. Leases:
The Company is leasing automobiles and office equipment under
operating leases. Rent expense under these leases was $30,170 and
$39,210 for the years ended December 31, 2002 and 2001, respectively,
and $6,737 (unaudited) and $9,760 (unaudited) for the three months
ended March 31, 2003 and 2002 (unaudited). The Company also leases
office space in Vienna under an agreement for an indefinite term.
Under the agreement, if the Company continues to make lease payments
at the current amount, the landlord cannot terminate the lease. Rent
expense for the years ended December 31, 2002 and 2001 and the three
months ended March 31, 2003 and 2002 was approximately $18,930,
$10,100, $9,360 (unaudited) and $2,550 (unaudited), respectively.
At March 31, 2003, future minimum lease payments are as follows:
Year ending December 31:
2003 (nine months) $ 20,212
2004 24,429
2005 16,492
2006 15,362
2007 11,352
---------------
Total $ 87,847
===============
10. Other post-employment benefits:
Austrian employees have a legal right to severance payment if the employer
terminates their employment or if the employee retires. Thus, a liability
has been recorded for estimated severance payments.
The following parameters have been used for calculating estimated severance
payment:
December 31, March 31,
2002 2003
----------- ------------
(unaudited)
Retirement age: Male 61.50 61.50
Female 56.50 56.50
Discount rate 4.50% 4.50%
Rate of increase in future
compensation levels 2.50% 2.50%
For calculation of estimated severance payments, the projected unit credit
method was used.
F-18
The calculations of the estimated severance payments are as follows:
December 31, March 31,
2002 2003
----------- ------------
(unaudited)
Projected benefit obligation at the
beginning of the period $ 19,415 $ 26,975
Interest costs 1,302 326
Service costs 6,516 1,629
Recognized actuarial loss (258) (65)
------------ -----------
Projected benefit obligation at the
end of the period $ 26,975 $ 28,865
============= ============
11. Shareholder's 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
year ended December 31, 2002 and the three months ended March 31, 2003
(unaudited) the Company issued an additional 570,182, 45,375 and 20,000
shares of common stock for $358,619, $45,784, and $18,000 (unaudited) net,
respectively. A total of 73,624, 45,375 and 20,000 (unaudited) 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 shares 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 in 2001 to a former member of the Board of
Directors.
During the year ended December 31, 2002 and the three months ended March
31, 2003 the Company's CEO and majority shareholder waived salary of
$200,000 and $50,000 (unaudited), respectively, due under the terms of his
employment agreement 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 $200,000 and
$50,000 (unaudited).
12. Commitments and contingent liabilities:
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the
financial statements of the Company.
F-19
13. 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:
Event Management:
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:
The Cosmetics segment includes products such as Eau de toilette, perfumes,
body milk and body splash. In 2001, the Company introduced the sale of
sunscreens.
A summary of sales by country is as follows:
Three months ended March 31, 2003 (unaudited)
---------------------------------------------
Event- Model
management management Cosmetics Total
-------------- ---------------- ------------- --------------
Austria $ 110,264 $ 36,042 $ 82 $ 146,388
United States of America 4,217 - - 4,217
Other countries 48,097 64,308 84,477 196,882
---------------- ---------------- ------------- --------------
Totals $ 162,578 $ 100,350 $ 84,559 $ 347,487
================ ================ ============= ==============
Three months ended March 31, 2002 (unaudited)
---------------------------------------------
Event- Model
management management Cosmetics Total
-------------- ---------------- ------------- --------------
Austria $ 40,475 $ 44,192 $ - $ 84,667
United States of America - - 93,201 93,201
Other countries 16,270 61,840 - 78,110
---------------- ---------------- ------------- --------------
Totals $ 56,745 $ 106,032 $ 93,201 $ 255,978
================ ================ ============= ==============
F-20
13. Operating segments (continued
Year ended December 31, 2002
----------------------------
Event- Model
management management Cosmetics Total
-------------- ---------------- ------------- --------------
Austria $ 103,717 $ 138,856 $ 341 $ 242,914
United States of America 26,488 - 309,603 336,091
Other countries 124,299 443,545 - 567,844
---------------- ---------------- ------------- --------------
Totals $ 254,504 $ 582,401 $ 309,944 $ 1,146,849
================ ================ ============= ==============
Year ended December 31, 2001
----------------------------
Event- Model
management management Cosmetics Total
-------------- ---------------- ------------- --------------
Austria $ 72,601 $ 392,497 $ 1,043 $ 466,141
United States of America 74,473 - 277,029 351,502
Other countries 247,772 - 10,822 258,594
---------------- ---------------- ------------- --------------
Totals $ 394,846 $ 392,497 $ 288,894 $ 1,076,237
================ ================ ============= ==============
F-21
13. Operating segments (continued):
Information about the Company's operating segments:
Three months ended March 31, 2003 (unaudited)
---------------------------------------------
Event- Model
management management Cosmetics Corporate Total
---------- ---------- --------- --------- --------
Total revenue $ 162,578 $ 100,350 $ 84,559 - $ 347,487
Profit (loss) from
operations 22,533 28,231 (874) $ (174,567) (124,677)
Interest expense (11,746) (3,271) - - (15,017)
Net income (loss) 15,341 22,954 (874) (174,567) (137,146)
Salary waived by CEO
and majority shareholder 50,000 50,000
Capital expenditures - 615 - - 615
Depreciation and
amortization 3,279 1,994 - 3,885 9,158
Three months ended March 31, 2002 (unaudited)
---------------------------------------------
Event- Model
management management Cosmetics Corporate Total
---------- ---------- --------- --------- --------
Total revenue $ 56,745 $ 106,032 $ 93,201 - $ 255,978
Profit (loss) from
operations (103,456) (20,077) 77,914 $ (132,048) (177,667)
Interest expense (15,719) (4,164) - - (19,883)
Net income (loss) (127,320) (24,241) 77,914 (132,048) (205,695)
Salary waived by CEO
and majority shareholder - - - 50,000 50,000
Capital expenditures 6,996 458 - - 7,454
Depreciation and
amortization 1,883 2,650 - 3,333 7,866
F-22
13. Operating segments (continued):
Year ended December 31, 2002
----------------------------
Event- Model
management management Cosmetics Corporate Total
---------- ---------- --------- --------- --------
Total revenue $ 254,504 $ 582,401 $ 309,944 - $ 1,146,849
Profit (loss) from
operations (439,967) (178,524) 82,115 $ (580,149) (1,116,525)
Interest expense (108,140) (26,277) - - (134,417)
Net income (loss) (524,549) (191,970) 82,115 (580,149) (1,214,553)
Salary waived by CEO
and majority shareholder 200,000 200,000
Capital expenditures 13,443 14,240 - - 27,683
Depreciation and
amortization 12,326 10,161 - 15,543 38,030
Year ended December 31, 2001
----------------------------
Event- Model
management management Cosmetics Corporate Total
---------- ---------- --------- --------- --------
Total revenue $ 394,846 $ 392,497 $ 288,894 - $ 1,076,237
Profit (loss) from
operations (368,282) (313,551) 89,101 $ (1,072,958) (1,665,690)
Interest expense (44,103) (11,723) - - (55,826)
Net income (loss) (415,489) (326,604) 89,101 (1,072,958) (1,725,950)
Shares issued for services - - - 270,000 270,000
Capital expenditures 7,472 - - 16,534 24,006
Depreciation and
amortization 9,030 7,388 - 15,544 31,962
F-23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 23. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Thomas Monahan, CPA was our independent certifying accountant for Kingsgate
Acquisition, Inc. for the fiscal years ended December 31, 2001, 2000 and 1999.
On November 25, 2002, we terminated his appointment, without disagreement, and
subsequently engaged Horwath Gelfond Hochstadt Pangburn, P.C., independent
certified public accountants, who are the certifying accountants for Look Models
International, Inc., as our certifying accountant. The termination of Thomas
Monahan, CPA and appointment of Horwath Gelfond Hochstadt Pangburn, P.C. was
approved by our board of directors.
The reports of Thomas Monahan, CPA on our financial statements for the past
two fiscal years for which Thomas Monahan, CPA provided such reports, contained
no adverse opinion or disclaimer of opinion, nor was either qualified or
modified as to uncertainty, audit scope or accounting principle except that such
reports were modified with respect to our ability to continue as a going
concern.
In connection with the audits of the last two fiscal years ended December
31st and during the subsequent interim period preceding his dismissal, there
were no disagreements between us and Thomas Monahan, CPA on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to his satisfaction,
would have caused Thomas Monahan to make reference to the subject matter of the
disagreement in connection with his reports.
We did not consult with Horwath Gelfond Hochstadt Pangburn, P.C. during the
Company's fiscal years ended December 31, 2001, 2000 or 1999 and subsequent
period through November 25, 2002 on the application of accounting principles to
a specified transaction, the type of opinion that might be rendered on Kingsgate
Acquisitions, Inc.'s financial statements or any accounting, auditing or
financial reporting issue.
Item 24. Indemnification of Directors and Officers
The Delaware General Corporation Law provides for the indemnification of
the officers, directors and corporate employees and agents of Kingsgate
Acquisitions, Inc. (the "Registrant") under certain circumstances as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
II-1
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstance of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and
(b) of this section, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders.
(e) Expenses incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding
may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or
on behalf of such director to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses including
attorneys' fees incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification
or advancement expenses may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another
capacity while holding such office.
II-2
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its
directors, officers and employees or agents so that any person who is
or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this section with respect to
the resulting or surviving corporation as he would have with respect
to such constituent corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer,
employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
II-3
Articles Ninth and Tenth of the Registrant's certificate of incorporate
provide as follows:
NINTH:
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the Delaware General Corporation Law, as the
same may be amended and supplemented.
TENTH:
The Corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Article XII of the Registrant's by-laws provides as follows:
ARTICLE XII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION. The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any proceeding,
whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact
that such person is or was a director, trustee, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding,
had no reasonable cause to believe such person's conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person
did not act in good faith and in a manner which the person reasonably
believed to be in or not opposed to the best interest of the
corporation, and with respect to any criminal action or proceeding,
had reasonable cause to believe that such person's conduct was lawful.
II-4
2. DERIVATIVE ACTION. The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in the corporation's favor by reason
of the fact that such person is or was a director, trustee, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee
or agent of any other corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best
interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable for
gross negligence or willful misconduct in the performance of such
person's duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine
upon application that, despite circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, by itself, create a
presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in or not opposed to the
best interest of the corporation.
3. SUCCESSFUL DEFENSE. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the
merits or otherwise, in whole or in part, in defense of any action,
suit or proceeding referred to in paragraphs 1 and 2 above, or in
defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. to time in
advance of the final disposition of such action, suit or proceeding as
authorized in the manner provided in paragraph 4 above upon receipt of
an undertaking by or on behalf of the director, trustee, officer,
employee or agent to repay such amount unless it shall ultimately be
determined by the corporation that the payment of expenses is
authorized in this Section.
4. NONEXCLUSIVITY. The indemnification provided in this Section shall not
be deemed exclusive of any other rights to which those indemnified may
be entitled under any law, by-law, agreement, vote of stockholders or
disinterested director or otherwise, both as to action in such
person's official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased
to be a director, trustee, officer, employee or agent and shall insure
to the benefit of the heirs, executors, and administrators of such a
person.
II-5
5. INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director,
trustee, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee,
officer, employee or agent of any corporation, partnership, joint
venture, trust or other enterprise, against any liability assessed
against such person in any such capacity or arising out of such
person's status as such, whether or not the corporation would have the
power to indemnify such person against such liability.
6. "CORPORATION" DEFINED. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence
had continued, would have had the power and authority to indemnify its
directors, trustees, officers, employees or agents, so that any person
who is or was a director, trustee, officer, employee or agent of such
of constituent corporation will be considered as if such person was a
director, trustee, officer, employee or agent of the corporation.
Item 25. Expenses of Issuance and Distribution
The following are estimated expenses for the registration payable by Look
Models:
Securities and Exchange Commission Registration Fee.. ...... $ 2,710
Legal Fees.................................................. $100,000
Accounting Fees............................................. $110,000
Edgarization, Printing and Engraving........................ $ 20,000
Miscellaneous............................................... $ 14,500
Transfer Agent Fees......................................... $ 2,500
--------
TOTAL....................................................... $249,710
=========
Item 26. Recent Sales of Unregistered Securities
The registrant was originally a blank check company and issued 2,000,000
shares of common stock between September 28, 1999 and September 30, 1999 to
thirteen investors for cash consideration of $.01 per share for an aggregate
investment of $20,000. The investors were familiar with blank check companies
pursuant to Rule 419. Management was available for any questions and gave the
investors samples of other transactions. The registrant sold these shares of
common stock under the exemption from registration provided by Section 4(2) of
the Securities Act. Neither the registrant nor any person acting on its behalf
offered or sold the securities by means of any form of general solicitation or
general advertising. Purchasers or the beneficial owners of purchasers which are
entities are friends or business associates of Barney Magnusson, former
President of the registrant. No securities have been issued for services. These
investors were all sophisticated investors.
These investors learned about Look Models International when negotiations
were initially conducted with respect to the merger with Kingsgate in the second
half of 2002. These investors received business information as well as audited
financial statements of Look Models International.
II-6
On September 6, 2002, the registrant acquired Look Models International,
Inc. All issued and outstanding shares of common stock of Look Models were
exchanged for an aggregate of 10,500,000 of our shares of common stock, in
proportion to the holdings of the Look Models stockholders. In addition, our
founding stockholders transfered to Wolfgang Schwarz, 1,000,000 of their shares.
The former stockholders of Look Models own 11,500,000 shares of our common stock
representing 92% of the combined entity and 74.2% of the combined entity
assuming all 3,000,000 shares are sold pursuant to this offering. This issuance
was conducted in accordance with Rule 506 under Regulation D. In accordance with
Rule 506 under Regulation D, the registrant did not use general solicitation or
advertising to sell these securities. Further, the registrant sold its
securities only to a total of 28 investors. These investors were either
"accredited investors" or sophisticated, meaning that either alone or with a
purchaser representative, that they have sufficient knowledge and experience in
financial and business matters to make them capable of evaluating the merits and
risks of the investment. The new shareholders were given copies of the
registrant's registration statement. Further, even though the new holders were
already shareholders of Look Models, prior to the merger, they were provided
copies of an amended registration statement which reflected business information
and audited financials of both the registrant and Look Models. Management of the
registrant were available to answer questions by the new holders.
On September 26, 2000, Look Models acquired all the issued and outstanding
stock of Fordash Holdings Ltd., a Bahamian holding company organized in July
1999 and 100% owner of all Look Models affiliates. As originally intended, Mr.
Schwarz wanted an equity partner who would share in the company's operations,
fund-raising and management. Mr. Schwarz anticipated that Look Models would be
used as the vehicle to accomplish this goal, that the interests would be divided
up and that as a bonus, Mr. Schwarz through Fordash would receive an equity
distribution of one million dollars. This transaction was terminated and Mr.
Schwarz extinguished the $1,000,000 payable having determined that it was not in
the best interest of the company to take a distribution at that time. Instead,
the transfer was treated as a recapitalization, as the shareholders of Look
Models acquired all the stock of Fordash. These shares were exchanged to the
same shareholders and no additional consideration was paid for the recapitalized
stock. This transaction was conducted in accordance with Regulation S. None of
the investors were US residents. There were no sales efforts directed from the
United States. All investors were Austrian. In connection with this
recapitalization, Look Models issued 2,344,332 shares of common stock.
During the years ended December 31, 2001 and 2002 and the three months
ended March 31, 2003, Look Models issued an additional 570,182, 45,375 and
20,000 shares of common stock for $358,619, $45,784 and $18,000, net,
respectively. A total of 73,624, 45,375 and 20,000 shares were issued in private
placements pursuant to Regulation S at prices ranging from $0.02 to $2.00 per
share. None of the investors were US residents. There were no sales efforts
directed from the United States. All investors were Austrian. All sales efforts
were made within Austria. Different prices arose as the Company concluded
individual negotiations with each of the Company's investors. In addition, in
2001, 496,558 shares were issued in exchange for legal and professional services
and in repayment of certain liabilities in accordance with Regulation S. None of
the recipients were US residents. There were no sales efforts directed from the
United States. All investors were Austrian. 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 293,042 shares in payment for
services in accordance with Section 4(2) valued at $240,000, which were issued
to Warren Kirshenbaum.
On March 31, 2003, 20,000 shares were issued to Wilhelm Reither for $18,000
pursuant to Regulation S. Mr. Reither is not a US resident. Mr. Reither is
Austrian. Sales efforts for this sale to Mr. Reither was not directed from the
United States.
Shares of preferred stock authorized, and common stock authorized, issued
and outstanding have been retroactively restated to present the capital
structure of Kingsgate.
II-7
All of the following shares were issued by Look pursuant to Regulation S
except for the shares issued to Warren Kirshenbaum, which were issued for
services pursuant to Section 4(2). None of the investors were US residents.
There were no sales efforts directed from the United States. All investors were
Austrian. All sales efforts were made within Austrian.
Subscriber Date of Shares Price per
agreement issued share
- --------------------- ----------- ---------------------------- ---------
Cash NonCash
Wilhelm Reither 7/24/2000 250,000 $0.80
Christiana Tscherne 7/27/2000 7,812 $1.25
Peter Payer 8/9/2000 10,000 $2.00
Heinz Alt 8/15/2000 128,000 $1.00
Antti Jarvinen 8/22/2000 62,500 $0.80
Peter Angerer 9/11/2000 20,000 $2.00
Peter Payer 9/18/2000 20,000 $2.00
Netizen 9/26/2000 5,000,000 $0.001
Monti Fiduciaria S.A. 9/26/2000 0 2,000,000 $0.001
--------- ---------
5,498,312 2,000,000
Warren Kirshenbaum 10/9/2000 0 325,000 $0.77
Wilfried Schlick 10/11/2000 20,000 $2.00
Dr. Koch 10/11/2000 20,000 $2.00
Eugen Sommer 10/11/2000 12,500 $2.00
Werner Schmuck 10/17/2000 30,000 $2.00
CANCELLED
Leopold Wundsch 11/2/2000 31,500 $2.00
Nautilus 11/28/2000 1,600,000 $0.50
AktienInvestor.com 11/28/2000 400,000 $0.50
Reither & Mittendorfer 11/23/2000 193,750 $2.00
Wilhelm Reither 11/30/2000 * 7,812 $0.80
--------- ---------
Year 2000 Totals 7,806,062 2,332,812
Edith Strasser 1/26/2001 6,250 $2.00
Ulrich Weber 2/21/2001 8,225 $2.00
Wilhelm Reither 3/29/2001 * 98,906 $0.80
Rudolf Mittendorfer 3/29/2001 * 41,718 $0.80
Ulrich Petzold 5/3/2001 250,000
Marcus Bachmayer 5/3/2001 15,000
Wilfried Schlick 10/1/2001 15,000 $1.00
Wilhelm Reither 10/9/2001 * 3,000 $1.00
CANCELLED
CANCELLED
Wilfried Schlick 11/2/2001 5,000 $1.00
Herbert Schreil 11/25/2001 10,000 $1.00
Wilhelm Reither 11/02/2001 33,335 $0.80
--------- ---------
Year 2001 Totals 7,868,872 2,756,436
Peter Assmann 3/18/2002 6,310 $2.00
Edwin Frieser 6/5/2002 2,000 $1.00
--------- ---------
Totals at 6/30/02 7,877,182 2,756,436
Herbert Schreil 7/4/2002 9,400 $1.00
Christian Skorpik 7/10/2002 7,000 $1.00
Josef Orban 7/31/2002 7,000 $1.00
Max Pumpernig 8/22/2002 7,000 $1.00
Wilfried Schlied 8/22/2002 5,000 $1.00
--------- ---------
7,912,582 2,756,436
Wilheml Reither 3/31/2003 20,000 18,000 $0.90
Total shares issued by Look 10,689,018
===========
II-8
All purchasers represented in writing that they acquired the securities for
their own accounts. A legend was placed on the stock certificates stating that
the securities have not been registered under the Securities Act and cannot be
sold or otherwise transferred without an effective registration or an exemption
therefrom. All purchasers of our unregistered securities are accredited.
II-9
EXHIBITS
Item 27.
2.1 Securities Purchase Agreement with Look Models International, Inc. dated
July 25, 2000*
3.1 Certificate of Incorporation of Look Models International, Inc.*
3.2 Amendment to Certificate of Incorporation of Look Models International,
Inc.*
3.3 By-Laws of Look Models International and its affiliates*
3.4 Articles of Association of Fordash Holdings, Ltd.*
3.5 Memorandum of Association of Fordash Holdings, Ltd.*
3.6 Articles of Incorporation of Look Eventmanagement GmbH*
3.7 Articles of Incorporation of Look Model Management GmbH (formerly Elite
Model Management Vienna GmbH)*
3.8 Certificate of Incorporation of Kingsgate Acquisitions, Inc.**
3.9 By-laws of Kingsgate Acquisitions, Inc.**
4.1 Specimen Certificate of Common Stock**
4.2 Form of Warrant**
4.3 Form of Escrow Agreement**
4.4 Executed Escrow Agreement**
4.5 Form of Subscription Agreement
5.1 Opinion of Sheila Covino, Esq. dated September 10, 2002*****
10.1 Agreement between Look Eventmanagement GmbH and Parfumerie Douglas
Gesellschaft M.B.H.*
10.2 Agreement by and between Look Models International, Inc. and Models
Prefer, Ltd.*
10.3 Trademark Licensing Agreement between Uli Petzold and Look Models
International, Inc.*
10.4 Look Models International Certificate of Intellectual Property
registration*
10.5 Sample Look Eventmanagement Licensing Agreement*
10.6 Sample Look Model Management Commission Agreement*
II-10
10.7 Sample Look Model Management Mother Agency Agreement*
10.8 Employment Agreement for Wolfgang Schwarz*
10.9 Agreement by and between Look Models International, Inc. and Dialpack
GmbH******
10.10 Agreement between Look Eventmanagement GmbH and Fann, AS****
10.11 Letter from Wolfgang Schwarz regarding funding guarantee, agreement to
forego Salary and waiver of provision 6.1(5) of his employment
agreement.******
10.12 Commission Agreement with Wilhelmina N.Y.******
10.13 Commission Agreement with Success Paris regarding the representation of
Ludmila Boitsova******
10.14 Sponshorship Agreement between Look and Orion Corporation Noiro with the
brand name Lumene******
10.15 Sponshorship Agreement between Lever Com. Serv. S. R.L. and Maximal
Productions******
10.16 Sponshorship Agreement between Elida Faberge and Sport- und
Kulturveranstaltungs Ges.m.b.H (predecessor to Look Eventmanageent)and
Maximal Productions
10.17 Confirmation fax regarding direct client agreements with Nina Ricci
Paris******
10.18 Confirmation fax regarding direct client agreements with Nina Ricci
Paris******
10.19 Historic Hungarian License Agreement between Sport- und
Kulturveranstaltungen GesmbH (predecessor to Look Eventmanageent) and
Prove Prove VB Kft.******
10.20 Lease Agreement for Vienna Offices******
10.21 Lease Agreement for Prague Offices******
10.22 Lease Agreement for Brataslava Offices******
10.23 Confirmation Letter dated March 28, 2003 from Massimillano Ferari,
Managing Director of Coty Beauty to Wolfgang Schwarz, CEO, Look Models,
International******
10.24 Termination Letter dated February 25, 2003 regarding Munich Models
Gmbh******
10.25 Amended Letter from Wolfgang Schwarz regarding funding guarantee,
agreement to forego salary and debts and waiver of provision 6.1(5) of
his employment agreement.*******
23.1 Consent Thomas Monahan, CPA filed previously when this auditor was used.
This appointment was changed to Horwath Gelfond Hochstadt Pangburn,
P.C.****
23.2 Consent of Sheila Corvino, Esq. dated September 9, 2002 to use
opinion****
23.3 Consent of Horwath Gelfond Hochstadt Pangburn, P.C.
23.4 Consent of Wolfgang Schwarz*
23.5 Consent of Uli Petzold*
- ----------------------------
* Previously submitted as to exhibit to registration statement filed
December 14, 2001.
** Previously submitted as exhibit to registration statement filed November
23, 1999.
*** Previously submitted as exhibit to post effective registration statement
filed November 1, 2000.
**** Previously submitted as exhibit to pre effective registration statement
filed December 4, 2002.
***** Previously submitted as exhibit to pre effective registration statement
filed February 7, 2003.
****** Previously submitted as exhibit to pre effective registration statement
filed May 14, 2003.
******* Previously submitted as exhibit to pre effective registration statement
filed July 9, 2003.
II-11
Item 28. UNDERTAKINGS
The Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendment to this registration statement (the "Registration
Statement"):
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
Effective Date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; notwithstanding the foregoing, any
increase or decrease in value of securities offered, any deviation
from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to 424(b) if, in the aggregate, the
changes in valuation and price represent no more than 20% change in
the maximum aggregate offering price set forth in the Calculation of
the registration fee table in the effective registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in this registration
statement, including (but not limited to) the addition of an
underwriter;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be treated as a new
registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any provisions contained in its Certificate of
Incorporation, or by-laws, or otherwise, the Registrant has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-12
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized the registration
statement to be signed on its behalf by the undersigned, in the City of Vienna,
Country of Austria, on August 6, 2003.
KINGSGATE ACQUISITIONS, INC.
By: /s/Wolfgang Schwarz
---------------------------
Wolfgang Schwarz
President
Principal Executive Officer
By: /s/Andreas Seiser
--------------------------
Andreas Seiser
Treasurer
Principal Financial Officer
Principal Accounting Officer
In accordance with the requirements of the Securities Act of 1933, the
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/ Wolfgang Schwarz
------------------------------- Dated: August 6, 2003
Wolfgang Schwarz
President, Director
/s/ Uli Petzold
------------------------------- Dated: August 6, 2003
Uli Petzold
Secretary, Director