File Number: 333-91485
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
KINGSGATE ACQUISITIONS, INC.
----------------------------
(Name of small business
issuer in its charter)
Delaware 6770 98-0211672
- ------------------------ ---------------------------- ---------------
(State of incorporation (Primary Standard Industrial (I.R.S. Employer
or jurisdiction Classification Code Number) Identification No.)
of organization)
950 11th Street, West Vancouver Barney Magnusson
British Columbia V7T 2M3 Canada KINGSGATE ACQUISITIONS, INC.
(604) 926-6775 950 11th Street, West Vancouver
(Address and telephone number of British Columbia V7T 2M3 Canada
principal executive offices) (604) 926-6775
(Name, address and telephone
number of agent for service)
Copies to:
Sheila G. Corvino, Attorney at Law
811 Dorset West Road Eaton & Van Winkle
Dorset, Vermont 05251 3 Park Avenue
Phone: (802) 867-0112 New York, New York 10016
Fax: (802) 867-2468 Phone: (212) 779-9910
Fax: (212) 779-9928
Approximate date of proposed sale to the public: as soon as practicable
after the effective date of the registration statement and date of the
prospectus.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that it shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933,
as amended, or until the registration statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
CALCULATION OF REGISTRATION FEE
Title of each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities Being To be Offering Price Aggregate Registration
Registered Registered Per Security Offering Amount Fee
Units 1,000,000 $1.00 $,1,000,000 $278.00
Each Unit comprised of
Common Stock 1,000,000
Class A Warrants 1,000,000
Class B Warrants 1,000,000
Common Stock Underlying
class A Warrants (1) 1,000,000 $1.50 $1,500,000 $417.00
Common Stock Underlying
class B Warrants (1) 1,000,000 $2.50 $2,500,000 $695.00
---------
TOTAL 7,325,000 $5,500,000 $1,390.00(2)
========= ========= =========
(1) Pursuant to Rule 416 there are also registered hereby such additional
number of shares as may become issuable by reason of the anti-dilution
provisions of the class A redeemable warrants and class B redeemable
warrants. These additional shares are not issuable by reason of the
anti-dilution provisions of other derivative securities we may issue in the
future.
(2) The registrant previously paid a fee of $1,546. Therefore no additional fee
is due with this filing.
Cross Reference Sheet
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
Part I. Information Required in Prospectus
Item
No. Required Item Location or Caption
- ---- ------------- -------------------
1. Front of Registration Statement
and Outside Front Cover of
Prospectus Front of Registration
Statement and Outside
Front Cover of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front Cover Page
of Prospectus and Outside
Back Cover Page of
Prospectus
3. Summary Information and Risk
Factors Prospectus Summary;
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering
Price Market for our Common
Stock
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Not Applicable
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
Beneficial Owners and Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and
Counsel Legal Matters; Financial
Statements
14. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities Statement as to
Indemnification
15. Organization Within Last
Five Years Management; Certain
Transactions
16. Description of Business Proposed Business
17. Management's Discussion and
Analysis or Plan of
Operation Proposed Business -
Plan of Operation
18. Description of Property Proposed Business
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Stock and
Related Stockholder Matters Prospectus Summary;
Market for Our
Common Stock
21. Executive Compensation Management - Remuneration
22. Financial Statements Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure Not Applicable
PROSPECTUS
KINGSGATE ACQUISITIONS, INC.
(A Delaware Corporation)
1,000,000 units consisting of
1,000,000 shares of common stock
2,000,000 two-year redeemable warrants
We are a Delaware corporation organized to pursue a business combination.
We agreed to purchase all of the outstanding shares of common stock of Look
Models International, Inc., a Delaware corporation ("Look Models") and all
shareholders of Look Models will become our shareholders.
We are offering these units through our president, Wolfgang Schwarz,
without the use of a professional underwriter on a best efforts basis. We will
not pay commissions on unit sales. There are no minimum purchase requirements.
Subscription monies will be held an escrow account pending acceptance by our
company.
This offering will expire one year from the date of this prospectus, unless
we decide in our sole discretion to extend the offering for an additional one
year term.
No public market currently exists for our shares. The offering price may
not reflect the market price of our units after this offering. Our shares are
not listed on any securities exchange.
These securities have not been approved or disapproved by the securities
and exchange commission nor has the commission passed upon the accuracy or
adequacy of the prospectus. Any representation to the contrary is a criminal
offense.
The information in this prospectus is subject to amendment and completion.
----------------------------------------------------
This offering involves a high degree of risk. (see "risk factors"
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commencing on page x for special risks concerning us and the offering).
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Offering Information
Per unit Total
-------- -----------
Initial public offering price $1.00 $1,000,000.00
Underwriting discounts/commissions $ .00 $ .00
Estimated offering expenses $ .00 $ .00
Net offering proceeds to
Kingsgate Acquisitions, Inc. $1.00 $1,000,000.00
The date of the Prospectus is ______, 2002.
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................. 1
Summary Financial Information.................................. 4
Risk Factors................................................... 5
Dilution....................................................... 8
Plan of Distribution .......................................... 10
Terms of the Securities Purchase Agreement..................... 12
Use of Proceeds................................................ 13
Proposed Business............................................... 14
Management's Discussion and Analysis............................ 27
Management..................................................... 42
Statement as to Indemnification................................ 48
Market for our Common Stock.................................... 48
Certain Transactions........................................... 50
Principal Stockholders......................................... 51
Description of Securities...................................... 53
Where You Can Find More Information............................ 57
Legal Proceedings.............................................. 58
Financial Statements........................................... F-1
Kingsgate Acquisitions, Inc.
Look Models International, Inc.
Pro-forma condensed consolidated
balance sheet
PROSPECTUS SUMMARY
Kingsgate Acquisitions, Inc.
We are a Delaware corporation, organized on September 28, 1999, as a
vehicle to acquire or merge with a business.
Our acquisition target, Look Models International, Inc., is a Delaware
corporation. Look Models, along with its wholly-owned subsidiaries, operate
o a modeling agency,
o a talent scout and talent development business,
o a promotional event management and event licensing
business, and
o a product design and distribution business. Look Models is
currently designing a line of cosmetic products, aromatherapy,
clothing, lingerie and accessories under the brand names "Look"
and "Catwalk" aimed at the young female market worldwide. Look
Models has begun distribution perfume, eau de toilette, body
milk, body splash and perfume towelettes. Look Models is
currently designing clothing and accessories lines as well as
fragrance and aromatherapy lines, including bath oil pearls,
cream and scent candles.
We maintain our office at 950 11th Street, West Vancouver, British Columbia
V7T 2M3 Canada. Our phone number is (604) 926-6775. We intend to relocate our
offices to Passauerplatz #1, Vienna 1010, Austria the present address of Look
Models. The phone number of Look Models is 011-43-1-533-5816; its fax number is
011-43-1-535-4255; and its email address is agency@link2look.com.
1
The Offering
Securities offered 1,000,000 units each consisting of one
share of our common stock, $0.001 par value,
one class A warrant and one class B warrant.
(1)(2)
Offering price $1.00 per unit.
Gross Offering proceeds $1,000,000
Expiration date The offering will expire one year from
the date of this prospectus unless extended
for an additional one year period.
Common stock outstanding
prior to the offering 2,000,000 shares
Common stock to be
outstanding after the offering 3,000,000 shares
Common stock to be
Outstanding after the
merger with Look Models
assuming all
shares sold in offering 13,500,000 shares
Warrants to be outstanding
after the offering 1,000,000 class A redeemable warrants
1,000,000 class B redeemable warrants
(1) The shares and warrants comprising the units are immediately
separable upon issuance.
(2) The warrants are exercisable into shares of our common stock
until two years after the date of this prospectus as follows
Exercise price Net proceeds from
exercise
-------------- ----------------------
class A 2-year redeemable warrant $ 1.50 per share $ 1,500,000
class B 2-year redeemable warrant $ 2.50 per share $ 2,500,000
Our founders, officers, directors, current stockholders and affiliates are able
to purchase up to 50% of the offering.
2
Limited State Registration
Initially, the only state in which our securities may be sold is New York
State. Therefore, you may only resell your shares or warrants in New York State.
In the event we expand the number of states in which our securities will be
sold, we will file a post-effective amendment to the registration statement and
re-circulate prospectuses to all prospective investors to whom prospectuses had
previously been distributed. In addition, we may sell units to investors who
reside in foreign countries, including but not limited to Austria. In that
event, we will register or qualify the sale of our units in such country unless
an exemption from registration or qualification is available. We intend to offer
our securities to residents of the Province of British Columbia, Canada. The
sale to residents of British Columbia, so long the offering is sold to fewer
than 50 subscribers, excluding officers, directors and employees, is exempt from
registration.
3
SUMMARY FINANCIAL INFORMATION
The following is a summary of our financial information and is qualified in
its entirety by our financial statements.*
From From Look Models
1/1/00 1/1/01 Year ended Year ended Pro-Forma
to 12/31/00 to 12/31/01 to 12/31/00 12/31/01 After
Acquisition
and sale of
1,000,000
shares
----------- ----------- ------------ ---------- ------------
Statement of Income Data:
Net Sales $ 0 $ 0 $ 1,220,841 $ 1,076,237 $ 1,076,237
Net Loss $ (820) $ (15,365) $ (1,680,438) $(1,725,950) $(1,741,315)
Net Loss Per Share $ 0.00 $ 0.01 $ (0.17) (0.13) (0.13)
Shares Outstanding
Common 3,000,000 3,000,000 10,138,874 10,625,308 13,500,000
Preferred 0 0 0 0 0
Balance Sheet Data
Working Capital $ 106,732 $ 91,367 $ (553,230) $(1,842,854) $(1,599,584)
Total Assets $ 107,232 $ 91,867 $ 1,442,313 $ 755,631 $ 847,498
Long Term Debt $ 0 $ 0 $ 0 $ 0 $ 0
Total Liabilities $ 500 $ 500 $ 1,819,427 $ 2,433,900 $ 2,434,400
Common stock 3,000 3,000 10,139 10,626 $ 13,500
Preferred stock 0 0 0 0 0
Additional paid in capital $ 105,215 $ 105,215 $ 2,565,946 $ 2,924,078 $ 3,012,571
Deficit and deficit
accumulated during
development stage $ (1,483) $ (16,848) $(3,192,420) $(4,918,370) $(4,918,370)
Total Stockholders' Equity $ 106,732 $ 91,867 $ (377,114) $(1,678,269) $(1,586,902)
(Deficit)
4
RISK FACTORS
An investment in our securities involves a high degree of risk. You should
carefully consider, together with the other information appearing in this
prospectus, the following factors in evaluating an investment in our company.
After our business combination with Look Models, Look Models will own 85.2%
of our company and its current board of directors and officers will manage our
affairs. Our success will be dependent on, among other things, this management
team and we cannot assure you that management of Look Models will successfully
run the business.
- --------------------------------------------------------------------------------
We have agreed that, upon the successful completion of our business
combination with Look Models, we will issue 10,500,000 shares of our common
stock and our founders will transfer 1,000,000 of their shares to shareholders
of Look Models so that the shareholders of Look Models will own 11,500,000
shares of a total of 12,500,000 shares or 92% of our issued and outstanding
common stock. Assuming the successful sale of all 1,000,000 shares of common
stock pursuant to this offering, there will be 13,500,000 shares outstanding, of
which the shareholders of Look Models will own 85.2%. Therefore, the
consummation of this business combination will result in a change of control to
the present management of Look Models and the resignation of all our present
officers and all of our directors. We can provide no assurance that the
management of Look Models will successfully run the business after our
acquisition.
Look Models has experienced losses and we can give no assurances that Look
Models will become a profitable venture or that its products and services will
achieve commercial acceptance.
- --------------------------------------------------------------------------------
Look Models and its predecessors have experienced losses in the past two
fiscal years, as it has invested heavily in the development of its event
management and licensing business, as well as its product line. We can give no
assurances that Look Models' new products will be accepted in the marketplace or
that these products will generate revenues.
Look Models is dependent on its, President, Wolfgang Schwarz, and upon the
retention of additional qualified management and technical personnel.
- --------------------------------------------------------------------------------
Look Models' success is greatly dependent on its president and largest
stockholder, Wolfgang Schwarz, due to his background, experience and contacts in
the industry and his knowledge of the marketplace and its nuances. In addition,
Look Models must attract and retain qualified management for the further
development of its business and improvement and marketing of its products.
Competition for management and marketing personnel is intense. Look Models'
inability to attract additional key employees or the loss of one or more current
key employees could adversely affect it in developing existing products and
marketing its products to existing and future clients.
The vast majority of Look Models' operations and assets are concentrated
outside the United States. Therefore, a creditor or plaintiff in a lawsuit may
encounter great difficulties in enforcing liabilities in foreign jurisdiction.
Further, an investor should be advised that there are political,economic and
currency risks of operating in foreign countries.
- -------------------------------------------------------------------------------
Look Models' operations are world-wide and its assets are mainly in
Austria. An investor should be aware that a creditor or judgment holder may
encounter great difficulties in enforcing liabilities and attaching assets as
these are held overseas. Further, as the different countries in which Look
Models operates are subject to different economic cycles, political
instabilities and differing values in currency, an investor should be aware that
an investment in Look Models is subject to all of these risks.
5
There is no public market for our securities. This means that there is a
high risk that it may be difficult or impossible for a shareholder to sell his
shares and if he is able to sell them, he might not recoup his investment as the
price of his common stock is subject to great volatility.
- -------------------------------------------------------------------------------
As of this date, there is no public trading market for our common stock.
Given the small size of this offering, and the relatively minimal public float,
there is only a very limited likelihood of any active and liquid public trading
market developing for the shares. If such a market does develop, the price of
our common stock may be volatile. Thus, investors run the risk that they will
never be able to sell their shares. In any event, there are additional state
securities laws preventing resale transactions. While we have solicited Public
Securities of Spokane, Washington to be our market maker, we can give assurance
that a market can be made in our securities.
We may need additional financing. We cannot assure you that we will be able
to obtain this financing at favorable rates, if at all. If such financing cannot
be raised, we may be unable to fund the operations of our company.
- --------------------------------------------------------------------------------
While the president of Look Models has guaranteed funding for its
operations for up to 25% of the total annual operating expenses for 2002, this
guarantee is not without end. No other officers, directors or affiliates of our
company or Look Models have agreed to lend money to our company or Look Models.
In order to achieve and maintain our planned growth rate after the merger, which
growth plan includes financing acquisitions, Look Models may have to obtain
additional bank financing or sell additional debt or equity securities in public
or private financing. Any such financing could dilute the interest of current
shareholders. There can be no assurance that any such additional financing will
be available or, if it is available, that it will be in such amounts and on the
terms that will be satisfactory to Look Models.
There was no independent valuation of the shares in the acquisition
transaction. Thus, the price of our shares of our common stock we are offering
by this prospectus may bear little or no relation to their actual value.
- --------------------------------------------------------------------------------
The number of our shares to be issued pursuant to the acquisition agreement
was determined by negotiation between our company and Look Models and does not
necessarily bear any relationship to Look Models' asset value, net worth or
other established criteria of value and should not be considered indicative of
the actual value of Look Models. Furthermore, neither our company nor Look
Models has obtained either an appraisal of our respective securities or an
opinion that the acquisition is fair from a financial perspective.
6
The following are estimated expenses, incurred in connection with this
registration statement, which are payable by Look Models and will be recouped by
them out of the proceeds of this offering:
Securities and Exchange Commission Registration Fee.. ...... $ 0
Legal Fees.................................................. $100,000
Accounting Fees............................................. $ 80,000
Edgarization, Printing and Engraving........................ $ 15,000
Miscellaneous............................................... $ 10,000
Transfer Agent Fees......................................... $ 2,500
--------
TOTAL....................................................... $215,000
7
DILUTION
The difference between the initial public offering price per share of
common stock and the net tangible book value per share after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share of common stock is determined by dividing our net tangible book value,
which is total tangible assets less total liabilities, by the number of shares
of common stock outstanding.
As of December 31, 2001, our net tangible book value was $91,367 or $0.03
per share of common stock. Excluding the $100,000 proceeds of the offering and
the 1,000,000 shares issued in the offering, our net tangible book value as of
December 31, 2001 was $0 or $0 per share of common stock. Net tangible book
value represents the amount of our total assets, less any intangible assets and
total liabilities. Our net tangible book value (deficit) as of December 31, 2001
on an unaudited pro forma combined basis, taking into account the acquisition of
Look Models, Inc. and issuance of 10,500,000 shares of common stock to Look
Models' present shareholders was $(1,691,712), which represents net liabilities
increased by intangible assets of $104,810, or approximately $(0.13) per share,
based on 13,500,000 outstanding shares of common stock, after consummation of
the transaction and assuming sale of all 1,000,000 shares pursuant to this
offering. The result will be an immediate reduction in net tangible book value
of $0.13 per share to our present shareholders and an immediate decrease of
$0.23 per share to the public investors on a post-offering basis and post-merger
basis assuming 1,000,000 shares of our common stock are sold pursuant to this
offering.
8
The following tables illustrate this dilution:
100%
Public offering price per share $.10 $.10
Net tangible book value per share
before the offering $0.0
Increase per share attributable
to new investors $0.03
----
$0.03
Decrease per share attributable to
Acquisition of Look Models (0.16)
-----
Pro forma net tangible book value
Per share with the offering
And acquisition of Look Models ($0.13) ($0.13)
------- ------
Dilution per share to
new investors $0.23 $0.23
===== ======
Proforma net tangible book value per share (0.13) (0.13)
===== ======
Post-merger dilution per share to new
investors $0.23 $0.23
===== ======
The tables are based upon the following assumptions: the acquisition of
Look Models, the issuance of 10,500,000 shares of common stock to present Look
Models ssstockholders, the sale of the entire 1,000,000 units pursuant to this
prospectus, and the total issued and outstanding shares being to 13,500,00.
9
PLAN OF DISTRIBUTION
Conduct of this offering
This is a best efforts, self-underwritten offering of 1,000,000 units. Each
unit is comprised of one share of common stock, one class A warrant and one
class B warrant. The common stock and warrants are immediately separable upon
issuance of the units. We will accept subscriptions, in our sole discretion, on
a first come, first served basis. We will not pay any compensation to any person
for the offer and sale of the units. There is no minimum offering amount that we
must raise in order to continue with this offering.
Wolfgang Schwarz, our president and treasurer, shall conduct this unit
offering. He plans to distribute prospectuses related to this offering. We
estimate that we will distribute approximately 200 prospectuses to
acquaintances, friends and business associates.
As of the date of this prospectus, we have not retained a broker for the
sale of securities being offered. In the event we retain a broker, who may be
deemed an underwriter, we will file an amendment to our registration statement.
We have retained Public Securities, Inc., Spokane, Washington, a
broker-dealer registered with the NASD, to act as lead market maker for our
units, common stock and warrants and to make application for the listing of our
units, shares of common stock and warrants on the OTC Bulletin Board. No
assurance can be given that our units will be accepted for listing on the OTC
Bulletin Board.
The holders of our common stock, subject, where applicable, to the terms
and conditions of the lockup agreement, may also sell shares under Rule 144
under the Securities Act, if available, rather than under this prospectus. They
may also engage in short sales against the box, puts and calls and other
transactions in securities of our company or derivatives of our securities and
may sell or deliver shares in connection with these trades. The holders of the
shares of common stock being offered pursuant to this prospectus also may pledge
their securities to their brokers under the margin provisions of customer
agreements.
Broker-dealers engaged by the holders of our units, common stock and our
class A and class B redeemable warrants may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
those security holders (or, if any broker-dealer acts as agent for the purchaser
of shares, from the purchaser) in amounts to be negotiated.
The holders of our units, common stock and our class A and class B
redeemable warrants and any broker-dealers or agents that are involved in
selling those holders' securities may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
10
We will pay all fees and expenses incident to the registration of the
securities offered pursuant to this prospectus, except any fees and
disbursements of counsel to the holders of such securities and any brokerage
commissions and other selling expenses incurred by those holders in connection
with the sale of their securities.
At any time a particular offer of the securities is made, a revised
prospectus or prospectus supplement, if required, will be distributed which will
contain the amount and type of securities being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents,
any discounts, commissions and other items constituting compensation from the
holders, selling securities and any discounts, commissions or concessions
allowed or reallowed or paid to dealers. A prospectus supplement and, if
necessary, a post-effective amendment to the registration statement of which
this prospectus is a part, will be filed with the U.S. Securities and Exchange
Commission to reflect the disclosure of additional information with respect to
the distribution of the securities.
The holders of our common stock and our class A and class B redeemable
warrants and any other person participating in such distribution will be subject
to applicable provisions of the Exchange Act and the rules and regulations under
the Exchange Act, including, Regulation M, which may limit the timing of
purchases and sales of any of the common stock by you and any other such person.
Furthermore, under Regulation M under the Exchange Act, any person engaged in
the distribution of the common stock may not simultaneously engage in
market-making activities with respect to the particular common stock being
distributed for certain periods prior to the commencement of or during such
distribution. All of the above may affect the marketability of the securities
and the availability of any person or entity to engage in market- making
activities with respect to the common stock.
We do not intend to engage in any distribution efforts on behalf of any
ofthe holders of our common stock and our class A and class B redeemable
warrants other than providing for registration of the securities registered for
sale with the U.S. Securities and Exchange Commission. We do not intend to
solicit or otherwise induce any selling security holders to exercise their class
A or class B redeemable warrants.
Provided that any pledge or assignment by any holder of our common stock
and our class A and class B redeemable warrants does not involve any increase in
the number of shares or dollar amount registered, or include shares from a
transaction other than the one to which this filing relates, and absent
circumstances indicating that the change is material, we expect to reflect any
such change in the filing of a Rule 424(b) prospectus supplement describing the
change. In such prospectus supplement, we would be required to set forth the
disclosure information regarding such successors in interest as required by the
rules and regulations of the U.S. Securities and Exchange Commission.
Method of subscribing
Persons may subscribe for units by filling in and signing the subscription
agreement and delivering it to us prior to the expiration date. Subscribers must
pay $1.00 per unit in cash or by check, bank draft or postal express money order
payable in United States dollars to "Chittenden Bank on behalf of Kingsgate
Acquisitions, Inc." You may not pay in cash. This is a self-underwritten
offering made on a best efforts basis.
Our officers, directors, current stockholder and any of their affiliates or
associates may purchase up to 50% of the units. Units purchased by our officers,
directors and principal stockholder will be acquired for investment purposes and
not with a view toward distribution.
Expiration date
The offering will end the earlier of the receipt of subscriptions for
1,000,000 units or one year from the effective date of the prospectus, unless we
decide in our sole discretion to extend this offering for an additional one year
period.
11
TERMS OF THE SECURITIES PURCHASE AGREEMENT
The terms of our acquisition of Look Models are set forth in a securities
purchase agreement, dated July 25, 2001, by and among us, our founding
stockholders, Look Models International, Inc. and the stockholders of Look
Models International, Inc.
The agreement includes the following terms:
o All issued and outstanding shares of common stock of Look Models
shall be exchanged for an aggregate of 10,500,000 of our shares
of common stock, in proportion to the holdings of the Look Models
stockholders. In addition, our founding stockholders will
transfer to Wolfgang Schwarz, 1,000,000 of their shares. The
former stockholders of Look Models will own 11,500,000 shares of
our common stock representing 85.2% of the combined entity.
o Our founders will transfer a portion of their shares to the
following parties in consideration of various services. R. Scott
Barter acted as a finder for this transaction. The founders will
transfer 125,000 shares of their founders' stock to him. Jack
Rubinstein will act as advisor to the company in respect to
locating key executives and strategic alliances as well as in the
provision of product marketing advice. The founders will transfer
125,000 shares of their founders' stock to him. Mr. Richard Cohen
will act as an advisor to the company in connection with the
management and marketing expertise gained from his business
experience, including but not limited to his service as the
former president of General Media, Inc. The founders will
transfer 125,000 shares of their founders' stock to him.
o Look Models has funded our counsel's legal fees in connection
with this post-effective registration statement. In consideration
of all prior legal services Mrs. Corvino has rendered to our
company, including the preparation of our last post-effective
amendment, and in lieu of additional cash compensation, our
founders have awarded her 125,000 shares of their common stock.
Effect on current management
We will pay no fees or other compensation to present management or our
affiliates nor have we entered into or intend to enter into any understandings
for any future arrangements that will result in income for current management or
our affiliates. None of our management or directors will be a part of Look
Models' management or its board. No person associated with our company will
receive any form of compensation for the acquisition transaction. Although no
assurances can be given, our board of directors believes that our acquisition of
Look Models represents a good investment opportunity.
Accounting Treatment
Although we are the parent corporation, for accounting purposes, our
acquisition of Look Models is treated as the acquisition of us by Look Models.
This is known as a reverse acquisition and a recapitalization of Look Models.
Look Models is the acquirer for accounting purposes because the former Look
Models stockholders will receive the larger percentage of our common stock and
voting rights than our current stockholders. The fiscal year will remain the
same as both our company and Look Models have the same fiscal year, December 31.
12
USE OF PROCEEDS
The gross proceeds of this offering if fully subscribed will be $1,000,000.
In this case, proceeds will be used as follows:
Percentage
of net proceeds
Amount of the offering
-------------------------------------
Offering expenses $215,000 21.5%
Marketing $325,000 32.5%
Product Design and Development $250,000 25%
Hire Chief Financial officer $100,000 10%
Working capital $110,000 11%
Total $1,000,000 100%
In the event $500,000 is raised pursuant to this offering, proceeds
will be used as follows:
Percentage
of net proceeds
Amount of the offering
-------------------------------------
Offering expenses $215,000 43%
Marketing $125,000 25%
Product Design and Development $125,000 25%
Working capital $ 35,000 7%
Total $500,000 100%
In the event $250,000 is raised pursuant to this offering, proceeds
will be used as follows:
Percentage
of net proceeds
Amount of the offering
-------------------------------------
Offering expenses $215,000 86%
Working capital $ 35,000 14%
Total $250,000 100%
If less than $250,000 is raised in this offering, we shall apply this
figure towards offering expenses.
13
PROPOSED BUSINESS
Forward-looking Statements
Certain statements contained under this caption and elsewhere in this
prospectus regarding matters that are not historical facts are forward-looking
statements. All statements that address operating performance, events or
developments that our management or the management of Look Models expects to
incur in the future, including statements relating to sales and earnings growth
or statements expressing general optimism about future operating results, are
forward-looking statements. These forward-looking statements are based on Look
Models management's current views and assumptions regarding future events and
operating performance. Many factors could cause actual results to differ
materially from estimates contained in these forward-looking statements. The
differences may be caused by a variety of factors, including, but not limited
to, adverse economic conditions, competitive pressures, inadequate capital,
unexpected costs, lower revenues or net income, the possibility of fluctuation
and volatility of our operating results and financial condition, inability to
carry out marketing and sales plans and loss of key executives, among other
things.
History of our company and of the transaction
We were organized on September 28, 1999 as a blank check company, which is
essentially a vehicle to pursue a business combination. We offered our
securities to the public pursuant to Rule 419 and closed our offering, raising
proceeds of $100,000 on July 27, 2000. After we closed our offering, we located
Sky E-Com, a company our management believed to be a suitable acquisition
target, entered into an agreement to acquire it and filed a post-effective
registration statement documenting the transaction. However, after receiving
comment from the Securities and Exchange Commission that Sky E-Com was an
unsuitable target as it might not be considered to be an operating business, we
terminated the transaction. After this transaction was terminated, our officers
and directors continued their search for an acquisition candidate. In early July
2001, we learned of an international modeling agency that was seeking to be a
public company. Negotiations were commenced and a securities purchase agreement
between the parties was signed on July 25, 2001. None of our officers or
directors had any preliminary contact or discussions with any representative of
Look Models regarding a business combination until subsequent to the close of
our offering.
14
Rule 419 requires that we complete an acquisition within eighteen months of
the effective date of our registration statement. As we were unable to complete
an acquisition within this time frame, we were required to refund the balance of
our escrow account to our investors. In accordance with Rule 419, we utilized
10% of the proceeds of our offering ($10,000) for expenses relating to updating
our financial statements, and preparing our first post-effective amendment.
Pursuant to our escrow agreement with Chittenden Bank, we advised Chittenden to
refund the balance of our escrow agent to our investors, and Chittenden Bank has
advised us that it did so on March 20, 2002.
Employees
We presently have no employees. Look Models has twenty-six (26) total
employees, of which twenty three (23) are full time employees and three (3) are
freelance.
Facilities
We are presently using the office of our President, Barney Magnusson, at no
cost, as our office, an arrangement which we expect to continue until the
consummation of our acquisition of Look Models. We presently do not own any
equipment, and do not intend to purchase or lease any equipment prior to the
consummation of the acquisition.
Look Models does not own any real estate, but has a protected lease on its
offices in Vienna pursuant to Austrian law. As a result, Look Models has an
indefinite leasehold. Look Models owns and leases sophisticated computer and
graphic production equipment for photo shoots, Internet activities, and events.
It owns other personal property and business furniture in its business premises.
Description of the Business of Look Models International, Inc.
Business Development:
In 1986, Mr. Wolfgang Schwarz, president, chief executive officer and
chairman of the board of Look Models International, Inc. and its subsidiaries,
formed an Austrian company under the name Wolfgang Schwarz Sport- und
Kultwveranstaltungen GmbH, Vienna. This company later changed its name to Look
Eventmanagement GmbH, and is now a wholly owned subsidiary of Look Models
International. In 1986, the company started the Look of the Year contest in
Austria and Hungary, and achieved considerable success with that concept. In
1989, Mr. Schwarz and John Casablancas of the Elite Modeling Agency in New York,
one of the leading model agencies in the world, agreed to develop the Look of
the Year contest in 15 countries in Central and Eastern Europe. This Eastern
European venture with Elite Modeling Agency ended on good terms in 1999.
15
From 1994 to the present, Mr. Schwarz has built Look Models into a European
contest platform and modeling agency, while continuing to discover and promote
new faces. He has helped discover top models like Teresa Maxova, Nina Moric,
Svetlana, Tatjana Dragovic and others, and has launched the careers of many
others. Look Models currently represents high profile models, such as Naomi
Campbell, Linda Evangelista, Karolina Kurkova and Viera Shottertova in Europe,
as well as many rising stars. Mr. Schwarz has formed several affiliated
companies through which he operates the following businesses:
o a modeling agency,
o a talent scout and talent development business,
o a promotional event management and event licensing business, and
o a product development and distribution business.
The corporate structure of Look Models International and its affiliates is
as follows:
-----------------------------------------
Look Models International, Inc
Delaware, USA
-----------------------------------------
100%
-----------
-----------------------------------------
Fordash Holdings Ltd
Bahamas
----------------------------------------
100%
---------------------
-----------------------------------------
Look Eventmanagement GmbH
Vienna, Austria
-----------------------------------------
-------------------------------------------------------------
100% 100%
-------------------------------------- ----------------------------------
Look Model Management GmbH Look Model Management spol sro
Vienna, Austria Prague, Czech Republic
-------------------------------------- ---------------------------------
16
Look Models International, Inc. is a holding company that was organized
under the laws of the State of Delaware on June 12, 2000. On September 26, 2000,
Look Models acquired all the issued and outstanding stock of Fordash Holdings
Ltd., a Bahamian holding company organized in July 1999 and 100% owner of all
Look Models affiliates. The interests of Fordash are wholly owned by Monti
Fiduciaria S.A., in trust for Wolfgang Schwarz. As originally intended, Mr.
Schwarz wanted an equity partner who would share in the company's operations,
fund-raising and management. Mr. Schwarz anticipated that Look Models would be
used as the vehicle to accomplish this goal, that the interests would be divided
up and that as a bonus, Mr. Schwarz through Fordash would receive an equity
distribution of one million dollars. This transaction was terminated and Mr.
Schwarz extinguished the $1,000,000 payable having determined that it was not in
the best interest of the company to take a distribution at that time. Instead,
the transfer was treated as a recapitalization, as the shareholders of Look
Models acquired all the stock of Fordash. In addition, Mr. Schwarz determined
that a Delaware holding company would be a good vehicle through which to enter
the U.S. equity marketplace.
The remaining elements of the Look Models family of companies are as
follows: Fordash owns all the issued and outstanding stock of Look
Eventmanagement GmbH, an Austrian company organized in 1986 under the name
Wolfgang Schwarz Sport- und Kultwveranstaltungen GmbH, Vienna. Look
Eventmanagement owns all the issued and outstanding stock of two companies, Look
Model Management GmbH, an Austrian company, and Look Model Management spol sro,
a Czech Republic company.
17
Business of Issuer
- ------------------
Look Models and its subsidiaries operate its business in three segments:
Event Management, Model Management and Product Development and Distribution.
Event Management:
Look Eventmanagement GmbH operates an event management and model scouting
business. It sources new models and organizes model search and contest events.
These events are sponsored by a wide variety of companies, including hotels,
manufacturers and national airlines, such as Hilton Hotels, Timex and Austrian
Airlines and are attended by agents and industry professionals in the hope of
signing on new models. The selected models' contracts are signed through Look
Model Management. In addition to hosting these events itself, Look
Eventmanagement licenses to third parties the right to operate these events, and
obtains a license fee and continued royalties pursuant to such licenses.
During 1999 and 2000, the company decided to create brand awareness for the
"Look" name, its products, and its business model. Accordingly, Look
Eventmanagement organized national and international model search and contest
events. Initially, the company funded all these events itself, in order to
enhance its reputation and build its brand. Look Models intends to generate
continued revenue from these relationships by entering into licensing agreements
and sponsorship deals.
The licensing deals are promoted by word of mouth and are targeted towards
companies with expertise in event promotion. Look has entered into approximately
ten license agreements to date. The license is limited to a country and the term
of the license is one year. Licensees organize the model search and contest
events with the guidance and under the oversight of Look Eventmanagement. The
structure of a licensing deal is that Look Eventmanagement is paid an initial
licensing fee between $15,000 and $50,000 and retains a portion of the revenue
generated from sponsors of the events.
18
The role of the sponsor is to finance the event. The sponsors finance these
events in order to gain media attention and consumer support. They gain
advertising space, are including in a promotional package prepared for the event
and gain Internet coverage on the Look website. Many companies have already
sponsored Look Eventmanagement events. Examples include:
NOKIA PROCTOR & GAMBLE
LUMENE ABSOLUT
CASINOS AUSTRIA DINERS CLUB
DIVA PEUGEOT
PEEK & CLOPPENBURG CASALL
HABARI SONY MUSIC
BMG MANGO
CHRYSLER CORPORATION MERCEDES BENZ
LUFTHANSA L'OREAL
REPLAY INTERCONTINENTAL HOTELS
SHIMAN PLANET HOLLYWOOD
UNILEVER LE MERIDIEN
LAUDA-AIR CHAMPAGNE POMMERY
MARBERT AUSTRIAN AIRLINES
WARSTEINER MARTINI
OIL OF OLAY MARRIOTT HOTEL
PANTENE LEVI STRAUSS AND COMPANY
HILTON HOTELS HOLIDAY INN
ELIZABETH ARDEN
In the event marketing, licensing and sponsorship businesses, Look Models
targets companies with expertise in event marketing, and is focusing its efforts
to sign up licensees in major European markets. In 2002, Look Models through
Look Eventmanagement targeted several countries in which it will seek to develop
strategic licensing relationships, including Germany, Slovakia, Czech Republic,
Hungary, Turkey, Greece, Portugal, Sweden, Russia, Luxemburg, Romania and the
Baltic nations. Look Models also intends to solicit franchises in these
countries for the Look and Catwalk branded products. In addition, the event
management company is designing a new, worldwide Internet oriented model contest
in order to further generate revenues through licenses and sponsorship fees. The
purpose of the Internet oriented model contest is to be a virtual scout for Look
Models. Management of Look Models believes that a worldwide Internet oriented
model contest will open up a worldwide venue for its search for modeling talent.
A young model in any far off country will be able to scan a picture of herself
onto the Look Models web-site and be included in our model contest. In addition
to the model gaining access to a professional search event without incurring the
expense of travel, we believe sponsors will look upon this as a worldwide venue
for their advertising promotions.
The model search and contest process also provides Look Models with a
steady stream of young models that join its portfolio of faces for future
placement.
19
Model Management:
Look Model Management GmbH ("Look Model Management") operates a model
agency in Austria, while Look Model Management spol sro operates a model agency
in the Czech Republic ("LMM Czech"). Look Models also operates offices in
Bratislava, Slovakia and Belgrade, Yugoslavia and has operations in other
European countries, including Turkey, Croatia, Poland, and Romania. These
Companies, like the rest of the industry, contract with models and place them at
other agencies around the world as well as directly with clients, such as public
relations firms, cosmetics and clothing companies, fashion event organizers,
consumer goods companies, the media, airlines, and so forth. Examples of other
agencies with which Look Model Management has placed models include: Willemena,
IMG and Karen Models. Examples of clients which with Look Models Management has
placed models Nina Ricci Paris, Nokia, Grey Worldwide and P&G.
The revenue that Look generates from its modeling agencies generally
mirrors the following formula, which is industry standard: For every booking,
the modeling agency that has the rights to the model's activities and promotion
the "mother agency") receives 45%; 25% from the model and 20% from the clients
for direct bookings. If a model is placed with a partner or affiliated agency,
the "mother company" usually receives 10% for national and 20% for international
campaigns.
Currently, Look Models through Look Model Management and LMM Czech has
contracted with approximately 250 models worldwide. Look Models currently
represents high profile models, such as Naomi Campbell, Linda Evangelista,
and Karolina Kurkova in Eastern and Central Europe, including in Austria,
Slovakia, Hungary, Czech Republic, Poland, Turkey and Greece, as well as Viera
Schottertova in throughout Europe and in the United States. Naomi Campbell,
Linda Evangelista and Karolina Kurkova are represented by other agencies as
well. LMM has booked Ms. Campbell's services approximately five times and
revenue from Ms. Campbell's services represented a large part of LMM's 1999 and
2000 incume. LMM has booked Ms. Claudia Schiffer services's approximately four
times and Ms. Evangilista's services approximately three times. Although no
assurance can be given, Look expects to continue to offer services to such high
profile, established models. However, Look Models strategy, through Look Model
Management is to invest in the future of young models in the hope that it will
benefit when these models develop in their careers. However, no assurance can be
given that Look Models will ever receive a return on its investment in a
significant number of its models due to a variety of factors, 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.
20
Look Models is currently constructing what it believes to be the first
Internet portal with a copyrighted proprietary software that will enable
worldwide bookings online. Look Models intends to utilize the booking portal as
an additional avenue to find new talent and as a way to book this talent with
all its traditional clients. Look Models will have digitized photographs,
biographies and booking calendars for its modeling talent. Other modeling
agencies as well as direct clients can apply for a code that will enable them to
gain access to the models' files. The potential clients will be able to select a
model, access her calendar and directly book the model's services through her
online calendar. Time and money associated with travel, scheduling and meetings
can be thereby greatly reduced. Look Models believes that the savings of time
and money as well as the convenience of online booking will provide increased
bookings and thereby increased revenues for Look Models. The web-site is located
at www.link2look.com. Look Models intends to use its portal web-site
aggressively and, while no assurance can be given, believes, based on cost and
time savings, that this global booking structure is the future of the business.
Nina Ricci, Paris, Grey Germany, and NEWPORT News USA, are a few clients that
have already taken advantage of utilizing Look Models' new software.
In addition, part of Look Models' business plan is to form, acquire and/or
develop strategic relationships with other model agencies in the world's top
markets. This strategy involves seeking out other modeling agencies with solid
organizations and good reputations that enable them to place models with top
commercial clients. It is already standard in the industry to form affiliations
with other model agencies pursuant to commission agreements. We will continue to
develop these as well as attempt to acquire certain agencies where there are
strong synergies between the parties and it is an economically sound move. These
relationships would allow Look Models to place its local talent at larger
international agencies, and potentially increase its revenue generation. Look
Models believes that combined with its Internet booking services, such strategic
relationships will give it an increased share of the global marketplace.
Licensing.
Look Models has licensed the use of its name to a restaurant, known as the
"Look Bar". In addition to filing trademark applications to extend its trademark
protection to the name "Look Bar", Look Models has protected the use of its name
and image by Look Bar through a License Agreement. The license for the use of
the name "Look Bar" provides Look Models with an annual license fee. The license
fee, currently $7,267 is subject to increase in successive years.
21
Product Design and Distribution:
Look Models is currently designing a line of cosmetic products, lingerie
and accessories under the brand names "Look" and "Catwalk" aimed at the young
female market worldwide. Look Models works with Uli Petzold, an internationally
renowned designer who is a director of Look Models, in the creation of these
products. Look Models has applied much of its 1999, 2000, 2001 and 2002 revenues
to finance its product line and web site development, as management believes
this is a good investment in future revenue production. Look Models has already
begun distribution of perfume, eau de toilette, body milk, body splash and
perfume towelettes and has produced 35,000 units of the fragrance and cream
products, and 500,000 promotional perfume towelettes. The manufacture of the
products we select and design are outsourced. Upon cosmetic and fragrance
products our products are currently being distributed by Douglas Parfumerie, an
exclusive purveyor of fragrances and cosmetics that has approximately 800
locations in Europe, and one store in the US, located at Grand Central Station
in New York. To date, our distribution arrangement with Douglas Parfumerie is
limited to Austria, Czech Republic and Slovakia and the Look Models and Catwalk
branded products can be found in these three countries. By the end of this year,
these products should also be available in Turkey. To date the company has sold
more than 7,000 units of fragrance and cream, and 150,000 towelettes.
Look Models is currently developing aromatherapy, sunscreen, and what it
believes to be very trendy items oriented towards the modeling industry. This
division is developing lingerie, outfits for sports and leisure, swimsuits,
beachwear, travel and cosmetics bags, and other items that it believes models
favor and that will be desirable to the young female population. Look Models has
developed four sample collections of "cult items" such as leather jackets, caps,
model backpacks, workout outfits and lingerie. However, this collection is not
yet in production and Look Models has entered into no contract for their
distribution.
22
On November 15, 2001, Look Models entered into a five year, renewable
International Production and Distribution Agreement with Dialpack, Inc., a
German corporation, pursuant to which it has obtained, among other things, the
worldwide right to promote and distribute a patented cosmetics dispenser under
our Look Models and Catwalk labels. The product is a two cartridge dispenser
that can adjust the amount of filler dispensed from each cartridge with the turn
of a dial. Look Models intends to distribute a line of sunscreen products in
this dispenser that can deliver any range of sun protection factor (SPF) by
dialing the front of the container. It also anticipates distributing a
foundation makeup that can range in shade according to a turn of the dial.
Pursuant to the agreement, Look Models will also act as Dialpack's exclusive
distributor in Eastern Europe for all uses of the product and in the rest of the
world for model-related uses and for products under the Catwalk label. The
agreement contains a right of first refusal on behalf of Look Models, such that
in the event that Dialpack receives an offer to sell or determines to sell its
company, the product line or the patents underlying the product line, then Look
Models shall have the right of purchase at the same price and terms as has been
offered to Dialpack. The agreement between Look Models and Dialpack can be
terminated in the event a party is declared bankrupt, is subject to liquidation
or dissolution. The agreement is terminable by Look Models if Dialpack
distributes a similar product into the Look Models' market. The agreement is
terminable by Dialpack if Look Models fails to promote the product, fails to
sell agreed to minimum quantities of the product or promotes or distributes the
product in certain territories under non-model-related labels or labels other
than Catwalk. Failure to reach minimum purchase requirements will result in
termination of the agreement. Thus fees generated under this agreement are not
guaranteed and may be significantly less if the minimum purchase requirements
are not met.
As a result of the agreement with Dialpack, on December 5, 2001 Look Models
entered into a three-year Product Distribution Agreement with Models Prefer,
Inc., a Connecticut corporation. Under this agreement, Look has granted
exclusive North American distribution rights for the distribution of a
moisturizing make up, or other such products, in the Dialpack dispenser so long
as it meets pre-set milestones. The agreement grants distribution rights in the
United Kingdom as well, but only with respect to sales made through QVC.
Models Prefer anticipates marketing its products over televised distribution
channels, such as QVC. In addition, the agreement provides minimum purchase
requirements on the part of Models Prefer to maintain distribution rights as
well as pre-set purchase milestones in order to maintain exclusivity. Models
Prefer's failure to reach minimum purchase requirements may result in
termination of the agreement. Thus, fees generated under this agreement are not
guaranteed and may be significantly less if the minimum purchase requirements
are not met. The agreement also contains a provision a non-circumvention
provision on the part of Look Models prohibiting it from having dealings with
any vendor, producer, supplier and/or distributor of the dispenser. We have
received orders and have begun distribution and have delivered the Dialpack
product to Models Prefer.
The company also intends to build value in its brand names so that it can
license its brand name to other manufacturing and distribution companies. Look
Models may form a wholly owned subsidiary to conduct these operations.
23
Distribution methods of the products or services
- ------------------------------------------------
Through Look Eventmanagement, a scouting network is utilized to source and
contract with the models. Look Eventmanagement's employee's and independent
contractors travel to various events to find new models. They call, write and
meet with various companies to sponsor these events and to license the right to
hold Look Model contests.
Look Models presently distributes its cosmetic products through Douglas
Parfumerie. It will seek the services of other distributors as well as use its
in-house staff and its president to market its products to large cosmetic
companies, department stores and catalogue companies.
Look Modelmanagement booking agents use phone, fax, in person meetings and
the Internet to place models with other agencies as well as directly with
clients.
Look Models also anticipates utilizing its web-site as a distribution tool
to market is products as well as place its models.
Look Models also intends to build value in its brand names in order to
build sales and attract sponsors and licensees. Its model contests have been
televised in Turkey and it has staged press events such as large outdoor runway
presentations in Vienna to launch its products.
Competition
Event and Model Management:
Both our event management and model management sectors are dependent upon
the modeling business. The modeling business is highly competitive, globalized
and fragmented, and is also subject to changing demands and preferences. In the
modeling industry, there is a low capital requirement to begin operations, and
consequently Look Models has estimated that there are over twelve thousand
(12,000) modeling agencies worldwide. There is a high cost to the clients for
use of models, and the fixed costs tend to be uniform worldwide. There is often
little loyalty between models and agencies, and reputation and local connections
are some of the key factors that distinguish agencies. There is no barrier for
the over twelve thousand modeling agencies worldwide to enter into event
promotion as a way to find new talent and to generate different sources of
revenue.
24
Product Design and Distribution:
We face intense competition with respect to marketing our own brand of
fragrance, cosmetic items and health and beauty aid products. We compete with
major health and beauty aid companies, as well as fragrance and cosmetic
companies who have well-established product lines, spend large sums for
advertising and marketing and have far greater financial and other resources
than we do. We also compete with these companies for shelf space and product
placement in various retail outlets. The distribution of health and beauty aid
products is also extremely competitive. We compete with pharmaceutical
wholesalers that carry health and beauty aid products, as an accommodation for
their customers. Many of these wholesalers have greater financial and other
resources than we do.
The apparel industry is highly competitive and fragmented, and is subject
to rapidly changing consumer demands and preferences. We believe that our
success will depend in large part upon our ability to anticipate, gauge and
respond to changing consumer demands and fashion trends in a timely manner and
upon the appeal to consumers of the Look and Catwalk brand image. We will
compete with numerous apparel manufacturers and distributors and several
well-known designers. Many of our competitors have greater financial resources
than we do. Although the level and nature of competition differ among our
product categories, we believe that we will compete on the basis of our brand
image, quality of design, workmanship and product assortment.
25
Sources and availability of raw materials
- -----------------------------------------
Look Models relies on its scouting network to source new faces and contract
with these models. Look Models negotiates fees separately with each of the
scouts. Generally, a scout will receive a 5% fee of the client bookings for a
limited period of time.
We source products through numerous suppliers. We seek to achieve the most
efficient means for timely delivery of our high quality products.
We design our own product lines with our creative director, Mr. Uli
Petzold. The products we design include our clothing and accessory line as well
as the packaging for all of our cosmetics products. We purchase our cosmetic and
fragrance products from foreign and domestic manufacturers and suppliers
selected by our creative director. Many of these companies also manufacture and
supply health and beauty aid products, fragrances and cosmetics for many of our
competitors. The products we distribute are manufactured by independent foreign
and domestic companies. We do not own any production equipment. We purchase the
patented two cartridge dispensers we will now distribute from Dialpack, Inc. We
are presently sourcing manufacturers of our clothing and accessory line.
Manufacturers of cosmetics and fragrances are subject to foreign and domestic
regulation. We do not manufacture cosmetics and fragrances ourselves and
therefore do not require governmental approval for their sale.
Patents, trademarks, licenses, franchises, concessions, royalty agreements or
labor contracts, including duration.
- ----------------------------------------------------------
Look Models has filed a trademark application with the United States Patent
and Trademark Office for the mark "Look Models" in International Class 003. This
application was filed on January 19, 2001, and has been assigned Serial Number
76/199318. Look Models has also registered the mark "Look Models" in Belgium,the
Netherlands, Luxembourg, Bosnia and Herzegovina, Bulgaria, Croatia, Czech
Republic, France, Germany, Hungary, Italy, Latvia, Poland, Portugal,
Romania,Russian Federation, Slovakia, Slovenia, Spain, Switzerland, Yugoslavia,
Lithuania, and the United Kingdom, under the Madrid Agreement and the Madrid
Protocol. The mark is filed in International Classes 003, 35, 41 and 42. The
Registration Number is 739 473, and the date of the registration is May 2, 2000.
26
Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read the following discussion and analysis together with the
"Pro Forma Condensed Consolidated Financial Information" and the accompanying
introduction and notes, as well as the Look Models consolidated financial
statements and their accompanying notes, included elsewhere in this prospectus.
Note that the merger between Kingsgate and Look Models has not yet occurred. Its
completion is ministerial in nature and is not subject to any contingency. 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 will
assume 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 our management or 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.
Critical Accounting Policies and Estimates
- -------------------------------------------
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect our reported assets, liabilities, revenues
and expenses, and our related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those related to
revenue recognition, bad debts, intangible assets and income taxes.
We believe the following critical accounting policies and the related
judgments and estimates affect the preparation of our consolidated financial
statements.
27
We recognize revenue when it is earned and record accounts receivable at
that time. We do not account for revenue based on contractual arrangements in
advance of their being earned.
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required which
would result in an additional general and administrative expense in the period
such determination was made.
We do not have any of the following:
o Off-balance sheet arrangements.
o Certain trading activities that include non-exchange traded contracts
accounted for at fair value. o Relationships and transactions with persons
or entities that derive benefits from any non-independent relationships
other than related party transactions discussed herein.
Overview of our Business
- ------------------------
GENERAL
- -------
Look Models operates a model management and event management business. Look
Models is also distributing in Europe, perfume, eau de toilette, sunscreen, body
milk and body splash products under the name "Catwalk." Furthermore, Look Models
also distributes, pursuant to a Distribution Agreement with Dialpack, a German
corporation, Dialpack's patented dispenser. The dispenser is distributed in
Europe, under the names "Catwalk" and "Look", and in the United States the
dispenser is distributed to a Connecticut corporation which sells its products,
under the name "Models Prefer," over the televised shopping channel, QVC.
The model management business mediates models in Vienna, Prague, Warsaw,
Budapest, Belgrade, Istanbul and Bratislava. The revenue from the model
management business is derived primarily from Austria, which is a relatively
small market. Additionally, there are some international bookings that
supplement the Austrian revenue. The model management business bears the cost,
however, of the Prague, Warsaw, Budapest, Belgrade, Istanbul and Bratislava
offices, as these offices are formation centers that develop local model talent
until these local models are ready to work internationally. Part of the model
management business is a division we call model movement. Model movement places
models with partner agencies around the world. The event management company is
designing a new, worldwide Internet oriented model contest in order to further
generate revenues through licenses and sponsorship fees. We believe that both
model management and model movement will increase their volume though our
Internet portal.
28
Foreign Exchange Issues
- -----------------------
Foreign currency translation:
- -----------------------------
The financial position and results of operations of Look Models' foreign
subsidiaries are measured using local currency as the functional currency. The
functional currency for most foreign operations is the Austrian Schilling, which
was replaced by the Euro in January 2002. Conversion to the Euro is not expected
to have an impact on Look Models' financial condition and results of operations.
Revenues and expenses of such subsidiaries have been translated into U.S.
dollars at average exchange rates prevailing during the period. Assets and
liabilities have been translated at the rate of exchange at the balance sheet
date. Translation gains and losses are included in other comprehensive income.
Aggregate foreign currency transaction gains and losses are included in the
results of operations as incurred.
29
LOOK MODELS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001 AND 2000
December 31, 2001 December 31, 2000
USD USD
Sales $ 1,076,237 $ 1,220,841
Cost of Sales (662,601) (839,754)
-------------- --------------
Gross margin 413,636 381,087
-------------- -------------
Selling expenses (430,375) (483,378)
Administrative expenses (1,648,951) (1,503,701)
-------------- --------------
Loss from operations (1,665,690) (1,605,992)
Other income (expense)
Interest expense (55,826) (48,127)
Other, net (4,434) (26,319)
-------------- -------------
Net loss $(1,725,950) $ (1,680,438)
============== ==============
30
Results of Operations
- ----------------------------------
2001 Compared with 2000
- -----------------------------------
For the period ending December 31, 2001, revenue decreased slightly from
the period ending December 31, 2000, which was up 34% from revenue for 1999.
Revenue at December 31, 2000 was $1,220,841, and revenue at December 31, 2001
was $1,076,237 (a 12% decrease). The cost of sales of $662,601, for the period
ending December 31, 2001, is significantly lower than the cost of sales of
$839,754 in the period ending December 31, 2000. The reduction in cost of sales
is due to Look Models' cost reductions and overhead controls. Accordingly, there
was a considerable increase in Look Models' gross margin for the period ending
December 31, 2001. Specifically, the gross margin for the period ending December
31, 2000 was $381,087, or 31%, but, for the period ending December 31, 2001, the
gross margin was $413,636,or 38%. Selling expenses for the period ending
December 31, 2001, as compared to the selling expenses for the period ending
December 31, 2000 show a decrease from $483,378 to $430,375, or 11%.
Administrative expenses increased slightly in 2001 compared to those of
2000. Administrative expenses were $1,503,701 in 2000, and were $1,648,951 in
2001, a 10% increase. This is because of the additional expenses and costs
incurred by Look Models in preparing for this transaction, and in upgrading its
accounting and financial controls, and its staffing in Europe and the United
States. Look Models also increased spending on its website development, and on
the LOOK MODEL SEARCH International Final, a signature event in the model search
business. Look Models posted a net loss for the period ending December 31, 2001
of $1,725,950. The net loss for 2001 showed an incremental increase of 2.7% over
the net loss in 2000 of $1,680,438.
While Look Models did post a net loss in 2001, such loss was in part
attributable to non-recurring expenses. The loss in 2001 can be divided into a
loss from U.S. operations, and a loss from European operations. The loss in 2001
from U.S. operations was $1,072,958, while the loss from European operations was
$652,992. The U.S. operations are those of the holding company, which received
funds from non U.S. investors and dispensed funds to its European subsidiaries
for working capital purposes, and paid obligations to both U.S. and non-U.S.
vendors, primarily in satisfaction of transaction based, non-recurring expenses.
Other than the distribution of products to Models Prefer, Ltd. ("Models Prefer")
there are no operations currently being conducted in the U.S. Of the loss from
U.S. operations, approximately $750,000 can be characterized as non-recurring
expenses because it is comprised of the following: (i) the legal and other
professional fees incurred for this transaction, (ii) salaries to employees in
Look Models' London office, an office that is no longer in existence, and (iii)
31
salary to Look Models' president and majority shareholder, who has agreed to
forgo salary in 2002 until such time as profitable operations or future equity
transactions or capital from redemption of outstanding warrants provide Look the
ability to incur his salary in accordance with his employment agreement. The
loss from operations in Europe of $652,992 was marginally higher in 2001 than it
was in 2000. In 2000 the net loss from Europe was $584,932. The 2001 loss from
U.S. operations of approximately $1,072,958 is lower than the 2000 loss from
U.S. operations of $1,095,506. This is a positive indication for Look Models, as
the U.S. operating losses include the significant non-recurring expenses.
Look Models believes that it is moving toward profitability, and plans to
attain profitability and meet cash flow needs going forward by:
(i) The Product Distribution Agreement with Models Prefer is expected to
generate net revenues of $575,000 for 2002. This is because the Product
Distribution Agreement provides for minimum purchase guarantees of
$1,150.000 in 2002. Look Models has a profitability ratio of 50% for this
product, resulting in minimum net revenue for the year of $575.000. Models
Prefer has already placed its first two guaranteed minimum purchase orders,
and has made two payments pursuant to the agreement totaling $375,000. Look
Models believes these orders by Models Prefer signal an obligation by
Models Prefer to honor its commitments under the Product Distribution
Agreement.
(ii) The President and majority shareholder of Look Models has made a firm
commitment to fund up to one-quarter (1/4) of the operating expenses of
Look Models for 2002, if required.
32
(iii)The fourth quarter of 2001 showed remarkable growth for Look Models. Look
Models posted sales in the fourth quarter of 2001 of $500,000,
approximately the same revenue as Look Models produced in the first three
(3) quarters of 2001 combined. The fourth quarter of 2001 was exceptionally
strong, indicating a move towards profitability. In fact, as a stand-alone
comparison, Look Models' sales in the fourth quarter of 2001, were
virtually at the Company's break even point. Most significantly, Look
Models believes that it can meet its cash operating requirements going
forward using the guaranteed payments from Models Prefer, Ltd. under the
Product Distribution Agreement, and its president and majority
shareholder's commitment to fund up to one quarter (1/4) of Look Models'
annual operating expenses for 2002.
(iv) Eliminating non-recurring expenses. See Liquidity and Capital Resources,
below.
(v) Eliminating non-cash charges, such as payment in stock for services
rendered to Look Models.
Three months ended March 31, 2002 compared with the three months ended March 31,
2001
For the three months ended March 31, 2002, revenue increased from the three
months ended March 31, 2001. Revenue for the three months ended March 31, 2001
was $48,759, and revenue for the three months ended March 31, 2002 was $255,978
(a 424% increase). The cost of sales of $92,375 for the three months ended March
31, 2002 is higher than the cost of sales of $28,046 in the three months ended
March 31, 2001. Accordingly, there was an increase in Look Models' gross profit
for the three months ended March 31, 2002. Specifically, the gross profit for
the period ended March 31, 2001 was $20,713 or 42%, and for the three months
ended March 31, 2002, the gross profit was $163,603, or 63%. Selling expenses
for the three months ended March 31, 2002 as compared to the selling expenses
for the three months ended March 31, 2001 show a decrease from $322,042 to
$157,715, or 51%. Administrative expenses decreased for the three months ended
March 31, 2002 compared to those for the three months ended March 31, 2001.
Administrative expenses were $190,541 for the three months ended March 31, 2002,
and were $183,555 for the three months ended March 31, 2001, a 4% decrease. Look
Model' posted a net loss for the three months ended March 31, 2002 of $205,695.
The net loss for the three months ended March 31, 2002 was a decrease of 60%
over the net loss for the three months ended March 31, 2001 of $518,573.
The loss for the three months ended March 31, 2002 can be divided into a
loss from U.S. operations, and a loss from European operations. The loss for the
three months ended March 31, 2002 from U.S. operations was $132,048, while the
loss from European operations was $45,619. The loss from operations in Europe of
$45,619 was lower for the three months ended March 31, 2002 than it was for the
three months ended March 31, 2001. For the three months ended March 31, 2001 the
net loss from Europe was $411,760. For the three months ended March 31, 2002,
the loss from U.S. operations of $132,048 is slightly more than the loss from
U.S. operations of $106,813 for the three months ended March 31, 2001.
Liquidity and Capital Resources
- -------------------------------
Working Capital, Debt and Liquidity.
- ------------------------------------
Although Look Models had a shareholders' deficit as of December 31, 2001,
of $1,678,269, 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) Distribution Agreement. The revenue expected from the Product Distribution
Agreement Look Models entered into with Models Prefer, Ltd.
(2) Funding Commitment. The commitment from its President and majority
shareholder to fund up to one-quarter (1/4) of Look Models' annual
operating expenses for the 2002 financial year,
33
(3) Non-Recurring Expenses. The fact that approximately $1,072,985 of the 2001
net loss is attributable to one-time non-recurring expenses incurred in the
US, and attributable to the transaction with Kingsgate, as well as the
following:
(i) 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 expects to complete the combination with our
company, 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, as well as to
complete an acquisition of a modeling agency in a major market. (See Planned
Acquisitions, below). Look Models believes that its Internet booking system, as
well as the maturity in age of its models database, and the execution of several
pending licensing transactions will add to its short-term liquidity. Look Models
is attempting to license its "Look" and "Catwalk" brands for franchise purposes,
and to increase the number of licensees of its brands. Turkey and Russia are two
markets where the "Look" brand will be developed and the "Catwalk" products will
be sold. Look Models is not aware of other known trends, events or
uncertainties, other than general business upswings or downturns that will have
a material impact on its short-term or long-term liquidity.
(ii) 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 continue its growth in
revenues, while stabilizing its expenses. Look Models has entered into
an International Production and Distribution Agreement with a German
corporation, whereby Look Models has obtained, amongst other things,
the worldwide rights to promote and distribute a patented cosmetics
dispenser under the "Look Models" and "Catwalk" brands, and to
distribute the dispenser in the United States under additional brand
names. Accordingly, Look Models has entered into a three-year Product
Distribution Agreement with Models Prefer, a U.S. company. Pursuant to
this agreement, Look Models has granted distribution rights to Models
Prefer for the distribution of the dispenser over televised
34
distribution channels. Under the terms of the Product Distribution
Agreement, Look Models is guaranteed certain minimum purchases of the
dispenser, which is expected to generate net revenues to Look Models
of a minimum of $575,000.00, $900,000.00, and $1.2 million, over each
of the three years ending November 30, 2002, 2003 and 2004,
respectively. In addition, the exclusivity provisions of this
agreement provide that the above revenues will double in the event
that Models Prefer Ltd. exercises rights to exclusive supply of the
dispenser in the United States.
(iii)There are several trends and events or uncertainties that have, or are
reasonably likely to have a material impact on Look Models' net sales
or revenues or income from continuing operations:
As discussed elsewhere in this analysis, Look Models expects that its
Internet booking system, the maturity in age of its models database,
and the execution of several pending licensing transactions, as well
as its distribution agreements, will increase its revenues. 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.
(4) Non-Cash Expenses.
-----------------
As reflected in the Statement of Changes in Shareholder's Deficit and
Comprehensive Income there are charges associated with the Kingsgate
transaction and for payments made using stock that are reflected in
the administrative expenses. These charges are one-time charges that
are unlikely to be repeated in successive years. These expenses are
primarily professional and other fees relating to the transaction,
including fees necessary to provide adequate documentation of
international contracts and agreements, developing its licensing and
brand extension business, negotiations with Kingsgate, etc. and
totaled approximately $750,000.
(5) Deferred Repayment.
------------------
The President and majority shareholder of Look Models has deferred
repayment of loans due to him for one (1) year, or until Look Models
returns to profitability, or is successful in securing follow-on
financing. An example of follow-on financing that would be used to
repay Mr. Schwarz' loan is through warrant exercise. If this offering
is fully subscribed, there will be 2,000,000 warrants outstanding.
Upon exercise of these 2,000,000 warrants, Look Models will receive
gross proceeds of $3,500,000. We intend to use 25% of the warrant
proceeds to pay outstanding officer loans and 75% of the warrant
proceeds for marketing our cosmetics and accessory lines. 35
Net Cash Used in Investing Activities
- -------------------------------------------------------
Look Models has no material commitments for capital expenditures, as it has
already expended the majority of necessary funding in developing its licensing
and brand extension businesses, but Look Models will need working capital to
continue to purchase inventory of dispensers, perfume, eau de toilette and body
splash. Look Models is currently developing a new range of products, and is
attempting to negotiate royalty based contracts with large cosmetic companies
for these products. Look Models also intends to license products under its brand
names, particularly to licensees that will sponsor the LOOK MODEL SEARCH
International Final. Look Models also has commitments to various entities and
individuals for transactional fees, disbursements, professional fees, and other
related costs in conjunction with completing this transaction. These costs are
not expected to exceed $150,000.00, and Look Models intends to partly finance
these expenditures internally from revenue, but primarily, Look Models intends
to use financing and offering proceeds to make such expenditures.
Seasonality
- ----------------
There are seasonable aspects that can have a material effect on the
financial condition or results of operation of Look Models, such as lower demand
during off-season periods. Partially offsetting the seasonality is the fact that
Look Models has a presence in various markets. A slowdown in one market is
sometimes offset by buoyancy in another market, resulting in such fluctuations
having less of an overall effect on Look Models' annual revenue stream. For
example, the different seasons result in the need for models in different
venues. Spring and fall bring the need for models to display fashions for the
industry retail viewers. Summer and Winter require models in on-site swimwear
and Winter sports shoots.
Business
- --------
Planned Acquisitions
- ----------------------
As Look Models believes it would be more cost effective to acquire existing
agencies in certain markets, rather than to open up new offices in said markets.
Look Models plans to form strategic alliances, through either commission
agreements or acquisitions of modeling agencies in some of the world's modeling
centers, such as New York, London, Paris, Milan, and Munich. Look Models may
also seek to purchase companies, or assets that will benefit, or assist its
production and distribution capabilities in its cosmetics business. Look Models
intends to use its stock, in large part, to finance these acquisitions.
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 views. 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 2001 Look Models signed agreements in Portugal,
Germany, Czech Republic, Slovakia, Turkey, Poland, Hungary, Russia, Yugoslavia,
Luxemburg and Romania.
36
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.
Projected Financial Information and Management
- ----------------------------------------------
Expectation on the Nature of Future Business1
- --------------------------------------------
1. Licenses and Sponsoring:
- ---------------------------
Beginning in 1999 and continuing through 2002, Look Models decided to
create awareness for its brand name, its products, and its business model.
Accordingly, Look Models invested in, and developed partnerships with outside
parties for the purpose of organizing national and international model search
events. Initially, Look Models funded all the model search events itself, in
order to develop a reputation as a leader in the search for new faces. The model
search process also provides Look Models with a steady stream of young models
that join Look Models' portfolio of faces for future placement. Look Models now
intends to generate revenue from these relationships by entering into licensing
and sponsorship deals. In 2002, Look Models will be focusing on exploiting both
existing and new markets, and expects to negotiate licensing and sponsorship
deals.
The structure of a licensing deal is as follows:
Look Models is paid an initial licensing fee of anywhere from $15,000.00 -
$50,000.00 per country, and retains a portion of the revenue from sponsors at
the events.
2. Merchandising:
- ------------------
Look Models has invested heavily in product development and marketing, and
has developed a line of products that will utilize its "Look Models", and its
"Catwalk" brands. The products are aimed at the young female market worldwide.
The products being developed are perfume, eau de toilette, body milk, body
splash, perfume towelettes, aromatherapy, sunscreen, and lingerie. Look Models
works with Uli Petzold, an internationally renowned designer who is a director
of Look Models, in the creation of these products. At this time, Look Models'
products have a presence in Austria, the Czech Republic, Slovakia and Turkey.
- --------
1 These notes are arranged by dividing Look Models into its four (4) revenue
producing units.
37
As discussed above, Look Models has entered into an International
Production and Distribution Agreement with Dialpack, a German corporation,
whereby Look Models has obtained, amongst other things, the worldwide right to
promote and distribute Dialpack's patented cosmetics dispenser under the "Look
Models" and "Catwalk" brands. Further, Look Models has entered into a three-year
Product Distribution Agreement with Models Prefer. Under this agreement Look
Models has granted exclusive distribution rights to Models Prefer for the
distribution of the dispenser over televised distribution channels.
3. Modeling and licensing:
- --------------------------
Through the acquisition of agencies in major markets, Look Models hopes to
increase its revenue stream. Additionally, due to the fact that several of its
models will be finishing school this year, Look Models expects to add to its
revenue base from these new faces. These models will be able to generate
additional revenue due to the fact that they will have completed their studies.
Without the acquisition of "big market" agencies, Look Models, based upon
historical figures, would expect to increase its revenue by 5% per annum.
4. E-Commerce:
- --------------
Given that this is the first time that a model agency network has built a
fully operating model booking portal, there are no historical figures to use for
revenue projections herein. We believe that the portal will increase revenues
and decrease operating expenses, without taking revenue from the existing
modeling business. The portal will allow Look Models to book models worldwide by
electronic means without interfering with the models' local agency's office and
the current base of operation of the models. As these transactions will be new,
they will not be taking revenue from Look Models' existing modeling business.
Look Models will promote its portal aggressively and believes that this global
booking structure is the future of the business. Nina Ricci Paris, Grey Germany,
and NEWPORT News USA, are a few clients that have already taken advantage of
utilizing Look Models' new software.
38
The sources of income for the e-commerce division are:
1. Modeling commissions;
2. Portal advertising revenue;
3. Revenue from portal links; and
4. Product sales.
Description of Material Risks and Management's strategy of offset risk
- ----------------------------------------------------------------------
Look Models effectively invests in the future of young models in the hope
that it will benefit when these models develop in their careers. Look Models may
never receive a return on its investment in a significant number of its models
due to a variety of factors, such as changing consumer tastes, personal
difficulties of the models, emotional inability to perform in the modeling
world, lack of modeling assignments, economic downturns, more affordable
replacements for models, to name a few. Look Models also faces the risk that its
models may dishonor contracts they have with the agency, refuse to sign
contracts with the agency, or leave the agency to join another agency. While
Look Models plans to issue shares of stock to each of its models as an incentive
to remain with Look Models, and to build loyalty and an ownership mentality in
its models, management has not worked out the specifics of this program. It is
anticipated that this program will be privately issued employee stock plan
issued pursuant to an exemption from registration under the Securities Act of
1933. Additionally, management intends to closely marshal and enforce its
contractual relationships with all its models, and with the outside agencies
with which Look Models shares bookings, and, therefore, fees.
Significant Accounting Policies
- -------------------------------
Stock-based compensation:
- -------------------------
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" allows companies to choose whether to account for
employee stock-based compensation on a fair value method, or to account for such
compensation under the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company has chosen to account for employee stock-based
compensation using APB 25.
Segment reporting:
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). The Company's results of
operations and financial position were not affected by the implementation of
SFAS No. 131.
Operating segments:
The Group classifies its businesses into three operating segments. The
segments have been defined by the services each segment offers. The
services offered are described below:
Eventmanagement:
Look Eventmanagement GmbH handles the sourcing of new models and their
development, and the organization of promotional events. It was
founded 1986 under its former name Wolfgang Schwarz Sport- und
Kulturveranstaltungen GmbH, Vienna.
Model management:
Look Model Management GmbH is a model agency operating in Austria.
Cosmetics:
In 2000, the Company started a new operating segment by entering into the
cosmetics business. The products include Eau de toilette, perfumes,
body milk and body splash. In 2001, the Company introduced the sale of
sunscreens.
A summary of sales by country is as follows:
Three months ended Event- Model
March 31, 2002 management Management Cosmetics Total
---------- ---------- ------------- -------------
(unaudited)
Austria $ 40,475 $ 44,192 $ 84,667
United States of America - $ 93,201 93,201
Other countries 16,270 61,843 78,110
---------------- ---------------- ------------- -------------
Totals $ 128,745 $ 106,035 $ 288,894 $ 255,978
================ ================ ============= =============
Three months ended Event- Model
March 31, 2001 management Management Cosmetics Total
---------- ---------- ------------- -------------
(unaudited)
Austria $ - $ 40,305 $ - $ 40,305
United States of America - - - -
Other countries - - 8,454 8,454
---------------- ---------------- ------------- -------------
Totals $ - $ 40,305 $ 8,454 $ 48,759
================ ================ ============= =============
Year ended Event- Model
December 31, 2001 management Management Cosmetics Total
---------- ---------- ------------- -------------
Austria $ 72,601 $ 392,497 $ 1,043 $ 466,141
United States of America 74,473 - 277,029 351,502
Other countries 247,772 - 10,822 258,594
---------------- ---------------- ------------- -------------
Totals $ 394,846 $ 392,497 $ 288,894 $ 1,076,237
================ ================ ============= =============
Year ended Event- Model
December 31, 2000 management Management Cosmetics Total
---------- ---------- ------------- -------------
Austria $ 429,971 $ 439,917 $ 42,653 $ 912,541
United States of America 153,090 - - 153,090
Other countries 155,210 - - 155,210
---------------- ---------------- ------------- -------------
Totals $ 738,271 $ 439,917 $ 42,653 $ 1,220,841
================ ================ ============= =============
Information about the Group's operating segments:
Three months ended Event- Model
March 31, 2002 management Management Cosmetics Corporate Total
---------- ---------- ------------- ------------- ---------------
(unaudited)
Total revenue $ 56,745 $ 106,032 $ 93,201 $ - $ 255,978
Profit (loss) from
Operations (103,456) (20,077) 77,914 (132,048) (177,667)
Interest expense (15,719) (4,164) - - (19,883)
Net income (loss) (127,320) (24,241) 77,914 (132,048) (205,695)
Shares issued for services - - - - -
Capital expenditures 6,996 421 - - 7,417
Depreciation and
amortization 1,897 2,650 552 3,333 8,432
Identifiable segment
assets 45,189 15,378 21,861 64,861 147,289
Three months ended Event- Model
March 31, 2001 management Management Cosmetics Corporate Total
---------- ---------- ------------- ------------- ---------------
(unaudited)
Total revenue $ - $ 40,305 $ 8,454 $ - $ 48,759
Profit (loss) from
Operations (276,904) (114,776) 6,623 (106,813) (491,870)
Interest expense (9,052) (2,058) - - (11,110)
Net income (loss) (301,549) (116,834) 6,623 (106,813) (518,573)
Shares issued for services - - - - -
Capital expenditures 400 - - 4,316 4,716
Depreciation and
amortization 2,717 2,784 - - 5,501
Identifiable segment
assets 41,816 23,142 22,413 71,698 159,069
39
Comprehensive income (loss):
SFAS No. 130, Reporting Comprehensive Income, establishes requirements for
disclosure of comprehensive income which includes certain items previously not
included in the statements of operations, including minimum pension liability
adjustments and foreign currency translation adjustments, among others. During
the years ended December 31, 2001 and 2000, comprehensive income represents
foreign currency translation adjustments.
Recently issued accounting standards:
- -------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement,
as amended, is effective for fiscal years beginning after June 15, 2000.
Currently, Look Models does not have any derivative financial instruments and
does not participate in hedging activities. Therefore, management believes that
SFAS No 133 will not impact Look Models' consolidated financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited on a prospective basis only. SFAS
No. 142 changes the accounting for goodwill from an amortizations method to an
impairment-only approach. Look Models is currently evaluating the impact that
the adoption of the SFAS No. 141 and SFAS No. 142 will have on its financial
condition and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses accounting and
financial reporting for the impairment or disposal of long-lived assets. This
statement is effective for Look Models on January 1, 2002. Look Models does not
expect that adoption of this standard will have a material effect on its results
of operations or financial position.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No 101, "Revenue Recognition in
Financial Statements". SAB No 101, as amended by SAB No 101A and SAB No 101B,
was effective no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. SAB No 101 provides the Staff's view in applying
generally accepted accounting principles to selected revenue recognition issues.
The Company believes that it complies with the accounting and disclosure
described in SAB No 101.
40
Synopsis of Kingsgate Transaction:
- ----------------------------------
Pursuant to a Securities Purchase Agreement dated July 25, 2001, (the
"Purchase Agreement") Look Models' shareholders have agreed to sell all of their
outstanding shares of common stock to Kingsgate Acquisitions, Inc., a Delaware
corporation ("Kingsgate"). As a result of the Purchase Agreement, all
shareholders of Look Models will become shareholders of Kingsgate. On the
effective date of the Purchase Agreement, Look Models' shareholders will
exchange all of their shares of Look Models common stock for 10,500,000 shares
of the common stock of Kingsgate, in proportion to the holdings of its
shareholders. In addition, Look Models' management will receive 1,000,000 shares
of Kingsgate common stock from the stockholders of Kingsgate. As of this filing
Look Models' shareholders, thereby, will own 11,500,000 of the 12,500,000 issued
and outstanding shares of Kingsgate, or 92% of Kingsgate. After the successful
completion of the offering herein, Look Models will own 11,500,000 shares of the
13,500,000 issued and outstanding shares of Kingsgate, or 85.2% of Kingsgate.
41
MANAGEMENT
Our officers and directors and further information concerning them are as
follows:
Name Age Position
Barney Magnusson(1)(2) 48 President, Treasurer
950 - 11th Street, and a Director
West Vancouver,
British Columbia V7T 2M3
Leslie McGuffin(1)(2) 47 Secretary and a
950 - 11th Street, Director
West Vancouver,
British Columbia V7T 2M3
(1) May be deemed our "Promoters" as that term is defined under the Securities
Act.
(2) Barney Magnusson and Leslie McGuffin are husband and wife.
Mr. Magnusson has been President, Treasurer and a director in our company
since its inception. Mr. Magnusson will resign from all positions with our
company upon the completion of the merger with Look Models. Mr. Magnusson is a
chartered accountant. In 2000, Mr. Magnusson became chief financial officer and
secretary of CST Coldswitch Technologies Inc., a Vancouver - based private
technology company developing platform photonic fiber optic technology. From
1998 to 2000, Mr Magnusson engaged in corporate finance consultation as a
chartered accountant. From 1996 to 1998, he was vice-president, corporate
development, chief financial officer and director of Patricia Mines Inc., a
Toronto - based mining company, listed on the Vancouver Stock Exchange, the
major asset of which was the Island Gold Project located near Hemlo, Ontario.
From 1994 to 1995, Mr. Magnusson was a principal of ADX Trading Group, a
financial derivative and stock trading enterprise. That company's activities
included trading futures, options on futures and stocks and stock trading
together with system design, testing and implementation for other parties. From
1985 to 1993, he was chief financial officer, secretary/treasurer and director
of Dayton Mines Inc., based in Vancouver, British Columbia and listed on both
the Toronto Stock Exchange and American Stock Exchange. Dayton Mines operated a
mine in Chile that produced 140,000 ounces of gold per year.
42
From 1986 to 1988, Mr. Magnusson was vice-president finance and a director
of High River Gold Mines Ltd., a Vancouver-based mining company listed on the
Toronto Stock Exchange, with a 50% interest in the Britannia Mine, Manitoba that
produced 80,000 ounces of gold per year. From 1982 to 1985, he was chief
financial officer and director of Brohm Resources Inc., based in Vancouver,
British Columbia, and listed on the Toronto Stock Exchange, which was the
predecessor to Dakota Mining Inc., headquartered in Denver, Colorado. Brohm
operated the Gilt Edge Mine in South Dakota. In 1981, he was principal of
Venture Capital Associates, a Vancouver based venture capital firm that focused
on startup companies. In 1981, he was controller of First City Developments
Inc., a Vancouver based international real estate company owned by First City
Trust. Mr. Magnusson received his Bachelor of Arts from Simon Fraser University,
Vancouver, British Columbia in 1978. He is a chartered accountant and a member
of the Canadian Institute of chartered accountants and Institute of the
Chartered Accountants of British Columbia.
Leslie McGuffin has been secretary and director of our company since its
inception. Ms. McGuffin will resign from all positions with our company upon the
completion of the merger with Look Models. Ms. McGuffin has been president of
Western Legal Publications, a Vancouver - based law publishing company, since
1995. From 1991 to 1995, she was legal information systems coordinator for
Ladner Downs, barristers and solicitors in Vancouver, British Columbia. Ms.
McGuffin served as managing director of British Columbia International
Commercial Arbitration Centre, located in Vancouver, British Columbia, from 1988
to 1989. From 1981 to 1988, she was managing editor of Carswell Legal
Publications, Vancouver, B.C. Ms. McGuffin received her Bachelor of Laws from
the University of Alberta, Canada and her Bachelor of Arts with Honors from
Trinity College, University of Toronto, Canada.
Upon consummation of the acquisition of Look Models, both Barney Magnusson
and Leslie McGuffin intend to resign from our board of directors and Wolfgang
Schwarz and Uli Petzold, officers and directors of Look Models, will be
appointed to our board of directors.
43
Below are the biographies of the officers and directors of Look Models:
Wolfgang Schwarz, 49 - Chief Executive Officer, President, Chairman of the
Board and Treasurer of Look Models and its subsidiaries since their inception:
Mr. Schwarz is an Austrian entrepreneur. In 1974, after a short modeling and
acting career, he founded a modeling agency called "The Girls and Boys" in
Austria, where it commanded a 75% share of the local market. The Girls and Boys
thereafter expanded its business activities to Germany. In 1979, Mr. Schwarz
launched a series of European contests for models using the name "The face of
the 80's". In 1986 he started the Look of the Year contest in Austria and
Hungary, and achieved considerable success with that concept. In 1986, he formed
an Austrian company under the name Wolfgang Schwarz Sport- und
Kultwveranstaltungen GmbH, Vienna. This company later changed its name to Look
Eventmanagement GmbH, and is now a wholly owned subsidiary of Look Models
International. In 1987, Mr. Schwarz established the first eastern European
modeling agency in Hungary using the name "The Girls and Boys", which also
became a market leader. In 1989, Mr. Schwarz and John Casablancas of the Elite
Modeling Agency in New York, one of the leading model agencies in the world,
agreed to develop the Look of the Year contest in 15 countries in Central and
Eastern Europe. Since 1993, Look has been a large supplier of new faces to the
modeling world. From 1994 to the present, Mr. Schwarz has built Look Models into
a European contest platform and modeling agency, while continuing to discover
and promote new faces. He has helped discover top models like Teresa Maxova,
Nina Moric, Svetlana, Tatjana Dragovic and others, and has helped launch the
careers of supermodels Naomi Campbell, Linda Evangelista and Karen Mulder in
Europe.
44
Uli Petzold Age 41, Director and Creative Director was born in Frankfurt
Germany and moved to Nuremberg after finishing his high school education and
obtaining his Abitur. There he completed an apprenticeship as a furrier in the
studios of Marco International. By 1982 he was designing furs for Ansel & Ansel
in Montreal Canada. After Montreal, New York and Tokyo, he accepted a call from
Balenciaga Paris to head the fur division under the then director of Karl G.
Kunert. The two formed a team, creating collections that were very successful,
first and foremost in Japan and the United States. At the age of 27, Uli Petzold
opened an atelier, top floor studio, in the Avenue Victor Hugo, Paris and
designed his own apparel lines under the label Petzold Paris. At the same time,
he also opened for his German customers a studio in Bad Homburg. A contract with
Jindo International to become a chief designer of the European Division took him
back to Asia. Back to Europe, he designed a Petzold women's wear collection that
the garment manufacturer Wiedekind licensed in place of Daniel Hechter Paris.
Parallel to the stepwise development and extension of his own design company in
Germany and USA, he ran a Petzold store under franchise in Germany. Later, Mr.
Petzold designed the trend collection for a period of five seasons for AKZO,
wrote copy for his own column in the Italian fashion press "Nella Moda di Uli
Petzold", and received (as the only German) the "Oscar of the Haute Couture" for
furs in 1985 and 1986 from the Academy of Fashion in Turin, Italy. From 1991 to
1993, he headed the international Terndtables as official trend advisor for
prestigious trade fair Interstoff in Frankfurt.
Since 1995 his personal interests on design changed more and more to
graphic, packaging, industrial and interior design. He stared to create his own
home collection and was hired to design special interest products by the
Ritzenhoff AG. Within a short period of time his name became well known in the
scene. From 1996 to 1997, he was asked by Mercedes Benz AG to design and develop
a new corporate showroom interior. By the end of 1997 the first two branches
were opened in Germany. The design was licensed by Uli Petzold to implement the
concept worldwide. In 1998 he moved back to the USA. Since then he has operated
the creative studios of the XODESIGNGROUP in Frankfurt Germany with his partner
Kay Witte, and in Miami Beach, USA. Currently, Mr. Petzold operates Petzold New
York, Inc., which conducts an international license business in in New York,
N.Y. Some of Mr. Petzold's clients include Mercedes Benz, Germany, Procter &
Gamble / Cosmetic Division, London, Dolce & Gabbana / EuroItalia, Sahra Lee,
London and Sanyo Fischer Vertriebs GmbH. 45
Remuneration
------------
None of our officers or directors has received any remuneration of any
nature from inception to the date hereof. None of our current directors or
officers will receive any compensation after the consummation of the acquisition
for acting as a director or officer or for any other services relating to the
acquisition of Look Models.
Wolfgang Schwarz has a renewable five year employment agreement with Look
Models dated June, 2000. He is paid a yearly salary of $350,000. Mr. Schwarz has
agreed to fund 25% of the operating expenses for 2002, and to forego salary in
2002 until such time as profitable operations, capital raised from redemption of
outstanding warrants, or future equity transactions provide the Company the
ability to incur his salary in accordance with his employment agreement.
46
The following table sets forth information concerning compensation for
services rendered to Pipeline by its President and by its executive officers.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Restricted Securities
Name and Other Annual Stock Underlying LTIP All
Principal Year Salary Bonus Compensation Award(s) Options Payout Other
Position ($) ($) ($) ($) /SARs (#) ($) Compensation
- ---------- ---- ---- ------ ---------- --------- ---------- ---- -------------
Kingsgate Officers and Directors who will resign upon merger
Barney
Magnusson, 2002 -0- -0- -0- -0- -0- -0- -0-
President, 2001 -0- -0- -0- -0- -0- -0- -0-
Treasurer, 2000 -0- -0- -0- -0- -0- -0- -0-
Director
Leslie
McGuffin, 2002 -0- -0- -0- -0- -0- -0- -0-
Secretary 2001 -0- -0- -0- -0- -0- -0- -0-
Director 2000 -0- -0- -0- -0- -0- -0- -0-
Look Models Officers and directors
Wolfgang(1)(2)
Schwarz, 2002 -0- -0- -0- -0- -0- -0- -0-
Chairman of
The Board,
President,
Treasurer 2001 350,000 -0- -0- -0- -0- -0- -0-
Director 2000 350,000 -0- -0- -0- -0- -0- -0-
Uli
Petzold, 2002 -0- -0- -0- -0- -0- -0- -0-
Secretary 2001 -0- -0- -0- 250,000 -0- -0- -0-
Director 2000 -0- -0- -0- -0- -0- -0- -0-
(1) Mr. Schwarz has agreed to fund 25% of the operating expenses for 2002,
and to forego salary in 2002 until such time as profitable operations,
capital raised from redemption of outstanding warrants, or future
equity transactions provide our company the ability to incur his
salary in accordance with his employment agreement.
(2) Mr. Schwarz may terminate his employment with 60 days written notice.
In the event he raises $5,000,000, he may terminate his employment
with 20 days notice.
No Board of Directors' fees have been paid. Additional Employee Benefits
Employees are provided health insurance.
47
MANAGEMENTENTS
STATEMENT AS TO INDEMNIFICATION
Section 145 of the Delaware General Corporation Law provides for
indemnification of our officers, directors, employees and agents. Under Article
XI of our by-laws, we will indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, any of our directors,
officers, agents or employees, against all expense, liability and loss
reasonably incurred or suffered by such person in connection with activities on
our behalf. Complete disclosure of relevant sections of our certificate of
incorporation and by-laws is provided in Part II of the registration statement.
This information can also be examined as described in "Further Information."
We have been informed that in the opinion of the SEC, indemnification for
liabilities arising under the Securities Act, which may be permitted to our
directors, officers or control persons pursuant to our certificate of
incorporation and by-laws is against the public policy as expressed in the
Securities Act and is, therefore, unenforceable.
MARKET FOR OUR COMMON STOCK
Prior to the date of the prospectus, no trading market for the our common
stock has existed. Pursuant to the requirements of Rule 15g-8 of the Securities
Exchange Act, a trading market will not develop prior to or after the
effectiveness of our post-effective registration statement while certificates
representing the shares of our common stock and warrants which constitute the
units remain in escrow. We can offer no assurance that a trading market will
develop upon the acquisition of the common stock of Look Models and the
subsequent release of the stock and warrant certificates from escrow.
We have retained Public Securities, Inc., Spokane, Washington, a
broker-dealer registered with the NASD, to act as lead market maker for our
units, common stock and warrants and to make application for the listing of our
units, shares of common stock and warrants on the OTC Bulletin Board. No
assurance can be given that our units will be accepted for listing on the OTC
Bulletin Board.
48
The 2,000,000 shares of our common stock issued to our founding
stockholders are "restricted securities" as that term is defined in the
Securities Act. In a recent letter from the Commission's Division of Small
Business to the NASD, the Commission stated its position that Rule 144 is
inapplicable to founders of blank check companies who transfer securities either
before or after the reconfirmation of an acquisition. However, we believe that
upon the date of consummation of this offering, our company is no longer a blank
check company and the time clock under Rule 144 should commence. In the
alternative, we must register the shares of the founding stockholders, in order
for them to sell their shares of our common stock on the public market.
There are 105 holders of our common stock.
49
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 25, 2001, we entered into a securities purchase agreement with Look
Models International, Inc. If the acquisition is ratified, all issued and
outstanding shares of common stock of Look Models shall be exchanged for an
aggregate of 10,500,000 of our shares of common stock, in proportion to the
holdings of the Look Models stockholders. In addition, our founding stockholders
will transfer to Wolfgang Schwarz, 1,000,000 of their shares. The former
stockholders of Look Models will own 11,500,000 shares of our common stock
representing 85.2% of the combined entity assuming all 1,000,000 shares are sold
pursuant to this offering.
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 all amounts owed to him by the Company
through 2002, or until funds are acquired through redemption of outstanding
warrants or future equity transactions which will provide the means for
repayment.
During the three months ended March 31, 2002, the Company's president and
majority shareholder advanced $70,000 to the Company in return for a note
agreement. The note, which was non-interest bearing, was repaid in June 2002.
50
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth certain information regarding
the beneficial ownership of our common stock as of the date of the prospectus,
and as adjusted to reflect the acquisition of Look Models. As 10,500,000 shares
of our common stock will be issued to Look Models shareholders, and 1,000,000
shares of founder's stock will be transferred to them, they will initially
receive that number of shares equal to 92% of Kingsgate, or 85.2% assuming all
1,000,000 shares are sold pursuant to this offering. Thus, for purposes of this
table, we assume completion of the Look Models business combination and the sale
of the entire 1,000,000 units sold pursuant to this offering, totaling
13,500,000 shares outstanding.
+ each person who is known by us to own beneficially more than
5% of our outstanding common stock;
+ each of our officers and directors; and
+ all of our directors and officers as a group.
Shares of Common
Name/Address Stock Beneficially Owned
Beneficial Assuming Look Models Acquisition Percent of
Owner and sale of 1,000,000 shares Class
In this Offering Owned
Barney Magnusson(1)(2) 125,000 0.93%
950 11th Street
West Vancouver
British Columbia
V7T 2M3 Canada
Leslie McGuffin(1)(2) 125,000 0.93%
950 11th Stree
West Vancouver
British Columbia
V7T 2M3 Canada
Wolfgang Schwarz(3)
Passauerplatz #1, 7,655,343 56.7%
Vienna 1010, Austria
Nautilus
Nautilus Management
Thomas Roeggla
Consulting GmbH
Gloriettegasse 29
1130 Wien
Austria 1,764,000 13.07%
Ulrich Petzold
1410 West 24th Street
Miami, FL 33140-4523 210,000 1.56%
Total Officers and Directors 8,138,343 60.28%
(2 Persons after acquisition)
51
(1) May be deemed "Promoters" as that term is defined under the Securities Act
and are our only officers and directors.
(2) Barney Magnusson, President, Treasurer and a Director, and Leslie McGuffin,
Secretary and a Director, are husband and wife. Separately, Mr. Magnusson
owns 200,000 shares prior to the business combination with Look Models and
100,000 thereafter. Ms. McGuffin owns 50,000 shares prior to the business
combination with Look Models and 25,000 thereafter. Each of Mr. Magnusson
and Ms. McGuffin will resign upon consummation of the acquisition of Look
Models.
(3) Mr. Wolfgang Schwarz owns 4,975,000 (36.5%)through Netizen, a Bahamian
business organization located at Goodman's Bay, Corporate Centre, West Bay
Street and Sea View Drive, P.O. Box CB-10976, Nassau, Bahamas. He owns
1,680,000 shares (12.44%) through Monti Fiduciaria S.A., Via Laizzari
2a,6(degree), Piano 6900 Lugano, Switzerland.
None of the current stockholders have received or will receive any extra or
special benefits that were not shared equally by all holders of shares of our
common stock.
Prior Blank Check Companies Involvement
None of our officers, directors, founders, promoters or principal
stockholders has been involved as a principal of a blank check company.
52
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 45 million shares of common stock, $.001 par
value per share, of which 2,000,000 shares are issued and outstanding. Each
outstanding share of common stock is entitled to one vote, either in person or
by proxy, on all matters that may be voted upon by their holders at meetings of
the stockholders.
Holders of our common stock
+ have equal ratable rights to dividends from funds legally available
therefor, if declared by our board of directors;
+ are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon our liquidation, dissolution
or winding up;
+ do not have preemptive, subscription or conversion rights, or redemption or
sinking fund provisions; and
+ are entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of our stockholders.
All shares of our common stock which are part of the units, or which
underlie the warrants, will be fully paid for and non-assessable when issued,
with no personal liability attaching to ownership. You and other holders of
shares of our common stock do not have cumulative voting rights, which means
that the holders of more than 50% of outstanding shares voting for the election
of directors can elect all of our directors if they so choose and, in such
event, the holders of the remaining shares will not be able to elect any of our
directors. At the completion of our acquisition of Look Models, the officers and
directors and other stockholders of Look Models will beneficially own at least
85.2% of the outstanding shares of our common stock and will be in a position to
control all of our affairs.
53
Preferred Stock
We may issue up to 5,000,000 shares of our preferred stock from time to
time in one or more series. As of the date of the prospectus, we have issued no
shares of preferred stock. Our board of directors, without further approval of
our common stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any series of our preferred stock.
Issuances of additional shares of preferred stock, while providing flexibility
in connection with possible financings, acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of other of our securities and may, under certain circumstances, have
the effect of deterring hostile takeovers or delaying changes in management
control.
Redeemable Common Stock Purchase Warrants
You and other holders of our warrants which are part of the units may
exercise them for a period of two years commencing on the date of the
prospectus. Our class A warrant entitles the holder to purchase one share of our
common stock at an exercise price of $1.50. Our class B warrant entitles the
holder to purchase one share of our common stock at an exercise price of $2.50.
Our common stock underlying the warrants will, upon exercise of the warrants, be
validly issued, fully paid and non-assessable.
We may redeem our warrants, at any time, for $0.001 per warrant, if we
provide 30 days' prior written notice, if the closing bid price of our common
stock, as reported by the market on which our common stock trades, exceeds 150%
of the exercise price per share for any twenty consecutive trading days ending
within ten days prior to the date of the notice of redemption. If we are unable
to qualify our common stock underlying the warrants for sale in certain states,
holders of the warrants in those states will have no choice but either to sell
their warrants or allow them to expire.
We have delivered to the escrow agent certificates representing five
warrants for each unit purchased. These certificates have been returned to our
company. The number of warrants for each unit has been reduced to two.
Warrantholders, you may exchange your certificates for new certificates of
different denominations, and you may exercise or sell them. However, we can
offer no assurance that a market in the warrants will develop.
You may exercise your warrants by surrendering the warrant certificate,
with the form of election to purchase printed on the reverse side of the warrant
certificate properly completed and executed, together with payment of the
exercise price, to us or the warrant agent. You may exercise your warrants in
whole or from time to time in part. If you exercise fewer warrants than are
evidenced by a warrant certificate, we will issue a new warrant certificate for
the number of unexercised warrants.
54
Warrantholders are protected against dilution of the equity interest
represented by the underlying shares of common stock upon the occurrence of
certain events, including stock splits, recapitalizations and the issuance of
stock dividends. If we merge, reorganize or are acquired in such a way as to
terminate the warrants, they may be exercised immediately prior to such action.
In the event of liquidation, dissolution or winding up, holders of the warrants
are not entitled to participate in our assets.
For the life of the warrants, holders are given the opportunity to profit
from a rise in the market price of our common stock. The exercise of the
warrants will result in the dilution of the book value of our common stock at
the time of exercise and would result in a dilution of the percentage ownership
of existing stockholders. The terms upon which we may obtain additional capital
may be adversely affected during the period in which the warrants remain
exercisable. Warrantholders may be expected to exercise them at a time when we
would, in all likelihood, be able to obtain equity capital on terms more
favorable than the exercise price of the warrants.
We may not call the warrants for redemption if there does not exist an
effective registration statement relating to the underlying shares.
Warrantholders may not be able to exercise their warrants if they have not been
qualified for sale under the laws of the state where the warrantholder resides.
A call for redemption could force the warrantholder to accept the redemption
price, which, in the event of an increase in the price of the stock, would be
substantially less than the difference between the exercise price and the market
value at the time of redemption.
Reports to Stockholders
We intend to furnish our stockholders with annual reports containing
audited financial statements as soon as practicable after the end of each fiscal
year. Our fiscal year ends on December 31st.
Dividends
We have only been recently organized, have no earnings and have paid no
dividends. Look Models likewise has not shown positive earnings in the past two
(2) fiscal years, and has paid no dividends. The combined company, in all
likelihood, will use its earnings, if any, to develop its business and does not
intend to declare dividends for the foreseeable future.
55
Transfer Agent
We have appointed Olde Monmouth Stock Transfer Co., Inc., 77 Memorial
Parkway, Suite 101, Atlantic Highlands, New Jersey 07716 as transfer agent for
our shares of common stock and warrants.
Certain Income Tax Consequences
In our management's opinion, our acquisition of Look Models is intended to
qualify as a "tax-free reorganization" for purposes of the United States federal
income tax so that our stockholders and the stockholders of Look Models subject
to United States taxes will not recognize gain or loss from the transaction. In
addition, the transaction is not intended to result in the recognition of gain
or loss to either us or Look Models in the respective jurisdictions where each
of us is subject to taxation. We have not obtained an opinion of counsel nor a
ruling from the Internal Revenue Service. You should consult your own tax
advisors as to the specific tax consequences of our acquisition.
56
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission under the Securities Act, a
post-effective registration statement relating to this prospectus. We have not
included in the prospectus all of the information in the registration statement
and the attached exhibits. Statements of the contents of any document are not
necessarily complete. Copies of these documents are contained as exhibits to the
registration statement. We will provide to you a copy of any of any referenced
information if you contact us at 950 11th Street, West Vancouver, British
Columbia V7T 2M3 Canada, Attention: Chief Financial Officer, telephone (604)
926-6775.
As of the effective date of the post-effective registration statement, we
will be a reporting company and will be subject to the reporting requirements of
the Securities Exchange Act. We will file periodic reports voluntarily in the
event that our obligation to file such reports is suspended under Section 15(d)
of the Securities Exchange Act. Our filings may be inspected and copied without
charge at the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices: Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
our filings can be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. We have filed this registration statement and will file all
future registration statements and other documents and reports electronically
through EDGAR, the Electronic Data Gathering, Analysis and Retrieval System.
These documents are publicly available through the Commission's Internet World
Wide Web site at http://www.sec.gov/.
We intend to furnish to our stockholders, after the close of each fiscal
year, an annual report relating to our operations containing audited financial
statements examined and reported upon by an independent certified public
accountant. In addition, we may furnish to our stockholders, from time to time,
such other reports as may be authorized by our board of directors. Our year -
end is December 31.
57
You can also call or write us at any time with any questions you may have.
We would be pleased to speak with you about any aspect of our business and the
offering.
Until 90 days after the date when the escrowed funds and certificates
representing the common stock and warrants are released from escrow, all dealers
effecting transactions in the units, the shares or warrants contained in the
units, or the shares underlying the warrants may be required to deliver a
prospectus.
LEGAL PROCEEDINGS
We are not a party to, nor are we aware of any existing, pending or
threatened lawsuits or other legal actions.
EXPERTS
Sheila Corvino, Esq., 811 Dorset West Road, Dorset, Vermont is passing upon
the validity of the shares of common stock and the warrants constituting the
units and the shares of common stock underlying the warrants which are being
offered pursuant to this prospectus.
Our financial statements as of the period ended December 31, 2000 and for
the year ended December 31, 2001 all included in this prospectus and in the
registration statement, and have been so included in reliance upon the reports
of Thomas P. Monahan, independent certified public accountant and upon the
authority of said firm as experts in accounting and auditing.
The audited consolidated financial statements of Look Models International,
Inc. as of December 31, 2001 and for each of the years in the two-year period
then ended included herein and elsewhere in the registration statement have been
audited by Horwath Gelfond Hochstadt Pangburn P.C., independent certified public
accountants, to the extent set forth in their report appearing herein and
elsewhere in this registration statement. Such financial statements have been so
included in reliance upon the report of such firm given upon their authority as
experts in auditing and accounting.
FINANCIAL STATEMENTS
The following are our financial statements, with independent auditor's
report, for the period from inception, September 28, 1999, to December 31, 2000;
audited financial statements for the year ended December 31, 2001, audited
consolidated financial statements of Look Models for the years ended December
31, 1999, 2000, and 2001.
58
REPORT OF INDEPENDENT AUDITOR
To The Board of Directors and Shareholders
of Kingsgate Acquisitions, Inc. (a development stage company)
I have audited the accompanying balance sheet of Kingsgate Acquisitions,
Inc. (a development stage company) as of December 31, 2001, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 2000 and 2001. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kingsgate Acquisitions, Inc.
(a development stage company) as of December 31, 2001, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 2000 and 2001 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Kingsgate Acquisitions, Inc. (a development stage company) will continue as a
going concern. As more fully described in Note 2, the Company is a blank check
company that is dependent upon the success of management to successfully
complete a self underwriting and locate a potential business to acquire and may
require additional capital to enter into any business combination. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans as to these matters are described in Note 2.
The financial statements do not include any adjustments to reflect the possible
effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the possible inability of
Kingsgate Acquisitions, Inc. (a development stage company) to continue as a
going concern.
/s/Thomas Monahan
----------------------------
THOMAS MONAHAN
Certified Public Accountant
Paterson, New Jersey
March 15, 2002
F-1
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
BALANCE SHEET
December 31, March 31,
2001 2002
Unaudited
----------- ---------
ASSETS
Current assets
Cash $ 1,529 $ 1,851
Escrowed funds receivable 90,338
---------- -------
Total current assets 91,867 1,851
Total $ 91,867 $ 1,851
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued liabilities $ 500 4,280
--------- -------
Total current liabilities $ 500 4,280
Redeemable Common Stock 100,000
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value;
5,000,000 shares authorized;
-0- shares issued and outstanding
Common stock, $.001 par value; 45,000,000 shares authorized; At December 31,
2001 and March 31, 2002 there were 2,000,000
shares issued and outstanding respectively. 2,000 2,000
Additional paid-in capital 6,215 16,215
Deficit accumulated during the
development stage (16,848) (20,644)
--------- ------
Total stockholders equity (8,633) (2,429)
--------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 91,867 $ 1,851
========= ======
See notes to financial statements.
F-2
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF OPERATIONS
For the For the For the three For the three
year ended year ended months ended months ended
December 31, December 31, March 31, March 31,
2000 2001 2001 2002
Unaudited Unaudited
------------ ------------- ----------- -----------
Income $ -0- $ -0- $ -0- $ -0-
Costs of goods sold -0- -0- -0- -0-
------ ------- ------- -------
Gross profit -0- -0- -0- -0-
Operations:
General and administrative 1,708 17,021 780 4,158
Depreciation and Amortization -0- -0- -0- -0-
------ ------- ------- -----
Total costs 1,708 17,021 780 4,158
Other income
Interest income 888 1,656 362
------ ------- -----
Total other income 888 1,656 362
Net profit (loss) $ (820) $(15,365) $ (780) $ (3,796)
======= ======= ======== =======
PER SHARE AMOUNTS:
Net profit (loss) per common
share outstanding - basic $ (0.00) ($0.01) $ (0.00) $ (0.00)
======== ========= ====== ======
SHARES OF COMMON STOCK OUTSTANDING 2,000,000 2,000,000 2,000,000 2,000,000
========== ========== ========== =========
See notes to financial statements.
F-3
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF CASH FLOWS
For the For the For the three For the three
year ended year ended months ended months ended
December 31 December 31 March 31, March 31,
2000 2001 2001 2002
Unaudited Unaudited
------------ ----------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (820) $(15,365) $ (780) $ (3,796)
Item not affecting cash flow
from operations:
Amortization -0- -0- -0- -0-
Accrued expenses -0- -0- 3,780
--------- -------- ----- ------
NET CASH USED IN OPERATING ACTIVITIES (820) (15,365) (780) ( 16)
CASH USED IN INVESTING ACTIVITIES -0- -0- -0- -0-
CASH FLOWS FROM FINANCING ACTIVITY:
Sales of redeemable common stock 100,000
Redemption of common stock (100,000)
Contributed capital 10,000
--------- -------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 100,000 (90,000)
Increase (decrease) in cash 99,180 (15,365) (780) ( 90,016)
Cash balance beginning of period 8,052 107,232 107,232 91,867
--------- ------- ------- -------
CASH, end of period $107,232 91,867 106,452 $ 1,851
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ - $ - $ - $ -
Cash paid for income taxes $ - $ - $ - $ -
See notes to financial statements.
F-4
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
accumulated
Additional during
Preferred Preferred Common Common paid in development
stock stock stock stock capital stage Total
(shares) ($) (shares) ($) ($) ($) ($)
--------------------------------------------------------------------------------------------------
Sale of 2,000,000
shares of
common stock 0 $ 0 2,000,000 $ 2,000 $ 18,000 $ 20,000
Net profit (loss) $ (663) (663)
- ---------------------------------------------------------------------------------------------------
Balance
December 31,1999 0 $ 0 2,000,000 $ 2,000 $ 18,000 $ (663) $ 19,337
Write off of deferred
offering expenses (11,785) (11,785)
Net income (loss) (820) (820)
- ---------------------------------------------------------------------------------------------------
Balances
December 31, 2000 0 $ 0 2,000,000 $ 2,000 $ 6,215 $ (1,483) $ 6,732
Net income (loss) (15,365) (15,365)
- ---------------------------------------------------------------------------------------------------
Balances
December 31, 2001 0 $ 0 2,000,000 $ 2,000 $ 6,215 $(16,848) $ (8,633)
Unaudited
Contributed capital 10,000 10,000
Net loss (3,796) (3,796)
- ---------------------------------------------------------------------------------------------------
Balance
March 31, 2002 0 $ 0 2,000,000 2,000 16,215 (20,644) $ (2,429)
==================================================================================================
See notes to financial statements.
F-5
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 1 - ORGANIZATION AND DESCRIPTION OF THE COMPANY
Kingsgate Acquisitions, Inc. (the "Company"), was organized in Delaware on
September 28, 1999 and is authorized to issue 45,000,000 shares of common stock,
$0.001 par value each and 5,000,000 shares of preferred stock, $0.001 par value
each.
The Company is a "blank check" company which plans to search for a suitable
business to merge with or acquire. Operations since incorporation have consisted
primarily of obtaining capital contributions by the initial investors and
activities regarding the registration of the offering with the Securities and
Exchange Commission.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is a blank check
company that is dependent upon the success of management to successfully
complete a self underwriting and locate a potential business to acquire and may
require additional capital to enter into any business combination. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The Company is dependent upon its ability to have positive cash
flows from operations to sustain any business activity. The Company's future
capital requirements will depend on numerous factors including, but not limited
to, continued progress in completing its self underwritten offering, finding a
business to acquire, completing the process of acquiring the business and
obtaining the needed investment capital and working capital to engage in
profitable operations. The Company plans to engage in such financing efforts on
a continuing basis.
The financial statements presented consist of the balance sheets of the
Company as at December 31, 2001 and the related statements of operations and
cash flows and stockholders' equity for the years ended December 31, 2000 and
2001.
The unaudited financial statements presented consist of the unaudited
balance sheet of the Company as at March 31, 2002 and the related unaudited
statements of operations and cash flows and stockholders' equity for the three
months ended March 31, 2001 and 2002.
F-6
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Offering Costs
As Of December 31, 1999, deferred offering costs aggregating 11,785 were
incurred in anticipation of the Company filing a registration statement pursuant
to Rule 419 under the Securities Act of 1933, as amended, are being deferred
until the registration is complete.
As of December 31, 2000, the deferred offering costs were charged against
Additional paid in capital.
Organization costs are being charged to operations.
Income Taxes
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities and assets at currently
enacted tax rates for the expected future tax consequences of events that have
been included in the financial statements or tax returns. A valuation allowance
is recognized to reduce the net deferred tax asset to an amount that is more
likely than not to be realized. The tax provision shown on the accompanying
statement of operations is zero since the deferred tax asset generated from the
net operating loss is offset in its entirety by a valuation allowance. State
minimum taxes will be expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents, if any, include all highly liquid debt
instruments with an original maturity of three months or less at the date of
purchase.
Fair Value of Financial Instruments
Cash, accounts payable and other current liabilities are recorded in the
financial statements at cost, which approximates fair market value because of
the short-term maturity of those instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Significant Concentration of Credit Risk
At December 31, 2001 and March 31, 2002, the Company has a concentration of
its credit risk by maintaining deposits in one bank. The maximum loss that could
have resulted from this risk totaled $-0- which represents the excess of the
deposit liabilities reported by the banks over the amounts that would have been
covered by the Insurance.
Unaudited financial information
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of March
31, 2002 and the results of its operations and its cash flows for the three
months ended March 31, 2001 and 2002. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the SEC's rules and regulations of the Securities and Exchange
Commission. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
NOTE 3 - REDEEMABLE COMMON STOCK
Rule 419 requires that offering proceeds be deposited into an escrow or
trust account (the "Deposited Funds" and "Deposited Securities", Respectively)
governed by an agreement which contains certain terms and provisions specified
by that rule. The Company may and did receive 10% of the escrowed funds for
working capital. The remaining Deposited Funds and the Deposited Securities will
be released to the Company and to the investors, respectively, only after the
Company has met the following three basic conditions. First, the Company must
execute an agreement for an acquisition meeting certain prescribed criteria.
Second, the Company must file a post-effective amendment to its registration
statement which includes the terms of a reconfirmation offer that must contain
conditions prescribed by Rule 419. The post-effective amendment must also
contain information regarding the acquisition candidate and its business,
including audited financial statements. The agreement must include, as a
condition precedent to its consummation, a requirement that the number of
investors who contributed at least 80% of the offering proceeds must elect to
reconfirm their investments. Third, the Company must conduct the reconfirmation
offer and satisfy all of the prescribed conditions. The post-effective amendment
must also include the terms of the reconfirmation offer mandated by Rule 419.
After the Company submits a signed representation to the escrow agent that the
requirements of Rule 419 have been met and after the acquisition is consummated,
the escrow agent can release the Deposited Funds and Deposited Securities.
Investors who do not reconfirm their investments receive the return of a pro
rata portion thereof; and in the event investors representing less than 80% of
the Deposited Funds reconfirm their investments, the Deposited Funds are to be
returned to all the investors on a pro rata Basis.
In July, 2000, the Company completed an offering for the sale of 1,000,000
units at $.10 per unit or an aggregate offering price of $100,000. Each unit
consists of one share of common stock and five redeemable common stock purchase
Warrants.
The Company filed a registration statement with the Securities and Exchange
Commission pursuant to Rule 419. The offering was conducted , on a "best efforts
all-or-none basis" and consisted of 1,000,000 units at $.10 per unit or an
aggregate offering price of $100,000. Each unit consists of one share of common
stock and five redeemable common stock purchase warrants. Each warrant is
exercisable at $1.00 for a period of two years from the effective date of a
registration statement relating to the underlying shares of common stock. The
warrants are redeemable at any time, upon thirty day's written notice, in the
event the average closing price of the common stock is at least $1.25 for a
period of twenty consecutive trading days ending within ten days prior to the
notice of redemption.
As of December 31, 2001, the 1,000,000 shares of common stock were being
held in escrow pending approval of the Company's post-effective amendment by the
Securities and Exchange Commission.
The Company was organized as a vehicle to merge with another company,
pursuant to Rule 419 of Regulation C of the Securities Act of 1933. Rule 419
required that the Company complete an acquisition within eighteen months from
the effective date of a registration statement. In the event the Company is
unable to complete an acquisition within this time period, the shares of common
stock being held in escrow must be redeemed by the Company and a minimum of 90%
of the proceeds are to be returned to the investors.
As of March 31, 2002, the Company was unable to complete an acquisition
within the time period and has redeemed the shares of common stock being held in
escrow by returning to the investors and aggregate of $90,000 and recording
$10,000 as additional paid in capital.
F-8
NOTE 4 - STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred
stock and may issue these shares from time to time in one or more series. The
Company's board of directors, without further stockholder approval, is
authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights, liquidation preferences and other rights and
restrictions relating to any such series. Issuances of additional shares of
preferred stock, while providing flexibility in connection with possible
financings, acquisitions and other corporate purposes, could, among other things
adversely affect the voting power of the holders of other securities and may,
under certain circumstances, have the effect of deterring hostile takeovers or
delaying changes in control or management.
The number of shares of preferred stock outstanding at December 31, 2001
and March 31, 2002 is -0- and -0- respectively.
Common Stock
For the period from inception, September 28, 1999, to December 31, 1999,
the Company sold an aggregate of 2,000,000 shares of common stock to thirteen
investors for an aggregate consideration of $20,000 or $0.01 per share.
NOTE 5 - GAIN (LOSS) PER SHARE OF COMMON STOCK
Net gain (loss) per share of common stock outstanding, as shown on the
statement of operations, is based on the number of shares outstanding at each
balance sheet date. Weighted average shares outstanding was not computed since
it would not be meaningful in the circumstances, as all shares issued during the
period from incorporation through December 31, 2001 were for initial capital.
Therefore, the total shares outstanding at the end of each period was deemed to
be the most relevant number of shares to use for purposes of this disclosure.
For future periods, the Company will utilize the treasury stock method for
computing earnings per share, and will compute a weighted average number of
shares outstanding once additional shares of stock are issued to new
stockholders. Under the treasury stock method, the dilutive effect of
outstanding stock options and other convertible securities for determining
primary earnings per share is computed using the average market price during the
fiscal period, whereas the dilutive effect of outstanding stock options and
convertible securities for determining fully diluted earnings per share is
computed using the market price as of the end of the fiscal period, if greater
than the average market price.
NOTE 6 - RELATED PARTY TRANSACTIONS
Office Facilities
Rental of office space and use of office, computer and telecommunications
equipment are provided by the President of the Company on a month to month basis
at a monthly rental of $500 per month commencing with the sale of the units in
the proposed offering until consummation of an acquisition. For the period from
inception, September 28, 1999, to December 31, 1999 and for the years ended
December 31, 2000 and 2001 and for the three months ended March 31, 2001 and
2002, the accrual for rent is $-0-.
Officer Salaries
For the period from inception, September 28, 1999, to December 31, 1999 and
for the years ended December 31, 2000 and 2001 and for the three months ended
March 31, 2001 and 2001 no officer has received a salary in excess of $100,000
and no officer will receive a salary until the consummation of an acquisition.
F-9
NOTE 7 - HISTORY OF TRANSACTION; RULE 419
The Company through an initial self-underwritten public offering pursuant
to Rule 419 of the Securities Act of 1933, sold 1,000,000 units at $0.10 per
unit raising an aggregate of $100,000. Each unit consisted of one share of
common stock and five two-year redeemable common stock purchase warrants. All
the offering proceeds as well as certificates representing the shares and
warrants purchased in the offering are being held in an escrow account. Pursuant
to a securities purchase agreement dated August 16, 2000, the Company purchased
all the common stock of Sky E-Com Corporation.
On August 16, 2000, the Company entered into a Securities Purchase
Agreement, (the "Agreement") whereby the Company would issue 7,854,400 shares of
common stock to former Sky E-Com shareholders in proportion to their share
holdings. In addition, our founding stockholders will transfer to Sky E-Com's
stockholders 1,500,000 of their shares. Our founders shall continue to hold
500,000 shares, representing 4.6% of the combined entity. The Company's public
stockholders hold 1,000,000 shares, representing 9.2% of the combined entity.
The former stockholders of Sky E-Com will own 9,354,400 shares of our common
stock representing 86.2% of the combined entity.
The acquisition was the subject of a prospectus for the reconfirmation of
the offering and the election to remain investors.
As Of December 31, 2000, the transaction has been rescinded.
Effective July 25, 2001, the Company entered into an acquisition agreement
(the Agreement) with Look Models International, Inc. ("LMI"), a Delaware
Corporation, that through its wholly-owned subsidiaries, operates a model
agency, an event marketing, licensing and sponsorship business, and a product
development and distributor business that manufactures and distributes a line of
cosmetics and other related products both in the retail and wholesale sectors.
Kingsgate, a development stage corporation, was organized on September 28, 1999
as a vehicle to acquire or merge with a business.
Pursuant to the Agreement, the shareholders of LMI agreed to sell to
Kingsgate 100% of all of 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 are to be transferred to the founder of LMI, Wolfgang
Schwarz. After the transaction and assuming the sale of all 1,000,000 shares of
common stock pursuant to this offering, Kingsgate will have a total of
13,500,000 shares of common stock issued and outstanding.
As of March 31, 2002, this merger has not yet been consummated
F-10
INDEPENDENT AUDITORS' REPORT
Board of Directors
Look Models International, Inc.
We have audited the accompanying consolidated balance sheet of Look Models
International, Inc. and subsidiaries as of December 31, 2001, and the related
consolidated statements of operations, changes in shareholders' deficit and
comprehensive income, and cash flows for each of the years in the two-year
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Look Models
International, Inc. and subsidiaries as of December 31, 2001 and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
HORWATH GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
March 15, 2002
F-11
LOOK MODELS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001
AND MARCH 31, 2002 (UNAUDITED)
December 31, 2001 March 31, 2002
USD USD
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 46,203 $ 116,809
Trade accounts receivable 271,279 424,531
Inventories 158,943 153,433
Prepaid expenses and other current assets 114,621 21,764
-------------------- --------------------
Total current assets 591,046 716,537
-------------------- --------------------
Property and equipment, net 43,494 39,627
Intangible assets, net 104,810 107,664
Deposit 16,281 16,281
-------------------- --------------------
164,585 163,572
-------------------- --------------------
Total assets $ 755,631 $ 880,109
==================== ====================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade liabilities $ 718,833 578,255
Accrued expenses and other current liabilities 270,798 220,753
Advances payable, related party 812,911 709,067
Note payable, related party - 70,000
Short-term borrowings 631,358 1,109,754
-------------------- --------------------
Total liabilities (all current) 2,433,900 2,687,829
-------------------- --------------------
Commitments and contingencies
Shareholders' deficit:
Preferred stock, $0.001 par value; 20,000,000
shares authorized; none issued
Common stock, $0.001 par value; 50,000,000 shares authorized; 10,625,308
and 10,631,618 (unaudited) shares issued and outstanding at December 31,
2001 and March 31, 2002
(unaudited), respectively 10,626 10,632
Additional paid-in capital 2,924,078 2,986,691
Accumulated deficit (4,918,370) (5,124,065)
Accumulated other comprehensive income 305,397 319,022
-------------------- --------------------
Total shareholders' deficit (1,678,269) (1,807,720)
-------------------- ---------------------
Total liabilities and shareholders' deficit $ 755,631 $ 880,109
==================== ====================
See notes to consolidated financial statements.
F-13
LOOK MODELS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001 AND 2000 AND
THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
December 31, 2001 December 31, 2000 March 31, 2002 March 31, 2001
USD USD USD USD
--------------------- ---------------------- ---------------------- -------------------
(unaudited) (unaudited)
Sales $ 1,076,237 $ 1,220,841 255,978 48,759
Cost of sales (662,601) (839,754) (92,375) (28,046)
----------------- ---------------------- ---------------------- ----------------------
Gross margin 413,636 381,087 163,603 20,713
------------------ ---------------------- ---------------------- ----------------------
Selling expenses (430,375) (483,378) (157,715) (322,042)
Administrative expenses 1,648,951) (1,503,701) (183,555) (190,541)
------------------ ---------------------- ---------------------- ----------------------
(2,076,326) (1,987,079) (341,270) (512,583)
-------------------- ---------------------- ---------------------- ----------------------
Loss from operations (1,665,690) (1,605,992) (177,667) (491,870)
-------------------- ---------------------- ---------------------- ----------------------
Other income (expense):
Interest expense (55,826) (48,127) (19,883) (11,110)
Other, net (4,434) (26,319) (8,145) (15,593)
-------------------- ---------------------- ---------------------- ----------------------
(60,260) (74,446) (28,028) (26,703)
-------------------- ---------------------- ---------------------- ----------------------
Net loss $ (1,725,950) $ (1,680,438) (205,695) (518,573)
====================== ====================== ====================== ======================
See notes to consolidated financial statements
F-14
LOOK MODELS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001 AND 2000
AND THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
Accumulated
Common stock Additional other
----------------------------
Paid-in Accumulated comprehensive
Shares Amount capital deficit income Total
---------------- ------------ -------------- --------------- ----------------- ---------------
Balances at January 1, 2000 $ 212,820 $ (1,511,982) $ 170,847 $ (1,128,315)
Issuance of common stock in
connection with recapitalization 2,000,000 $ 2,000 (2,000)
Sale of common stock pursuant to
private placements, net 7,806,062 7,806 2,099,209 2,107,015
Issuance of common stock in
exchange for services 332,812 333 255,917 256,250
Comprehensive income (loss):
Net loss (1,680,438) (1,680,438)
Foreign currency translation adjustment 68,374 68,374
----------- -----------
Comprehensive loss (1,612,064)
--------- -------- ----------- ----------- --------- ----------
Balances at December 31, 2000 10,138,874 10,139 2,565,946 (3,192,420) 239,221 (377,114)
---------- ---------- ----------- ----------- ---------- -------------
Sale of common stock pursuant to
private placements, net 62,810 63 70,556 70,619
Issuance of common stock in
exchange for services 405,624 406 269,594 270,000
Issuance of common stock in
exchange for profit interest payable 18,000 18 17,982 18,000
Comprehensive income (loss):
Net loss (1,725,950) (1,725,950)
Foreign currency translation adjustment 66,176 66,176
--------- ---------
Comprehensive loss (1,659,774)
------------ ----------- ---------- -------------- ------------ -----------
Balances at December 31, 2001 10,625,308 10,626 2,924,078 (4,918,370) 305,397 (1,678,269)
============== =============== ========= =============== =========== =============
F-15
LOOK MODELS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
AND COMPREHENSIVE INCOME (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
AND THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
Accumulated
Common stock Additional other
---------------------------------
Paid-in Accumulated comprehensive
Shares Amount capital deficit income Total
---------------- ------------ ------------ -------------- --------------- ----------
Balances at December 31, 2001 10,625,308 10,626 2,924,078 (4,918,370) 305,397 (1,678,269)
Sale of common stock pursuant to
private placements, net 6,310 6 12,613 12,619
Salary waived by majority shareholder 50,000 50,000
Comprehensive income (loss):
Net loss (243,195) (243,195)
Foreign currency translation adjustment 13,625 13,625
-------- -------
Comprehensive loss (229,570)
------------- ----------- -------------- --------------- -------------- ------------
Balances at March 31, 2002 10,631,618 10,632 2,986,691 (5,124,065) 319,02 (1,807,720)
=============== ============ ============= ============== =============== ============
F-16
LOOK MODELS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001 AND 2000
AND THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
Years ended
December 31, 2001 December 31, 2000
Cash flows from operating activities:
Net loss $ (1,725,950) $ (1,680,438)
---------------------- ----------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 31,962 14,311
Issuance of shares for services 270,000 256,250
Changes in assets and liabilities:
Increase in accounts receivable (182,656) (10,502)
(Increase) decrease in inventories 9,833 (174,190)
(Increase) decrease in prepaids and other
current assets 330,407 (230,900)
Increase in trade liabilities 268,244 311,100
Increase in accrued expenses and
other liabilities 66,099 147,549
Increase in advances payable related party 356,541 76,797
Decrease in deferred income (27,804) (17,006)
---------------------- ----------------------
1,122,626 373,409
---------------------- ----------------------
Net cash used in operating activities (603,324) (1,307,029)
---------------------- ----------------------
Cash flows from investing activities:
Capital expenditures (24,006) (155,229)
Increase in long-term deposits (16,281)
---------------------- ----------------------
Net cash used in investing activities (24,006) (171,510)
---------------------- ----------------------
Cash flows from financing activities:
(Decrease) increase in short-term borrowings, net 57,919 (78,521)
Proceeds from issuance of common stock 53,645 2,107,015
---------------------- ----------------------
Net cash provided by financing activities 111,564 2,028,494
---------------------- ----------------------
Effect of exchange rate changes in cash and cash
equivalents 4,304 (4,132)
---------------------- -----------------------
Net (decrease) increase in cash (511,462) 545,823
Cash and cash equivalents at beginning of year 557,665 11,842
---------------------- ----------------------
Cash and cash equivalents at end of year $ 46,203 $ 557,665
====================== ======================
(Continued)
F-17
LOOK MODELS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001 AND 2000
AND THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
Years ended
December 31, 2001 December 31, 2000
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 55,826 $ 48,127
====================== ======================
Supplemental disclosure of non-cash investing and Financing activities:
Issuance of common stock for profit interest
payable $ 18,000
======================
Stock subscriptions receivable (payment received
on January 21, 2002) $ 16,974
======================
See notes to consolidated financial statements.
F-18
LOOK MODELS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001 AND 2000
AND THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
Three months ended
March 31, 2002 March 31, 2001
USD USD
---------------------- ----------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (205,695) $ (518,573)
---------------------- ----------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 7,866 4,157
Salary waived by majority shareholder 50,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (156,785) 18,257
Decrease (increase) in inventories 3,921 (99,536)
(Increase) decrease in prepaids and other
current assets 92,253 (8,759)
Decrease in trade liabilities (133,977) (126,230)
(Decrease) increase in accrued expenses
and other liabilities (53,077) 59,020
(Decrease) increase in advances payable
related party (99,344) 120,743
Decrease in deferred income (22,034)
---------------------- ----------------------
(289,143) (54,382)
----------------------- -----------------------
Net cash used in operating activities (494,838) (572,955)
---------------------- ----------------------
Cash flows from investing activities:
Capital expenditures (7,454) (4,684)
---------------------- ----------------------
Net cash used in investing activities (7,454) (4,684)
---------------------- ----------------------
Cash flows from financing activities:
(Decrease) increase in short-term borrowings, net 487,233 102,368
Proceeds from note payable, related party 70,000
Proceeds from issuance of common stock 12,619
---------------------- ----------------------
Net cash provided by financing activities 569,852 102,368
---------------------- ----------------------
Effect of exchange rate changes in cash and cash
Equivalents 3,046 34,496
---------------------- ----------------------
Net (decrease) increase in cash 70,606 (440,775)
Cash and cash equivalents at beginning of year 46,203 557,665
---------------------- ----------------------
Cash and cash equivalents at end of year $ 116,809 $ 116,890
====================== ======================
(Continued)
F-19
Three months ended
March 31, 2002 March 31, 2001
(unaudited) (unaudited)
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 19,883 $ 11,112
====================== ======================
F-20
LOOK MODELS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000 AND
THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
1. Organization, basis of presentation and management's plans:
Organization:
The following depicts the Company and its major subsidiaries:
-----------------------------------------
Look Models International, Inc
Delaware, USA
-----------------------------------------
100%
---------
-----------------------------------------
Fordash Holdings Ltd
Bahamas
-----------------------------------------
100%
---------------------
-----------------------------------------
Look Eventmanagement GmbH
Vienna, Austria
-----------------------------------------
-------------------------------------------------------------
100% 100%
- ----------------------------------- -----------------------------
Look Model Management GmbH Look Model Management spol sro
Vienna, Austria Prague, Czech Republic
- ----------------------------------- ------------------------------
Look Models International, Inc ("LMI" or "the Company") is a U.S. holding
company that was incorporated in Delaware in June 2000. Fordash Holdings
Ltd ("Fordash") is a Bahamas holding company that was incorporated in
Nassau in July 1999. Look Eventmanagement GmbH ("LEM") handles the sourcing
of new models and their development, and the organization of promotional
events on behalf of a wide variety of customers, including automobile
manufacturers and national airlines. It was founded in 1986 under its
former name Wolfgang Schwarz Sport- und Kulturveranstaltungen GmbH, Vienna.
Look Model Management GmbH ("LMM Austria") reflects the Company's
activities in Austria. Look Model Management spol sro ("LMM Czech
Republic") reflects the Company's activities in the Czech Republic. The
Company also has operations in other European countries, including Croatia,
Poland, Romania, Yugoslavia and Slovakia. These operations are included in
LEM. In addition, the Company is developing a portfolio of cosmetic
products (such as perfumes, sun and body creams) and lingerie. These
activities are recorded in the books of LEM.
F-21
LOOK MODELS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000 AND
THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
Organization, basis of presentation and management's plans (continued): Basis of
presentation:
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("US GAAP").
The consolidated financial statements include the accounts of Look Models
International, Inc. and it's wholly-owned subsidiaries Fordash Holdings
Ltd., Look Eventmanagement GmbH, Look Model Management GmbH and Look Model
Management spol sro. Intercompany balances and transactions are eliminated.
Interim financial statements:
The consolidated balance sheet as of March 31, 2002, the related consolidated
statements of operations and cash flows for the three months ended March
31, 2002 and 2001, and the consolidated statement of shareholders' deficit
and comprehensive income (loss) for the three months ended March 31, 2002,
have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include normal recurring adjustments)
necessary to present fairly the financial position, results of operations
and cash flows for all such periods have been made. The results of
operations for the three months ended March 31, 2002, are not necessarily
indicative of the operating results for the full year.
Management's plans:
The Company's financial statements for the years ended December 31, 2001 and
2000 show that the Company has suffered net losses of $1,725,950 and
$1,680,438, respectively, and has a shareholders' deficit and a working
capital deficiency of $1,678,269 and $1,842,854, respectively, as of
December 31, 2001. 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 all amounts owed to him by the Company and to
utilize funds from capital raised from redemption of outstanding
warrants or future equity transactions the Company may conclude for
repayment. At December 31, 2001 and March 31, 2002 (unaudited), such
amounts were $812,911 and $709,067 (unaudited), respectively. In
addition, the president and majority shareholder has agreed to fund
25% of the operating expenses for 2002, and to forego salary in 2002
until such time as profitable operations, capital raised from
redemption of outstanding warrants, or future equity transactions
provide the Company the ability to incur his salary in accordance with
his employment agreement.
F-22
1. Organization, basis of presentation and management's plans (continued):
Management's plans (continued):
b. In 2001, the Company entered into an International Production and
Distribution Agreement with a German corporation, whereby the Company
obtained, among other things, the worldwide exclusive right to promote
and distribute a patented cosmetics dispenser under the Company's Look
Models and Catwalk labels. Further, the Company entered into a
three-year Product Distribution Agreement with Models Prefer Ltd., a
Connecticut corporation. Under this agreement, the Company has granted
exclusive distribution rights, as defined, to Models Prefer Ltd for
the distribution of the dispenser over televised distribution
channels. Under the terms of the Product Distribution Agreement, the
Company is guaranteed minimum purchases of the dispenser, which are
expected to generate revenues to the Company of approximately
$575,000, $900,000 and $1,200,000, over each of the three contract
years ending November 2002, 2003 and 2004, respectively. In addition,
the exclusivity provision of this agreement provides that the above
revenues will double in the event that the purchaser exercises its
exclusivity rights.
c. The Company is negotiating additional equity funding from foreign
investors, as well as the possibility of a U.S. private placement, and
expects to complete the reverse acquisition of a U.S. publicly traded
development stage company which will provide access to the U.S.
capital markets.
2. Significant accounting policies:
Business combinations:
Effective October 1, 2000, the Company issued 2,000,000 shares of common
stock and a promissory note in the amount of $1,000,000 to the
shareholder of Fordash in exchange for his interest in Fordash. Prior
to the exchange, the Company had no substantial operations and, under
accounting principles generally accepted in the United States of
America, the transaction was accounted for as a recapitalization, as
the shareholder of Fordash acquired all the stock of LMI. Accordingly,
there was no revaluation of assets or liabilities for financial
statement accounting purposes. For reporting purposes, the
consolidated financial statements reflect the above-mentioned
reorganization similar to a pooling of interests with assets and
liabilities recorded at historical cost. Subsequent to the
recapitalization, the former shareholder of Fordash and the Company
agreed to cancel the note payable.
Foreign currency translation:
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional
currency. The functional currency for most foreign operations is the
Austrian Schilling, which was replaced by the Euro in January 2002.
Conversion to the Euro is not expected to have an impact on the
Company's financial condition and results of operations. Revenues and
expenses of such subsidiaries have been translated into U.S. dollars
at average exchange rates prevailing during the period. Assets and
liabilities have been translated at the rate of exchange at the
balance sheet date. Translation gains and losses are included in other
comprehensive income. Aggregate foreign currency transaction gains and
losses are included in the results of operations as incurred. 2.
Significant accounting policies (continued): Cash and cash
equivalents:
Cash and cash equivalents comprise cash on hand and deposits with original
maturities of less than three months.
Reclassifications:
Certain amounts reported in the 2000 financial statements have been
reclassified to conform to the 2001 presentation.
Accounts receivable and concentration of credit risk:
The Company grants credit to its customers, generally without collateral.
At December 31, 2001 approximately $109,835 of net trade receivables
were due from 2 customers. At March 31, 2002 (unaudited) approximately
$242,402 (unaudited) was due from 1 customer. During the year ended
December 31, 2001 and the three months ended March 31, 2002
(unaudited) one cosmetics customer accounted for 25% and 28%
(unaudited) of sales, respectively. No single customer accounted for
more than 10% of sales during the year ended December 31, 2000 and the
three months ended March 31, 2001 (unaudited).
Inventories:
Inventories consist of cosmetic products ready for sale and are valued by
using the first-in, first-out (FIFO) method at the lower of cost or
market.
Property and equipment:
Property and equipment is stated at cost less accumulated depreciation.
Depreciation expense is recognized using the straight-line method
primarily over useful lives of 5 years.
Intangible assets:
Intangible assets consist of costs incurred to develop the Company's
websites and costs incurred to develop the Look Models and Catwalk
trademarks. These are being amortized using the straight-line method
over 4 and 10 years, respectively.
The Company periodically assesses the carrying value of its long-lived
assets for impairment, including operating and office equipment and
intangible assets, when events and circumstances indicate that the
carrying value of an asset may not be recoverable. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Based on its review, the Company does not
believe that any impairment has occurred as of December 31, 2001.
F-23
2. Significant accounting policies (continued):
Income taxes:
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled.
Revenue recognition:
Revenues from cosmetics sales are recognized upon delivery of goods to
customers. Revenues from event and model management are recognized at
the time services are provided.
Advertising:
Advertising costs are expensed as incurred. During the years ended December
31, 2001 and 2000 and the three months ended March 31, 2002
(unaudited) and 2001 (unaudited), the Company incurred approximately
$51,761, $76,075, $1,888 (unaudited) and $1,982 (unaudited),
respectively in advertising expense.
Fair value of financial instruments:
The carrying amounts of the Company's cash and cash equivalents,
receivables, trade liabilities and accrued expenses and other current
liabilities approximate fair values due to the short maturities of
these instruments. The carrying values of the Company's short-term
borrowings approximate fair value based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements. The fair values of the Company's payables to related
parties are not practicable to estimate due to the related party
nature of the underlying transactions and indefinite payment terms.
Stock-based compensation:
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" allows companies to choose whether to
account for employee stock-based compensation on a fair value method,
or to account for such compensation under the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"). The Company has chosen to
account for employee stock-based compensation using APB 25.
Segment reporting:
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). The Company's
results of operations and financial position were not affected by the
implementation of SFAS No. 131.
F-24
2. Significant accounting policies (continued):
Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Comprehensive income:
SFAS No. 130, "Reporting Comprehensive Income", establishes requirements
for disclosure of comprehensive income which includes certain items
previously not included in the statements of operations, including
minimum pension liability adjustments and foreign currency translation
adjustments, among others. During the years ended December 31, 2001
and 2000, and the three months ended March 31, 2002 and 2001,
unaudited, comprehensive income represents foreign currency
translation adjustments.
Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
This statement, as amended, is effective for fiscal years beginning
after June 15, 2000. Currently, the Company does not have any
derivative financial instruments and does not participate in hedging
activities. Therefore, SFAS No. 133 did not impact the Company's
consolidated financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method will be
prohibited on a prospective basis only. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an
impairment-only approach. The Company is currently evaluating the
impact that the adoption of SFAS No. 141 and SFAS No. 142 will have
its financial condition and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets", which addresses accounting and
financial reporting for the impairment or disposal of long-lived
assets. This statement is effective for the Company on January 1,
2002. The Company does not expect that adoption of this standard will
have a material effect on its results of operations or financial
position
F-25
2. Significant accounting policies (continued):
Recently issued accounting standards (continued):
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No 101, "Revenue Recognition
in Financial Statements". SAB No 101, as amended by SAB No 101A and
SAB No 101B, was effective no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. SAB No 101 provides
the Staff's view in applying generally accepted accounting principles
to selected revenue recognition issues. The Company believes that it
complies with the accounting and disclosure described in SAB No 101.
3. Property and equipment:
Property and equipment consists of:
December 21, March 31,
2001 2002
----------------- ------------------
(unaudited)
Office and computer equipment $ 90,680 $ 91,206
Less accumulated depreciation (47,186) (51,579)
----------------- ------------------
$ 43,494 $ 39,627
================= ==================
4. Intangible assets:
Intangible assets consist of:
December 21, March 31,
2001 2002
----------------- ------------------
(unaudited)
Website development costs $ 8,900 $ 14,490
Design fees for Look Models and Catwalk identity 112,877 114,215
----------------- ------------------
121,777 128,705
Less accumulated amortization (16,967) (21,041)
------------------ -------------------
$ 104,810 $ 107,664
================= ==================
5. Short-term borrowings:
At December 31, 2001 and March 31, 2002 (unaudited) short-term borrowings
consisted of:
December 21, March 31,
2001 2002
----------------- ------------------
(unaudited)
Line of credit, interest of 6.00% at December 31, 2001; outstanding
balance due in September 2002; collateralized by the Company's
receivables and guaranteed by the Company's president $ 130,910 129,897
Line of credit, interest of 6.00% at December 31, 2001; outstanding balance
due in September 2002; collateralized by the Company's
receivables and guaranteed by the Company's president 340,430 358,216
Line of credit, interest of 8% at December 31, 2001; outstanding balance
due in September 2002; collateralized by the Company's receivables and
guaranteed by the Company's president 131,198 133,481
Overdraft on bank accounts 28,820 488,160
----------------- ---------------
$ 631,358 $ 1,109,754
===================== ===================
6. Profit interest payable:
Pursuant to Austrian law, certain third-party investors were granted a
profit interest in Look Eventmanagement GmbH in 2000 in return for an
investment of $88,888. Under the terms of the agreement, the investors
were to share in profits and losses of the business. In 2001, the
Company decided to terminate the agreement and has provided a
liability as of December 31, 2001 equal to the amount originally
invested plus 10% interest, which was the amount required to terminate
the agreement. This liability is included in accrued expenses and
other current liabilities at December 31, 2001 and was fully repaid in
February 2002.
7. Income taxes:
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.
The reconciliation between the effective tax rate and the statutory U.S. federal income tax rate is as follows:
December 31, December 31, March 31,
2001 2000 2002
------------------- -------------------- ----------------
(unaudited)
Computed "expected" tax benefit 34.00% 34.00% 34.00%
Operating losses for which a benefit
has not been recognized (34.00%) (34.00%) (34.00%)
------------------- ------------------- -------------------
- - -
================= ================= ==================
At December 31, 2001 and March 31, 2002 (unaudited), the Companys
deferred tax assets are as follows:
December 21, March 31,
2001 2002
----------------- ------------------
(unaudited)
Net operating loss carry forwards (foreign) $ 634,117 $ 659,157
Net operating loss carry forwards (U.S.) 737,100 794,746
Deferred tax asset valuation allowance (1,371,217) (1,453,903)
----------------- ------------------
Net deferred tax assets $ - $ -
================= ==================
F-27
At December 31, 2001 and March 31, 2002 (unaudited), the Company has
foreign operating loss carryforwards of approximately $1,865,000 and
$1,939,000 (unaudited), respectively, and U.S. operating loss
carryforwards of approximately $2,168,000 and $2,338,000 (unaudited),
respectively. 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 2021.
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.
8. 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 all amounts owed to him
by the Company through 2002, or until funds are acquired through
redemption of outstanding warrants or future equity transactions which
will provide the means for repayment.
During the three months ended March 31, 2002 (unaudited) the Company
entered into a note agreement with its president and majority
shareholder. The note is for $70,000, is due in , bears interest at
and is collateralized by .
9. Leases:
The Company is leasing automobiles and office equipment under operating
leases. Rent expense under these leases was $39,210 and $42,330 for
the years ended December 31, 2001 and 2000, respectively, and $9,760
and $14,069 (unaudited) for the three months ended March 31, 2002 and
2001 (unaudited), respectively. The Company also leases office space
in Vienna under an agreement for an indefinite term. Under the
agreement, if the Company continues to make lease payments at the
current amount, the lease cannot be terminated by the landlord. Rent
expense for the years ended December 31, 2001 and 2000 and the three
months ended March 31, 2002 (unaudited) was approximately $10,100,
$10,200 and $2,550 (unaudited), respectively.
At March 31, 2002, (unaudited) future minimum lease payments are as
follows:
Year ending December 31: Amount
-----------------
2002 (nine months) $ 43,733
2003 19,017
2004 12,171
2005 5,491
2006 4,223
-----------------
Total $ 84,635
=================
10. Other post-employment benefits:
Austrian employees have a legal right to severance payment if their
employment is terminated by the employer or if the employee retires.
Thus, a liability has been recorded for estimated severance payments.
10. Other post-employment benefits (continued):
The following parameters have been used for calculating estimated severance
payments:
December 31, March 31,
2001 2002
------------------- --------------------
(unaudited)
Retirement age: Male 61.50 61.50
Female 56.50 56.50
Discount rate 4.50% 4.50%
Rate of increase in future
compensation levels 2.50% 2.50%
For calculation of estimated severance payments, the projected unit credit
method was used.
The calculations of the estimated severance payments are as follows:
December 31, March 31,
2001 2002
------------------- ---------------------
(unaudited)
Projected benefit obligation at the
beginning of the period $ 13,374 $ 19,415
Interest costs 896 224
Service costs 6,224 1,556
Recognized actuarial loss (1,079) (84)
------------------- -------------------
Projected benefit obligation at the
end of the period $ 19,415 $ 21,111
================== ==================
11. Shareholders' equity:
In connection with its recapitalization, the Company issued 2,000,000
shares of common stock. During the year ended December 31, 2001 and
the three months ended March 31, 2002 (unaudited), the Company issued
an additional 486,434 and 6,310 shares of common stock for $358,619
and $12,619, net, respectively. A total of 62,810 and 6,310 shares
were issued in private placements at prices ranging from $0.02 to
$2.00 per share. Different prices arose as the Company concluded
individual negotiations with each of the Company's investors. In
addition, in 2001, 423,624 were issued in exchange for legal and
professional services and in repayment of certain liablities. These
shares were valued at $288,000, the fair value of the services
received and liabilities paid, which management considers to be the
most reliable measurement.
Included in shares issued for services are 250,000 shares valued at
$240,000, which were issued to a member of the Board of Directors.
F-28
11. Shareholders' equity (continued):
During the three months ended March 31, 2002 (unaudited) the Company's
president and majority shareholder waived salary of $50,000
(unaudited) due under the 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 $50,000 (unaudited).
12. Commitments and contingent liabilities:
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material effect
on the financial statements of the Company.
13. Operating segments:
The Group classifies its businesses into three operating segments. The
segments have been defined by the services each segment offers. The
services offered are described below:
Eventmanagement:
Look Eventmanagement GmbH handles the sourcing of new models and their
development, and the organization of promotional events. It was
founded 1986 under its former name Wolfgang Schwarz Sport- und
Kulturveranstaltungen GmbH, Vienna.
Model management:
Look Model Management GmbH is a model agency operating in Austria.
Cosmetics:
In 2000, the Company started a new operating segment by entering into the
cosmetics business. The products include Eau de toilette, perfumes,
body milk and body splash. In 2001, the Company introduced the sale of
sunscreens.
A summary of sales by country is as follows:
Three months ended Event- Model
March 31, 2002 management Management Cosmetics Total
---------- ---------- ------------- -------------
(unaudited)
Austria $ 40,475 $ 44,192 $ 84,667
United States of America - $ 93,201 93,201
Other countries 16,270 61,843 78,110
---------------- ---------------- ------------- -------------
Totals $ 128,745 $ 106,035 $ 288,894 $ 255,978
================ ================ ============= =============
13. Operating segments (continued):
Three months ended Event- Model
March 31, 2001 management Management Cosmetics Total
---------- ---------- ------------- -------------
(unaudited)
Austria $ - $ 40,305 $ - $ 40,305
United States of America - - - -
Other countries - - 8,454 8,454
---------------- ---------------- ------------- -------------
Totals $ - $ 40,305 $ 8,454 $ 48,759
================ ================ ============= =============
Year ended Event- Model
December 31, 2001 management Management Cosmetics Total
---------- ---------- ------------- -------------
Austria $ 72,601 $ 392,497 $ 1,043 $ 466,141
United States of America 74,473 - 277,029 351,502
Other countries 247,772 - 10,822 258,594
---------------- ---------------- ------------- -------------
Totals $ 394,846 $ 392,497 $ 288,894 $ 1,076,237
================ ================ ============= =============
Year ended Event- Model
December 31, 2000 management Management Cosmetics Total
---------- ---------- ------------- -------------
Austria $ 429,971 $ 439,917 $ 42,653 $ 912,541
United States of America 153,090 - - 153,090
Other countries 155,210 - - 155,210
---------------- ---------------- ------------- -------------
Totals $ 738,271 $ 439,917 $ 42,653 $ 1,220,841
================ ================ ============= =============
F-29
13. Operating segments (continued):
Information about the Group's operating segments:
Three months ended Event- Model
March 31, 2002 management Management Cosmetics Corporate Total
---------- ---------- ------------- ------------- ---------------
(unaudited)
Total revenue $ 56,745 $ 106,032 $ 93,201 $ - $ 255,978
Profit (loss) from
Operations (103,456) (20,077) 77,914 (132,048) (177,667)
Interest expense (15,719) (4,164) - - (19,883)
Net income (loss) (127,320) (24,241) 77,914 (132,048) (205,695)
Shares issued for services - - - - -
Capital expenditures 6,996 421 - - 7,417
Depreciation and
amortization 1,897 2,650 552 3,333 8,432
Identifiable segment
assets 45,189 15,378 21,861 64,861 147,289
Three months ended Event- Model
March 31, 2001 management Management Cosmetics Corporate Total
---------- ---------- ------------- ------------- ---------------
(unaudited)
Total revenue $ - $ 40,305 $ 8,454 $ - $ 48,759
Profit (loss) from
Operations (276,904) (114,776) 6,623 (106,813) (491,870)
Interest expense (9,052) (2,058) - - (11,110)
Net income (loss) (301,549) (116,834) 6,623 (106,813) (518,573)
Shares issued for services - - - - -
Capital expenditures 400 - - 4,316 4,716
Depreciation and
amortization 2,717 2,784 - - 5,501
Identifiable segment
assets 41,816 23,142 22,413 71,698 159,069
F-30
13. Operating segments (continued):
Year ended Event- Model
December 31, 2001 management Management Cosmetics Corporate Total
---------- ---------- ------------- ----------- ------------
Total revenue $ 394,846 $ 392,497 $ 288,894 $ - $ 1,076,237
Profit (loss) from
Operations (368,282) (313,551) 89,101 (1,072,958) (1,665,690)
Interest expense (44,103) (11,723) - - (55,826)
Net income (loss) (415,489) (326,604) 89,101 (1,072,958) (1,725,950)
Shares issued for services - - - 270,000 270,000
Capital expenditures 1,803 - - 16,534 18,337
Depreciation and
amortization 6,956 7,388 - 15,544 29,888
Identifiable segment
assets 40,090 17,607 22,413 68,194 148,304
Year ended Event- Model
December 31, 2000 management Management Cosmetics Corporate Total
------------- ---------------- ------------ ------------ --------
Total revenue $ 738,271 $ 439,917 $ 42,653 $ 1,220,841
Profit (loss) from
Operations (632,555) 183,756 (57,504) (1,099,689) (1,605,992)
Other expense (33,689) (14,438) (48,127)
Net income (loss) (695,267) 167,839 (57,504) (1,095,506) (1,680,438)
Shares issued for services 256,250 256,250
Capital expenditures 46,004 15,994 22,413 67,382 151,793
Depreciation and
amortization 4,403 7,395 - - 11,798
Identifiable segment
assets 44,133 25,927 22,413 67,382 159,855
F-31
KINGSGATE ACQUISITIONS, INC.
TRANSACTION WITH LOOK MODELS INTERNATIONAL , INC.
KINGSGATE ACQUISITIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
Historical
-----------------------------------------
Kingsgate Look Models Pro forma
Acquisitions, Inc. International,
Inc. adjustments Pro forma
-------------------- ------------------- --------------- -------------------
ASSETS:
Current assets:
Cash and cash equivalents $ 1,851 $116,809 $118,660
Trade accounts receivable
424,531 424,531
Inventories
153,433 153,433
Prepaid expenses and other current
assets 21,764 21,764
-------------------- ------------------- --------------- -------------------
Total current assets
1,851 716,537 718,388
-------------------- ------------------- --------------- -------------------
Property and equipment, net 39,627 39,627
Intercompany receivables -
Deferred income taxes -
Intangible assets, net 107,664 107,664
Deposit 16,281 16,281
-------------------- ------------------- --------------- -------------------
Total assets $ $
$ 1,851 880,109 881,960
==================== =================== =============== ===================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade liabilities $ $
$ 4,280 578,255 582,535
Accrued expenses and other current
liabilities 220,753 220,753
Advances payable, related party
709,067 709,067
Note Payble, related party 70,000 70,000
Short-term borrowings
1,109,754 1,109,754
-------------------- ------------------- --------------- -------------------
Total current liabilities
4,280 2,687,829 2,692,109
-------------------- ------------------- --------------- -------------------
Shareholders' deficit:
Common stock
2,000 10,632 A$ (126) 12,506
Additional paid-in-capital
16,215 2,986,691 A(16,848) 2,986,058
A 126
Accumulated deficit
(20,644) (5,124,065) A 16,848 (5,127,861)
Accumulated other comprehensive income
319,022 319,022
-------------------- ------------------- --------------- -------------------
Total shareholders' deficit
(2,429) (1807,720) (1,810,149)
-------------------- ------------------- -------------------
$1,851 $880,109 $ 881,960
======= ======== =======
-------------------- ------------------- --------------- -------------------
F-32
Effective July 25, 2001, Kingsgate Acquisitions, Inc. (the "Company" or
"Kingsgate) entered into an acquisition agreement (the Agreement) with Look
Models International, Inc. ("LMI"), a Delaware Corporation, that through
its wholly-owned subsidiaries, operates a model agency, an event marketing,
licensing and sponsorship business, and a product development and
distributor business that manufactures and distributes a line of cosmetics
and other related products both in the retail and wholesale sectors.
Kingsgate, a development stage corporation, was organized on September 28,
1999 as a vehicle to acquire or merge with a business.
Pursuant to the Agreement, the shareholders of LMI agreed to sell to Kingsgate
100% of all of 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 are to be issued to the founder of LMI, Wolfgang
Schwarz. After the transaction, Kingsgate will have a total of 13,500,000
shares of common stock issued and outstanding.
The transaction will be accounted for as a reverse acquisition of Kingsgate by
LMI, since the shareholder of LMI will 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 the Company by LMI and as a
recapitalization of LMI.
The accompanying unaudited pro forma condensed consolidated balance sheet gives
effect to the acquisition as if it had been consummated on March 31, 2002.
The unaudited pro forma condensed consolidated balance sheet should be read
in conjunction with the historical financial statements of LMI, as well as
those of the Company. The unaudited pro forma condensed consolidated
balance sheet does not purport to be indicative of the financial position
that actually would have occurred had the transaction been consummated on
March 31, 2002, or to project the Company's financial position to any
future period.
A pro forma statement of operations has not been presented as Kingsgate
incurred a loss of $15,365 and $820 for the years ended December 31, 2001
and 2000, respectively and $3,796 and $780 for the three months ended March
31, 2002 and 2001, respectively. Neither amount would materially increase
the net loss incurred by LMI for the year ended December 31, 2001 and 2000
of $1,725,950 and $1,680,438, respectively and for the three months ended
March 31, 2002 and 2001 of $205,695 and $518,573, respectively as shown in
the LMI historical financial statements. Loss per share for LMI for the
year ended December 31, 2001 and 2000 and the three months ended March 31,
2002 and 2001 based on 13,500,000 shares outstanding would have been $0.13,
$0.12, $0.02 and $0.04, respectively.
F-33
1. Description of the transaction:
Effective July 25, 2001, Kingsgate Acquisitions, Inc. (the "Company" or
"Kingsgate") entered into an acquisition agreement (the Agreement) with
Look Models International, Inc. ("LMI")
Pursuant to the agreement, the shareholders of LMI agreed to sell to Kingsgate
100% of all of 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 are to be issued to the founder of LMI, Wolfgang
Schwarz. After the transaction, Kingsgate will have a total of 13,500,000
shares of common stock issued and outstanding.
The transaction represents as a reverse acquisition of Kingsgate by LMI, since
the shareholders of LMI will 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 the Company by LMI and as a
recapitalization of LMI.
The historical shareholder's deficit of LMI, prior to the merger, is to be
retroactively restated for the equivalent number of shares exchanged in the
merger after giving effect to any difference in the par value of the
Company's and LMI's common stock, with an offset to additional paid-in
capital
2. Description of the pro forma adjustments:
(A) To reflect the acquisition of 100% of the outstanding common stock of LMI
in exchange for 11,000,000 shares of Kingsgate's common stock. The
transaction is recorded as a reverse acquisition. The historical
shareholders' deficit of LMI prior to the merger is retroactively restated
(a recapitalization) for the equivalent number of shares exchanged in the
merger after giving effect to any difference in the par value of
Kingsgate's and LMI's common stock, with an offset to additional paid-in
capital. The accumulated deficit of the acquirer is carried forward after
the acquisition.
F-34
Kingsgate Acquisitions, Inc.
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy, by any person in any jurisdiction in which it is unlawful for
such person to make such offer or solicitation. Neither the delivery of this
Prospectus nor any offer, solicitation or sale made hereunder, shall under any
circumstances create an implication that the information herein is correct as of
any time subsequent to the date of the Prospectus.
Until ------- ---, 2002 (ninety days after the date funds and securities
are released from the escrow account pursuant to Rule 419), all dealers
effecting transactions in the registered securities, whether or not
participating in the distribution thereof, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotment or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Delaware General Corporation Law provides for the indemnification of
the officers, directors and corporate employees and agents of Kingsgate
Acquisitions, Inc. (the "Registrant") under certain circumstances as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstance of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized in this section. Such
expenses including attorneys' fees incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
Articles Ninth and Tenth of the Registrant's certificate of incorporate
provide as follows:
NINTH:
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the Delaware General Corporation Law, as the
same may be amended and supplemented.
TENTH:
The Corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Article XII of the Registrant's by-laws provides as follows:
ARTICLE XII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or
was a director, trustee, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was lawful.
2. DERIVATIVE ACTION. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that such person
is or was a director, trustee, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of such person's duty
to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that,
despite circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation.
3. SUCCESSFUL DEFENSE. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in paragraphs 1 and 2 above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith. to time in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in paragraph 4 above upon receipt of an undertaking by or on
behalf of the director, trustee, officer, employee or agent to repay such
amount unless it shall ultimately be determined by the corporation that the
payment of expenses is authorized in this Section.
6. NONEXCLUSIVITY. The indemnification provided in this Section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any law, by-law, agreement, vote of stockholders or
disinterested director or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall insure to the benefit of the
heirs, executors, and administrators of such a person.
7. INSURANCE. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, trustee,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or
agent of any corporation, partnership, joint venture, trust or other
enterprise, against any liability assessed against such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
8. "CORPORATION" DEFINED. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had the power and authority to indemnify its
directors, trustees, officers, employees or agents, so that any person who
is or was a director, trustee, officer, employee or agent of such of
constituent corporation will be considered as if such person was a
director, trustee, officer, employee or agent of the corporation.
Item 25. Expenses of Issuance and Distribution
We are not incurring any expenses in connection with registration statemen.
The following are estimated expenses for the registration payable by Look
Models:
Securities and Exchange Commission Registration Fee.. ...... $ 0
Legal Fees.................................................. $100,000
Accounting Fees............................................. $ 80,000
Edgarization, Printing and Engraving........................ $ 15,000
Miscellaneous............................................... $ 10,000
Transfer Agent Fees......................................... $ 2,500
--------
TOTAL....................................................... $215,000
Item 26. Recent Sales of Unregistered Securities
The registrant issued 2,000,000 shares of common stock between September
28, 1999 and September 30, 1999 to thirteen investors for cash consideration of
$.01 per share for an aggregate investment of $20,000. Barney Magnusson,
President, Treasurer and Director, and Leslie McGuffin, Secretary and Director,
purchased 200,000 and 50,000 shares of common stock respectively. The registrant
sold these shares of common stock under the exemption from registration provided
by Section 4(2) of the Securities Act. No securities have been issued for
services. These investors were all sophisticated investors.
Neither the registrant nor any person acting on its behalf offered or sold
the securities by means of any form of general solicitation or general
advertising. Purchasers or the beneficial owners of purchasers which are
entities are friends or business associates of Barney Magnusson, President of
the registrant.
All purchasers represented in writing that they acquired the securities for
their own accounts. A legend was placed on the stock certificates stating that
the securities have not been registered under the Securities Act and cannot be
sold or otherwise transferred without an effective registration or an exemption
therefrom. All purchasers of our unregistered securities are accredited
EXHIBITS
Item 27.
2.1 Securities Purchase Agreement with Look Models International, Inc. dated
July 25, 2000*
3.1 Certificate of Incorporation of Look Models International, Inc.*
3.2 Amendment to Certificate of Incorporation of Look Models International,
Inc.*
3.3 By-Laws of Look Models International and its affiliates*
3.4 Articles of Association of Fordash Holdings, Ltd.*
3.5 Memorandum of Association of Fordash Holdings, Ltd.*
3.6 Articles of Incorporation of Look Eventmanagement GmbH*
3.7 Articles of Incorporation of Look Model Management GmbH
(formerly Elite Model Management Vienna GmbH)*
3.8 Certificate of Incorporation of Kingsgate Acquisitions, Inc.**
3.9 By-laws of Kingsgate Acquisitions, Inc.**
4.1 Specimen Certificate of Common Stock**
4.2 Form of Warrant**
4.3 Form of Escrow Agreement**
4.4 Executed Escrow Agreement**
5.1 Opinion of Sheila Covino, Esq. dated October 20, 2000
10.1 Agreement between Look Eventmanagement GmbH and Parfumerie Douglas
Gesellschaft m.b.H.*
10.2 Agreement by and between Look Models International, Inc. and Models Prefer,
Ltd.*
10.3 Trademark Licensing Agreement between Uli Petzold and Look Models
International, Inc.*
10.4 Look Models International Certificate of Intellectual Property
registration*
10.5 Sample Look Evenmanagement Licensing Agreement*
10.6 Sample Look Model Manangement Commission Agreement*
10.7 Sample Look Model Management Mother Agency Agreement*
10.8 Employment Agreement for Wolfgang Schwarz*
10.9 Agreement by and between Look Models International, Inc. and Dialpack GmbH
23.1 Consent Thomas Monahan, CPA to Use Opinion
23.2 Consent of Sheila Corvino, Esq. dated October 20, 2000 to use opinion***
23.3 Consent of Horwarth Gelfond Hochstadt Pangburn, P.C.
23.4 Consent of Wolfgang Schwarz*
23.5 Consent of Uli Petzold*
23.7 Consent of Erwin Krause*
* Previously submitted as to exhibits to registration statement filed
December 14, 2001.
** Previously submitted as exhibits to registration statement filed
November 23, 1999.
*** Previously submitted as exhibits to post effective registration
statement filed November 1, 2000.
Item 28.
UNDERTAKINGS
The Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendment to this registration statement (the "Registration
Statement"):
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
Effective Date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; notwithstanding the foregoing, any
increase or decrease in value of securities offered, any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form
of prospectus filed with the Securities and Exchange Commission pursuant to
424(b) if, in the aggregate, the changes in valuation and price represent no
more than 20% change in the maximum aggregate offering price set forth in the
Calculation of the registration fee tablie in the effective registration
statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in this registration
statement, including (but not limited to) the addition of an
underwriter;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be treated as a new
registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any provisions contained in its Certificate of
Incorporation, or by-laws, or otherwise, the Registrant has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized the registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, Province of British Columbia, Canada, on August 14, 2002
KINGSGATE ACQUISITIONS, INC.
By: /s/Barney Magnusson
---------------------------
Barney Magnusson, President
Principal Executive Officer,
Principal Financial Officer,
Principal Accounting Officer
In accordance with the requirements of the Securities Act of 1933, the
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/Barney Magnusson
------------------------------- Dated: August 14, 2002
Barney Magnusson
President, Treasurer, Director
/s/Leslie McGuffin
------------------------------- Dated: August 14, 2002
Leslie McGuffin
Secretary, Director