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 September 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 November 19, 2003, there are
13,103,500 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.)
SEPTEMBER 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 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
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 September 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. We are making these forward-looking statements in reliance on
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, there are a
number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements. These risks and uncertainties
are described, among other places in this Quarterly Report, in "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
In addition, we disclaim any obligations to update any forward-looking
statements to reflect events or circumstances after the date of this Quarterly
Report. When considering such forward-looking statements, you should keep in
mind the risks referenced above and the other cautionary statements in this
Quarterly Report.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 18,383
Trade accounts receivable, net 524,762
Inventories 1,488
Prepaid expenses and other current assets 87,571
-------------------------
Total current assets 632,204
Property and equipment, net 34,461
Intangible assets, net 95,374
Deposit 16,281
-------------------------
146,116
Total assets $ 778,320
=========================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Trade liabilities $ 748,269
Accrued expenses and other current liabilities 524,207
Advances payable, related party 1,220,690
Short-term borrowings 2,170,627
-------------------------
Total liabilities (all current) 4,663,793
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 3,335,968
Accumulated deficit (6,800,675)
Accumulated other comprehensive loss (433,286)
-------------------------
Total shareholders' deficit (3,885,473)
-------------------------
Total liabilities and shareholders' deficit $ 778,320
=========================
See notes to consolidated financial statements
4
KINGSGATE ACQUISITIONS, INC.
(SUCCESOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
Three months ended Three months ended Nine months ended Nine months ended
September 30,2003 September 30, 2002 September 30, 2003 September 30, 2002
--------------------- --------------------- ---------------------- --------------------
Sales $ 379,214 $ 244,349 $ 962,543 $ 709,101
Cost of sales (175,676) (13,760) (489,412) (237,071)
--------------------- --------------------- ---------------------- --------------------
Gross profit 203,538 230,589 473,131 472,030
--------------------- --------------------- ---------------------- --------------------
Selling expenses (76,870) (205,419) (434,018) (562,726)
Administrative expenses (246,230) (213,162) (647,099) (505,364)
---------------------- -------------------- ---------------------- --------------------
(323,100) (418,581) (1,081,117) (1,068,090)
Loss from operations (119,562) (187,992) (607,986) (596,060)
---------------------- -------------------- ---------------------- -------------------
Interest expense (24,337) (34,947) (75,824) (82,510)
Other, net 8,701 779 16,058 (27,128)
---------------------- --------------------- ---------------------- -------------------
(15,636) (34,168) (59,766) (109,638)
---------------------- --------------------- ---------------------- -------------------
Net loss $ (135,198) $ (222,160) $ (667,752) $ (705,698)
====================== ===================== ====================== ====================
Other comprehensive loss:
Foreign currency
translation adjustments (72,968) 31,792 (337,419) (233,490)
----------------------- ---------------------- ---------------------- --------------------
Comprehensive loss $ (208,166) $ (190,368) $ (1,005,171) $ (939,188)
======================= ======================= ======================= ====================
Net loss per share -
basic and diluted $ (0.01) $ (0.02) $ (0.05) $ (0.06)
======================== ======================== ======================= =====================
Weighted average basic and diluted shares
of common stock outstanding 12,520,000 12,491,136 12,515,407 12,469,962
======================== ======================== ======================= =====================
See notes to consolidated financial statements
5
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
September 30, 2003 September 30, 2002
Cash flows from operating activities:
Net loss $ (667,752) $ (705,698)
--------------------- ---------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 28,039 18,516
Accounts Receivable written off 67,619 -
Salary waived by CEO and majority shareholder 150,000 150,000
Changes in assets and liabilities:
Increase in accounts receivable (363,791) (19,488)
Decrease in inventories 103,986 48,073
Decrease (increase) in prepaids and other current assets 8,232 (83,855)
Increase (decrease) in trade accounts payable 110,619 (138,625)
Increase (decrease) in accrued expenses and
other liabilities 246,890 (88,019)
Increase (decrease) in advance payable related party 257,640 (112,403)
-------------------- ---------------------
609,234 (225,801)
-------------------- ---------------------
Net cash used in operating activities (58,518) (931,499)
--------------------- ---------------------
Cash flows from investing activities:
Capital expenditures (637) (21,367)
--------------------- ---------------------
Net cash used in investing activities (637) (21,367)
--------------------- ---------------------
Cash flows from financing activities:
Increase in short-term borrowings, net 41,590 911,114
Proceeds from issuance of common stock 18,000 45,784
-------------------- --------------------
Net cash provided by financing activities 59,590 956,898
-------------------- --------------------
Effect of exchange rate changes on cash and cash
equivalents (4,817) (37,632)
Net decrease in cash (4,382) (33,600)
Cash and cash equivalents, beginning 22,765 46,203
-------------------- -----------------------
Cash and cash equivalents, ending $ 18,383 $ 12,603
==================== ====================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 75,824 $ 82,510
==================== ====================
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 nine month period ended September 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 nine months ended September
30, 2003 and 2002 (unaudited) show that the Company has incurred net losses
of $1,214,553, $1,725,950, $667,752 and $705,698, respectively, and has a
shareholders' deficit and a working capital deficiency of $3,885,473 and
$4,031,589, respectively, as of September 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 September 30, 2003 such amounts were $1,220,690
(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 nine months
ended September 30, 2003 and 2002 includes $150,000 of non-cash
foregone salary imputed to the Company's president.
b. In October 2003, our Company received $583,500 in a Regulation S
private placement.
c. The Company's president has refinanced a real estate investment and
advanced approximately $190,000 to support 2003 activities.
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.
d. 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 nine months ended September 30, 2003, 68% of the overall Model
Management's revenue resulted from international bookings. The
Company's unique Internet portal booking software allows it to
7
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Management's plans (continued):
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 recently began utilizing this software, model management
revenues increased by more than 45% in 2002 compared to 2001.
Cosmetics:
The Company signed a license contract for its fragrance line with one
of the world's largest fragrance producers, Coty. This company will
produce and market fragrance products, as well as sponsor Look Model
Search activities and book Look models for its international
campaigns. The first launch of products will take place in late
November 2003 in the Czech Republic, Poland, Slovakia and Romania;
other countries are to follow. In addition, Coty 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 and 2004, 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.
8
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Concentration of credit risk:
The Company grants credit to its customers, generally without
collateral. At September 30, 2003 $242,466 of net trade receivables were
due from three customers. During the nine months ended September 30, 2003
one cosmetics and Eventmanagement customer and one Eventmanagement customer
accounted for 22% and 12% of sales, respectively. During the three months
ended September 30, 2003 one Eventmanagement customer accounted for 13% of
sales. During the nine months ended September 30, 2002 one cosmetics
customer accounted for 13% of sales.
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 (91,632)
-------------
$ 34,461
Property and equipment is predominantly located in Austria.
7. Short term borrowings:
At September 30, 2003, short-term borrowings consisted of:
Line of credit, interest at 4.5%; outstanding balance due
in December 2003; collateralized by the Company's
receivables and guaranteed by the Company's president $ 219,196
Line of credit, interest at 4.5%; outstanding balance due in December 2003;
collateralized by the Company's receivables and guaranteed by the Company's
president 510,139
Line of credit, interest at 7.875%; outstanding balance due in December
2003; collateralized by the Company's receivables and guaranteed by the
Company's president 161,933
Overdraft on bank accounts, interest at 4.5% 1,279,359
---------------
$ 2,170,627
9
8. Income taxes:
The reconciliation between the effective tax rate and the statuary U.S.
federal income tax rate is as follows:
September 30, 2003 September 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: September 30, 2003 September 30, 2002
(unaudited) (unaudited)
Net operating loss carry forwards (foreign) $ 907,940 $ 773,103
Net operating loss carry forwards (U.S.) 1,102,498 838,051
Deferred tax asset valuation allowance (2,010,438) (1,611,154)
---------------- ---------------
Net deferred tax assets $ - $ -
=============== ================
In foreign tax jurisdictions, the company is subject to income tax on
an entity basis on income arising in or derived from the tax jurisdiction
in which each entity is domiciled. The Company's Bahamian subsidiary is not
liable for income tax. The Company's Austrian and Czech Republic operations
are subject to income tax at 34%. Other European operations are not
significant.
At September 30, 2003 the Company has foreign operating loss
carryforwards of approximately $2,670,000 and U.S. operating loss
carryforwards of approximately $3,243,000. 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.
10
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. Shareholders' equity:
During the nine months ended September 30, 2003, the Company issued
20,000 shares of common stock for $18,000 net. These shares were issued in
private placements.
During the nine months ended September 30, 2003 and 2002 the Company's
president and majority shareholder waived salary of $150,000 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
$150,000.
In October 2003, our Company received $583,500 in a Regulation S
private placement.
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, body splash and sunscreens.
A summary of sales by country is as follows:
Nine months ended September 30, 2003 (unaudited)
Event- Model
management management Cosmetics Total
Austria $ 128,067 $ 145,532 $ 144 $ 273,743
United States of America 20,233 - - 20,233
Other countries 276,895 304,184 87,488 668,567
---------------- ---------------- ------------- --------------
Totals $ 425,195 $ 449,716 $ 87,632 $ 962,543
================ ================ ============= ==============
11
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. Operating segments (continued):
Nine months ended September 30, 2002 (unaudited)
Event- Model
management management Cosmetics Total
Austria $ 87,944 $ 99,307 $ - $ 187,251
United States of America 17,812 - 100,451 118,263
Other countries 97,241 306,346 - 403,587
---------------- ---------------- ------------- --------------
Totals $ 202,997 $ 405,653 $ 100,451 $ 709,101
================ ================ ============= ==============
Three months ended September 30, 2003 (unaudited)
Event- Model
management management Cosmetics Total
Austria $ 12,511 $ 64,653 $ - $ 77,164
United States of America 3,154 - - 3,154
Other countries 142,767 155,530 599 298,896
---------------- ---------------- ------------- --------------
Totals $ 158,432 $ 220,183 $ 599 $ 379,214
================ ================ ============= ==============
Three months ended September 30, 2002 (unaudited)
Event- Model
management management Cosmetics Total
Austria $ 30,351 $ 19,020 $ - $ 49,371
United States of America 9,609 - 1,997 11,606
Other countries 36,565 146,807 - 183,372
---------------- ---------------- ------------- --------------
Totals $ 76,525 $ 165,827 $ 1,997 $ 244,349
================ ================ ============= ==============
12
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. Operating segments (continued):
Information about the Company's operating segments:
Nine months ended September 30, 2003 (unaudited)
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 425,195 $ 449,716 $ 87,632 - $ 962,543
Loss from
operations (17,959) (77,587) (16,519) $ (495,921) (607,986)
Interest expense (59,002) (16,822) - - (75,824)
Net loss (78,352) (78,330) (16,519) (494,551) (667,752)
Salary waived by CEO
and majority shareholder 150,000 150,000
Capital expenditures - 637 - - 637
Depreciation and
amortization 10,186 6,195 - 11,658 28,039
Nine months ended September 30, 2002 (unaudited)
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 202,997 $ 405,653 $ 100,451 - $ 709,101
Profit/(Loss) from
operations (453,962) 69,485 85,334 $ (296,916) (596,060)
Interest expense (67,418) (15,092) - - (82,510)
Net income/(loss) (553,560) 59,444 85,344 (296,916) (705,698)
Salary waived by CEO
and majority shareholder - - - 150,000 150,000
Capital expenditures 10,078 11,289 - - 21,367
Depreciation and
amortization 4,466 2,393 11,657 18,516
13
KINGSGATE ACQUISITIONS, INC.
(SUCCESSOR TO LOOK MODELS INTERNATIONAL, INC.) (NOTE 3)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. Operating segments (continued):
Information about the Company's operating segments:
Three months ended September 30, 2003 (unaudited)
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 158,432 $ 220,183 $ 599 - $ 379,214
Profit/(Loss) from
operations 45,672 (17,638) (242) $ (147,354) (119,562)
Interest expense (16,919) (7,418) - - (24,337)
Net loss 22,000 (10,972) (242) (145,984) (135,198)
Salary waived by CEO
and majority shareholder - - - 50,000 50,000
Capital expenditures - - - - -
Depreciation and
amortization 3,274 2,261 - 3,886 9,421
Three months ended September 30, 2002 (unaudited)
Event- Model
management management Cosmetics Corporate Total
Total revenue $ 76,525 $ 165,827 $ 1,997 $ - $ 244,349
Profit/(Loss) from
operations (222,799) 117,120 1,971 (84,284) (187,992)
Interest expense (29,043) (5,904) - - (34,947)
Net income/(loss) (253,730) 113,883 1,971 (84,284) (222,160)
Salary waived by CEO
and majority shareholder - - - 50,000 50,000
Capital expenditures 919 9,661 - - 10,580
Depreciation and
amortization 1,489 798 - 10,552 12,839
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
You should read the following discussion and analysis as well as the
consolidated financial statements and thei9r 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 9this 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.
15
Result of Operations
Nine months ended September 30, 2003 compared with the nine months ended
September 30, 2002
Revenue for the nine months ended September 30, 2002 was $709,101 and
revenue for the nine months ended September 30, 2003 was $962,543 (a 35.7%
increase). This increase is primarily due to a significant sale of
Eventmanagement services, as well as large commission fees earned from model
placement. The cost of sales of $489,412 for the nine months ended September 30,
2003 is higher than the cost of sales of $237,071 in the nine months ended
September 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 September 30, 2002 was
$472,030, or 66.6%, and for the nine months ended September 30, 2003, the gross
profit was $473,131, or 49.2%. Selling expenses decreased for the nine months
September 30, 2003 to $434,018 as compared to the selling expenses for the nine
months ended September 30, 2002 of $562,726, a 22.9% decrease. This decrease is
mainly due to a decrease in salaries, telecommunication and travel expenses.
Administrative expenses were $647,099 for the nine months ended September 30,
2003, and were $505,364 for the nine months ended September 30, 2002, a 28.1%
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 accounts receivable. Look Models posted a
net loss for the nine months ended September 30, 2003 of $667,752. The net loss
for the nine months ended September 30, 2003 was a decrease of 5.4% over the net
loss for the nine months ended September 30, 2002 of $705,698.
The loss for the nine months ended September 30, 2003 can be divided into a
loss from U.S. operations, and a loss from European operations. The loss for the
nine months ended September 30, 2003 from U.S. operations was $494,551, while
the loss from European operations was $173,201. For the nine months ended
September 30, 2002, the Company incurred a net loss from European operations of
$408,782 and a net loss from U.S. operations of $296,916. The loss from U.S.
operations for the nine months ended September 30, 2003 of $494,551 shows an
increase of 66.6% compared to the loss for the nine months ended September 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 loss from European
operations for the nine months ended September 30, 2003 of $173,201 shows a
decrease of 57.6% compared to the loss of the nine months ended September 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.
16
Three months ended September 30, 2003 compared with three months ended September
30, 2002
Revenue for the three months ended September 30, 2002 was $244,349, and
revenue for the three months ended September 30, 2003 was $379,214 (a 55.2%
increase). This increase is due to significant sales of Eventmanagement services
and an increase in model placements. The cost of sales of $175,676 for the three
months ended September 30, 2003 is higher than the cost of sales of $13,760 in
the three months ended September 30, 2002. This increase results from the costs
underlying the cosmetics and Eventmanagement sales and the costs surrounding
model placement. Specifically, the gross profit for the period ended September
30, 2002 was $230,589 or 94,4%, and for the three months ended September 30,
2003, the gross profit was $203,538 or 53.7%. Selling expenses decreased for the
three months ended September 30, 2003 to $76,870, as compared to the selling
expenses for the three months ended September 30, 2002 of $205,419, a 62.6%
decrease. This decrease is mainly due to a decrease in salaries,
telecommunication and travel expenses. Administrative expenses were $246,230 for
the three months ended September 30, 2003 and were $213,162 for the three months
ended September 30, 2002, a 15.5% increase. This increase mainly results from
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 September 30, 2003 of $135,198. The net loss for the three
months ended September 30, 2003 was a decrease of 39.1% over the net loss for
the three months ended September 30, 2002 of $222,160.
The loss for the three months ended September 30, 2003 can be divided into
a loss from U.S. operations, and a profit from European operations. The loss for
the three months ended September 30, 2003 from U.S. operations was $145,984,
while the profit from European operations was $10,786. For the three months
ended September 30, 2002, the Company incurred a loss from European operations
of $137,876 and a loss from U.S. operations of $84,284. The loss from U.S.
operations for the three months ended September 30, 2003 of $145,984 shows an
increase of 98.9% compared to the loss for the three months ended September 30,
2002. The increase is mainly due to costs attributed to preparing for the
Company's public registration, fees for advisory services, and software
updating. The turn from loss to profit in comparing European operations for the
three months ended September 30, 2002 with the three months ended September 30,
2003 is due to a significant increase in both Eventmanagement and Model
Management sales and a considerable cutting of selling expenses.
17
Liquidity and Capital Resources
Working Capital, Debt and Liquidity
Although Look Models had a shareholders' deficit as of September 30, 2003
of $3,885,473, 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.
(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. In October 2003, our Company
obtained additional funding from a Regulation S private placement in the
amount of $583,500. 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 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.
18
(5) Lines of Credit and Overdrafts. Look Models has the following lines of
credit and overdrafts on bank accounts with several Austrian banks:
At September 30, 2003 short-term borrowings consisted of:
Line of credit, interest at 4.5%; outstanding balance due
in December 2003; collateralized by the Company's
receivables and guaranteed by the Company's president $ 219,196
Line of credit, interest at 4.5%; outstanding balance due in December 2003;
collateralized by the Company's receivables and guaranteed by the Company's
president 510,139
Line of credit, interest at 7.875%; outstanding balance due in December
2003; collateralized by the Company's receivables and guaranteed by the
Company's president 161,933
Overdraft on bank accounts, interest at 4.5% 1,279,359
---------
- $ 2,170,627
=================
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.
19
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 an agreement with Coty Beauty, a division of
Coty, to develop a fragrance line under the Pret-a-Porter brand. The parties
signed a written license agreement and the first launch of products will take
place in late November 2003 in the Czech Republic, Poland, Slovakia and Romania.
20
Description of Material Risks and Management's Strategy to 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.
21
ITEM 3. CONTROLS AND PROCEDURES
On Sept. 19, 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.
22
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 99.1 Form 906 Certification
Exhibit 99.2 Form 906 Certification
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.
KINGSGATE ACQUISITIONS, INC.
By: /s/Wolfgang Schwarz
- --------------------------- November 19, 2003
Wolfgang Schwarz
President
Principal Executive Officer
By: /s/Andreas Seiser November 19, 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
- --------------------------- November 19, 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 officers 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 function):
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 November 19, 2003
- ----------------------------
Andreas Seiser
Treasurer
Principal Financial Officer
Principal Accounting Officer
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kingsgate Acquisitions, Inc.
(the "Company") on Form 10-QSB for the period ending September 30, 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
- --------------------------- November 19, 2003
Wolfgang Schwarz
President
Principal Executive 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.
EXHIBIT 99.2
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 September 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 November 19, 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.