UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from -------------- to --------------
Commission File Number: 333-99419
Kingsgate Acquisitions, Inc.
(Successor to Look Models International, Inc.)
(Name of small business
issuer in its charter)
Delaware 5999 98-0211672
(State or other jurisdiction (Primary standard (IRS Employer
of incorporation or organization) industrial class code No.) Identification No.)
Wolfgang Schwarz
KINGSGATE ACQUISITIONS, INC.
c/o Look Models International, Inc.
Passauerplatz #1
Vienna 1010, Austria
011-43-1-533-5816
(Address and telephone number of principal executive offices,
principal place of business, and name, address and
telephone number of agent for service of process)
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. NA
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of August 12, 2003, there
are 12,520,000 shares of common stock issued and outstanding. Transitional Small
Business Disclosure Format (Check one): Yes [ ] No [X]
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.)
JUNE 30, 2003 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Special Note Regarding Forward Looking Statements 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis 15
Item 3. Controls and Procedures 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
To the extent that the information presented in this Quarterly Report on
Form 10-QSB for the quarter ended June 30, 2003 discusses financial projections,
information or expectations about our products or markets, or otherwise makes
statements about future events, such statements are forward-looking. Although we
believe that the expectations reflected in these forward-looking statements are
based on reasonable assumptions, there are a number of risks and uncertainties
that could cause actual results to differ materially from such forward-looking
statements. These risks and uncertainties are described, among other places in
this Quarterly Report, in "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
In addition, we disclaim any obligations to update any forward-looking
statements to reflect events or circumstances after the date of this Quarterly
Report. When considering such forward-looking statements, you should keep in
mind the risks referenced above and the other cautionary statements in this
Quarterly Report.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED BALANCE SHEET
JUNE 30, 2003
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 2,681
Trade accounts receivable, net 360,435
Inventories 1,589
Prepaid expenses and other current assets 44,689
-------------------------
Total current assets 409,394
Property and equipment, net 38,048
Intangible assets, net 99,822
Deposit 16,281
-------------------------
154,151
Total assets $ 563,545
=========================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Trade liabilities $ 661,668
Accrued expenses and other current liabilities 384,769
Advances payable, related party 1,129,154
Short-term borrowings 2,115,261
-------------------------
Total liabilities (all current) 4,290,852
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
12,520,000 shares issued and outstanding 12,520
Additional paid-in-capital 3,285,968
Accumulated deficit (6,665,477)
Accumulated other comprehensive loss (360,318)
-------------------------
Total shareholders' deficit (3,727,307)
-------------------------
Total liabilities and shareholders' deficit $ 563,545
=========================
See notes to consolidated financial statements
4
KINGSGATE ACQUISITIONS, INC.
(SUCCESOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
Three months ended Three months ended Six months ended Six months ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
---------------------- ---------------------- ---------------------- ----------------------
Sales $ 235,842 $ 208,774 $ 583,329 $ 464,752
Cost of sales (135,327) (141,936) (313,736) (234,311)
---------------------- ---------------------- ---------------------- ----------------------
Gross profit 100,515 66,838 269,593 230,441
---------------------- ---------------------- ---------------------- ----------------------
Selling expenses (192,123) (199,592) (357,148) (357,307)
Administrative expenses (272,139) (108,647) (400,869) (292,202)
---------------------- ---------------------- ---------------------- ----------------------
(464,262) (308,239) (758,017) (649,509)
Loss from operations (363,747) (241,401) (488,424) (419,068)
---------------------- ---------------------- ---------------------- ----------------------
Interest expense (36,470) (27,680) (51,487) (47,563)
Other, net 4,809 (19,762) 7,357 (27,907)
---------------------- ---------------------- ---------------------- ----------------------
(31,661) (47,442) (44,130) (75,470)
---------------------- ---------------------- ---------------------- ----------------------
Net loss $ (395,408) $ (288,843) $ (532,554) $ (494,538)
====================== ====================== ====================== =======================
Other comprehensive loss:
Foreign currency
translation adjustments (153,981) (278,907) (264,451) (265,282)
---------------------- ---------------------- ---------------------- ----------------------
Comprehensive loss $ (549,389) $ (567,750) $ (797,005) $ (759,820)
====================== ====================== ====================== ======================
Net loss per share -
basic and diluted $ (0.03) $ (0.02) $ (0.04) $ (0.04)
======================= ====================== ====================== =======================
Weighted average shares of
common stock outstanding 12,520,000 12,463,453 12,513,111 12,459,573
======================== ====================== ====================== ======================
See notes to consolidated financial statements
5
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
June 30, 2003 June 30, 2002
Cash flows from operating activities:
Net loss $ (532,554) $ (494,538)
--------------------- --------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 18,618 15,881
Salary waived by CEO and majority shareholder 100,000 100,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (146,883) 45,932
Decrease in inventories 103,145 14,524
Decrease (increase) in prepaids and other current assets 47,662 (80,843)
Increase (decrease) in trade accounts payable 47,140 (173,823)
Increase (decrease) in accrued expenses and
other liabilities 114,453 (64,821)
Increase (decrease) in advance payable related party 185,391 (99,011)
-------------------- ---------------------
469,526 (242,161)
-------------------- ---------------------
Net cash used in operating activities (63,028) (736,699)
--------------------- ---------------------
Cash flows from investing activities:
Capital expenditures (633) (10,787)
--------------------- --------------------
Net cash used in investing activities (633) (10,787)
--------------------- --------------------
Cash flows from financing activities:
Increase in short-term borrowings, net 34,349 762,837
Proceeds from issuance of common stock 18,000 14,619
-------------------- --------------------
Net cash provided by financing activities 52,349 777,456
-------------------- --------------------
Effect of exchange rate changes in cash and cash
equivalents (8,772) (36,713)
Net decrease in cash (20,084) (6,743)
Cash and cash equivalents, beginning 22,765 46,203
-------------------- -----------------------
Cash and cash equivalents, ending $ 2,681 $ 39,460
==================== ====================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 51,487 $ 47,563
==================== ====================
See notes to consolidated financial statements
6
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim financial statements:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six months
period ended June 30, 2003, are not necessarily indicative of the results of the
full year.
2. Management's plans:
The Company's financial statements for the years ended December 31, 2002
and 2001 (not included herein) and for the six months ended June 30, 2003 and
2002 (unaudited) show that the Company has incurred net losses of $1,214,553,
$1,725,950, $532,554 and $494,538, respectively, and has a shareholders' deficit
and a working capital deficiency of $3,727,307 and $3,881,458, respectively, as
of June 30, 2003. 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 June 30,
2003 such amounts were $1,129,154 (unaudited). 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 six
months ended June 30, 2003 and 2002 includes $100,000 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.
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. For the six
months ended June 30, 2003, 65% of the overall Model Management's
revenue resulted from international bookings. 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 45% in 2002 compared to 2001.
7
2. Management's plans (continued):
Cosmetics:
The Company is finalizing 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.
3. Merger
On September 6, 2002, Look Models International, Inc. (LMI) completed a
merger with Kingsgate Acquisition ("Kingsgate"), a development stage
corporation, organized on September 28, 1999 as a vehicle to acquire or merge
with a business.
Pursuant to the Agreement, the shareholders of LMI sold to Kingsgate 100%
of all the issued and outstanding shares of LMI, in exchange for 10,500,000,
$.001 par value, newly issued shares of voting common stock of Kingsgate.
Additionally, 1,000,000, $.001 par value common shares held by Kingsgate's
founders were issued to the president and majority shareholder of LMI.
The transaction was accounted for as a reverse acquisition of Kingsgate by
LMI, since the shareholders of LMI own approximately 85.2% of the post
acquisition common shares of the consolidated entity immediately after the
completion of the transaction. For accounting purposes, the acquisition has been
treated as an acquisition of Kingsgate by LMI and as a recapitalization of LMI.
Shares of preferred stock authorized, and common stock authorized, issued and
outstanding have been retroactively restated to present the capital structure of
Kingsgate.
4. Concentration of credit risk:
The Company grants credit to its customers, generally without collateral.
At June 30, 2003 $153,047 of net trade receivables were due from two customers.
During the six months ended June 30, 2003 one cosmetics and Eventmanagement
customer and one Eventmanagement customer accounted for 29% and 20% of sales,
respectively. During the six months ended June 30, 2002 one cosmetics customer
accounted for 18% of sales. During the three months ended June 30, 2003 one
Eventmanagement customer accounted for 22% of sales and for the three months
ended June 30, 2002 no customer accounted for more than 10% of sales.
8
5. 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.
6. Property and equipment:
Property and equipment consists of:
Office and computer equipment $ 126,093
Less accumulated depreciation (88,045)
-------------
$ 38,048
Property and equipment is predominantly located in Austria.
7. Short term borrowings:
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 $ 210,469
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 486,392
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 173,010
Overdraft on bank accounts, interest at 4.5% 1,245,390
---------------
$ 2,115,261
9
8. Income taxes:
The reconciliation between the effective tax rate and the statuary
U.S. federal income tax rate is as follows:
June 30, 2003 June 30, 2002
(unaudited) (unaudited)
Computed "expected" tax benefit 34.00% 34.00%
Operating losses for which a
benefit has not been recognized (34.00%) (34.00%)
----------------- -----------------
- -
================= ================
The Company's deferred tax assets are as follows: June 30, 2003
(unaudited)
Net operating loss carry forwards (foreign) $ 911,540
Net operating loss carry forwards (U.S.) 1,052,932
Deferred tax asset valuation allowance (1,964,472)
----------------
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 June 30, 2003 the Company has foreign operating loss carryforwards of
approximately $2,681,000 and U.S. operating loss carryforwards of approximately
$3,097,000. 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.
9. Related parties:
Advances payable, related party, represent amounts advanced to the Company
by the Company's president and principal shareholder. The advances are
unsecured, payable on demand and do not bear interest. The Company's president
has agreed to postpone his claim for amounts owed to him by the Company through
2003, or until funds are acquired through redemption of outstanding warrants or
future equity transactions which will provide the means for repayment.
11
10. Shareholders' equity:
During the six months ended June 30, 2003, the Company issued 20,000 shares
of common stock for $18,000 net. These shares were issued in private placements.
During the six months ended June 30, 2003 and 2002 the Company's president
and majority shareholder waived salary of $100,000 due under the terms of his
employment contract with the Company. The Company has accounted for the waived
salary as a capital contribution by the majority shareholder, resulting in an
increase in additional paid-in capital of $100,000.
11. 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:
Products of the cosmetics business include eau de toilette, perfumes, body
milk, sunscreens and body splash.
A summary of sales by country is as follows:
Six months ended June 30, 2003
Event- Model
management management Cosmetics Total
Austria $ 115,556 $ 80,879 $ 143 $ 196,578
United States of America 17,079 - - 17,079
Other countries 134,128 148,654 86,890 369,672
---------------- ---------------- ------------- --------------
Totals $ 266,763 $ 229,533 $ 87,033 $ 583,329
================ ================ ============= ==============
12
11. Operating segments (continued):
Six months ended June 30, 2002
Event- Model
management management Cosmetics Total
Austria $ 57,593 $ 80,287 $ - $ 137,880
United States of America 8,203 - 98,454 106,657
Other countries 60,676 159,539 - 220,215
---------------- ---------------- ------------- --------------
Totals $ 126,472 $ 239,826 $ 98,454 $ 464,752
================ ================ ============= ==============
Three months ended June 30, 2003
Event- Model
management management Cosmetics Total
Austria $ 5,292 $ 44,837 $ 61 $ 50,190
United States of America 12,862 - - 12,862
Other countries 86,031 84,346 2,413 172,790
---------------- ---------------- ------------- --------------
Totals $ 104,185 $ 129,183 $ 2,474 $ 235,842
================ ================ ============= ==============
Three months ended June 30, 2002
Event- Model
management management Cosmetics Total
Austria $ 17,118 $ 36,095 $ - $ 53,213
United States of America 8,203 - 5,253 13,456
Other countries 44,406 97,699 - 142,105
---------------- ---------------- ------------- --------------
Totals $ 69,727 $ 133,794 $ 5,253 $ 208,774
================ ================ ============= ==============
13
11. Operating segments (continued):
Information about the Company's operating segments:
Six months ended June 30, 2003
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 266,763 $ 229,533 $ 87,033 - $ 583,329
Loss from
operations (63,631) (59,949) (16,277) $ (348,567) (488,424)
Interest expense (42,083) (9,404) - - (51,487)
Net loss (100,352) (67,358) (16,277) (348,567) (532,554)
Salary waived by CEO
and majority shareholder 100,000 100,000
Capital expenditures - 633 - - 633
Depreciation and
amortization 6,912 3,934 - 7,772 18,618
Six months ended June 30, 2002
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 126,472 $ 239,826 $ 98,454 - $ 464,752
Loss from
operations (231,163) (47,635) 83,363 $ (223,633) (419,068)
Interest expense (38,375) (9,188) - - (47,563)
Net loss (299,829) (54,439) 83,363 (223,633) (494,538)
Salary waived by CEO
and majority shareholder - - - 100,000 100,000
Capital expenditures 9,159 1,628 - - 10,787
Depreciation and
amortization 6,907 4,723 3,146 1,105 15,881
14
11. Operating segments (continued):
Information about the Company's operating segments:
Three months ended June 30, 2003
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 104,185 $ 129,183 $ 2,474 - $ 235,842
Loss from
operations (86,164) (88,180) (15,403) $ (174,000) (363,747)
Interest expense (30,337) (6,133) - - (36,470)
Net loss (115,693) (90,312) (15,403) (174,000) (395,408)
Salary waived by CEO
and majority shareholder - - - 50,000 50,000
Capital expenditures - 18 - - 18
Depreciation and
amortization 3,633 1,940 - 3,887 9,460
Three months ended June 30, 2002
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 69,727 $ 133,794 $ 5,253 $ - $ 208,774
Loss from
operations (127,707) (27,558) 5,449 (91,585) (241,401)
Interest expense (22,656) (5,024) - - (27,680)
Net loss (172,509) (30,198) 5,449 (91,585) (288,843)
Salary waived by CEO
and majority shareholder - - - 50,000 50,000
Capital expenditures 2,163 1,170 - - 3,333
Depreciation and
amortization 5,024 2,073 - 918 8,015
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
You should read the following discussion and analysis as well as the
consolidated financial statements and their accompanying notes. This discussion
and analysis is a presentation by the management of Look Models of their
financial condition and result of their operations, as our company has assumed
their business operations.
Certain statements contained under this caption 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.
16
Result of Operations
Six months ended June 30, 2003 compared with the six months ended June 30,
2002
Revenue for the six months ended June 30, 2002 was $464,752 and revenue for
the six months ended June 30, 2003 was $583,329 (a 25.5% increase). This
increase is primarily due to a significant sale of cosmetics products and
Eventmanagement services, as well as a large commission fee earned from model
placement. The cost of sales of $313,736 for the six months ended June 30, 2003
is higher than the cost of sales of $234,311 in the six months ended June 30,
2002. This increase is due to the costs underlying the cosmetics and
Eventmanagement sales and the costs surrounding model placement. Specifically,
the gross profit for the period ended June 30, 2002 was $230,441, or 49.6%, and
for the six months ended June 30, 2003, the gross profit was $269,593, or 46.2%.
Selling expenses remained almost unchanged for the six months ended June 30,
2003 at $357,148, as compared to the selling expenses for the six months ended
June 30, 2002 of $357,307. Admininistrative expenses were $400,869 for the six
months ended June 30, 2003, and were $292,202 for the six months ended June 30,
2002, a 37.2% increase. This increase is due to costs attributed to preparing
for the Company's public registration, fees for advisory services, and software
updating, as well as the write-off of account receivables. Look Models posted a
net loss for the six months ended June 30, 2003 of $532,554. The net loss for
the six months ended June 30, 2003 was an increase of 7.7% over the net loss for
the six months ended June 30, 2002 of $494,538.
The net loss for the six months ended June 30, 2003 can be divided into a
net loss from U.S. operations, and a net loss from European operations. The net
loss for the six months ended June 30, 2003 from U.S. operations was $348,567,
while the net loss from European operations was $183,787. For the six months
ended June 30, 2002, the Company incurred a net loss from European operations of
$270,905 and a net loss from U.S. operations of $223,633. The net loss from U.S.
operations for the six months ended June 30, 2003 of $348,567 shows an increase
of 55.9% compared to the net loss for the six months ended June 30, 2002. The
increase is mainly due to costs incurred from the organisation 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. The net loss from European
operations for the six months ended June 30, 2003 of $183,787 shows a decrease
of 32.2% compared to the net loss of the six months ended June 30, 2002. This
decrease is due to an upgrading of the Company's accounting and financial
controls, and particularly to the cutting of personnel expenses.
17
Three months ended June 30, 2003 compared with three months ended June 30,
2002
Revenue for the three months ended June 30, 2002 was $208,774 and revenue
for the three months ended June 30, 2003 was $235,842 (a 12.9% increase). This
increase is due to significant sales of Eventmanagement services. The cost of
sales of $135,327 for the three months ended June 30, 2003 is lower than the
cost of sales of $141,936 in the three months ended June 30, 2002. This decrease
is due to the costs underlying the Eventmanagement sales and the costs
surrounding model placement. Specifically, the gross profit for the period ended
June 30, 2002 was $66,838 or 32%, and for the three months ended June 30, 2003,
the gross profit was $100,515 or 42.6%. Selling expenses decreased slightly for
the three months ended June 30, 2003 at $192,123, as compared to the selling
expenses for the three months ended June 30, 2002 of $199,592. Administrative
expenses were $272,139 for the three months ended June 30, 2003 and were
$108,647 for the three months ended June 30, 2002, a 150.5% increase. This
increase is mainly due to costs attributed to preparing for the Company's public
registration, fees for advisory services, and software updating. Look Models
posted a net loss for the three months ended June 30, 2003 of $395,408. The net
loss for the three months ended June 30, 2003 was an increase of 36.9% over the
net loss for the three months ended June 30, 2002 of $288,843.
The net loss for the three months ended June 30, 2003 can be divided into a
net loss from U.S. operations, and a net loss from European operations. The net
loss for the three months ended June 30, 2003 from U.S. operations was $174,000,
while the net loss from European operations was $221,408. For the three months
ended June 30, 2002, the Company incurred a net loss from European operations of
$197,258 and a net loss from U.S. operations of $91,585. The net loss from U.S.
operations for the three months ended June 30, 2003 of $174,000 shows an
increase of 90% compared to the net loss for the three months ended June 30,
2002. The increase is mainly due to costs incurred from the organisation of the
International Fashion Days event in Prague. Management allocates costs and
earnings from an international event like the International Fashion Days
showcasing international talent to U.S. operations. The net loss from European
operations for the three months ended June 30, 2003 of $221,408 shows an
increase of 12.2% compared to the net loss of the three months ended June 30,
2002. This increase is due to an agreement between Look Models and an advisory
for audit assistance.
Liquidity and Capital Resources
Working Capital, Debt and Liquidity
Although Look Models had a shareholders' deficit as of June 30, 2003 of
$3,727,307, Look Models believes that it will have the capital resources for the
next twelve (12) months in order to operate its business due to:
(1) Funding Commitment. 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.
18
(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.
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.
(4) 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 achieves 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.
19
(5) Lines of Credit and Overdrafts. Look Models has the following lines of
credit and overdrafts on bank accounts with several Austrian banks:
At June 30, 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 $ 210,469
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 486,392
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 173,010
Overdraft on bank accounts, interest at 4.5% 1,245,390
---------
$ 2,115,261
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.
Seasonality
These are seasonable aspects that can have a material effect on the
financial condition or results of operations of Look Models, such as lower
demand during off-season periods. Partially offsetting the seasonality is the
fact that Look Models has a presence in various markets. A slowdown in one
market is sometimes offset by buoyancy in another market, resulting in such
fluctuations having less of an overall effect on Look Models' annual revenue
stream. For example, the different seasons result in the need for models in
different venues. Spring and fall bring the need for models to display fashions
for the industry retail viewers. Summer and winter require models in on-site
swimwear and winter sports shoots.
20
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. 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.
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
finalizing 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.
21
Description of Material Risks and Management's Strategy to Offset Risk
Look Modelseffectively invests in the future of young models in the hope
that it will benefit when these models develop in their careers. Look Models may
never receive a return on its investment in a significant number of its models
due to a variety of factors, such as changing consumer tastes, personal
difficulties of the models, emotional inability to perform in the modeling
world, lack of modeling assignments, economic downturns, more affordable
replacements for models, to name a few. Look Models also faces the risk that its
models may dishonor contracts they have with the agency, refuse to sign
contracts with the agency, or leave the agency to join another agency. While
Look Models plans to issue shares of stock to each of its models as an incentive
to remain with Look Models, and to build loyalty and an ownership mentality in
its models, management has not worked out the specifics of this program. It is
anticipated that this program will be a privately issued employee stock plan
issued pursuant to an exemption from registration under the Securities Act of
1933. Additionally, management intends to closely marshal and enforce its
contractual relationships with all its models, and with the outside agencies
with which Look Models shares bookings, and, therefore, fees.
22
ITEM 3. CONTROLS AND PROCEDURES
On May 16, 2003, the Company's management concluded its evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. As of the Evaluation Date, the Company's Chief Executive Officer
and its Chief Financial Officer concluded that the Company maintains disclosure
controls and procedures that are effective in providing reasonable assurance
that information required to be disclosed in the Company's reports under the
Securities Act of 1934 (Exchange Act) is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to the Company's
management, including its Chief Executive Officer and its Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company's management necessarily applied its judgement in
assessing the costs and benefits of such controls and procedures, which, by
their nature, can provide only reasonable assurance regarding management's
control objectives. There have been no significant changes in the Company's
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date.
23
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Kingsgate is not presently a party to any litigation, nor, to the knowledge
of management, is any litigation threatened against Kingsgate which may
materially affect Kingsgate.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 31.1 Form 302 Certification.
Exhibit 31.2 Form 302 Certification.
Exhibit 32.1 Form 906 Certification.
Exhibit 32.2 Form 906 Certification.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.
KINGSGATE ACQUISITIONS, INC.
By: /s/Wolfgang Schwarz
- --------------------------- August 14, 2003
Wolfgang Schwarz
President
Principal Executive Officer
By: /s/Andreas Seiser August 14, 2003
- ----------------------------
Andreas Seiser
Treasurer
Principal Financial Officer
Principal Accounting Officer
EXHIBIT 31.1
CERTIFICATION PERSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Wolfgang Schwarz, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Kingsgate
Acquisitions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report.
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
By: /s/Wolfgang Schwarz
- --------------------------- August 14, 2003
Wolfgang Schwarz
President
Principal Executive Officer
EXHIBIT 31.2
CERTIFICATION PERSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Andreas Seiser, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Kingsgate
Acquisitions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report.
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal controls over financial reporting.
By: /s/Andreas Seiser August 14, 2003
- ----------------------------
Andreas Seiser
Treasurer
Principal Financial Officer
Principal Accounting Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kingsgate Acquisitions, Inc.
(the "Company") on Form 10-QSB for the period ending June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Wolfgang Schwarz, President, Chief Executive Officer, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 12(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company, as of, and for the periods presented in the Report.
By: /s/Wolfgang Schwarz
- --------------------------- August 14, 2003
Wolfgang Schwarz
President
Principal Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kingsgate Acquisitions, Inc.
(the "Company") on Form 10-QSB for the period ending June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Andreas Seiser, Chief Financial Officer and Principal Accounting Officer,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 12(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company,
as of, and for the periods presented in the Report.
By: /s/Andreas Seiser August 14, 2003
- ----------------------------
Andreas Seiser
Treasurer
Principal Financial Officer
Principal Accounting Officer
A signed original of this written statement required by section 906 has
been provided to Kingsgate Acquisitions, Inc. and will be retained by Kingsgate
Acquisitions, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.