ELITE MODEL MANAGEMENT LUXEMBOURG CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005

ELITE MODEL MANAGEMENT LUXEMBOURG CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005 ELITE MODEL MANAGEMENT GROUP ______________...
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ELITE MODEL MANAGEMENT LUXEMBOURG CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ CONTENTS

Audit Report

3

Management Report

5

Key Financial Data

6

Consolidated Balance Sheet

7

Consolidated Statement of Income

9

Consolidated Statement of Changes in Partners’ Equity

11

Notes to the Pro Forma Consolidated Financial Statements

12

2

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________

3

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________

4

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ MANAGEMENT REPORT

The results for 2005 provided a welcome return to profits for the Group after several years of losses due to exceptional charges in connection with the litigation proceedings in the U.S. and the subsequent liquidation of the Group’s US subsidiary (see Note 26). Although there was again an exceptional charge in 2005, the litigation has now been settled allowing management to focus on building the business for the future. Overall revenues for the year increased by 10% to 29.6M€. This increase resulted from growth in the core business of the model agencies of 6% while the licensing business showed a strong growth of 35%. While margins remained constant compared to 2004, the increase in overhead expenses of 8% was slightly less than revenues. This resulted in a profit before exceptional charges of 1,960,580 Euros and after exceptional charges of 931,655 Euros. This result is also after tax and the minority share of the profits of subsidiaries. The Group had also a healthy balance sheet with cash and term deposits in excess of 4M€. The only bank borrowings relate to a mortgage on the former offices of the Paris agency which will be repaid in full during 2006 when these offices are sold. A detailed review of accounts receivable balances was performed following the year-end and provisions were made where necessary. The Group management considers that all other accounts receivable balances should be collectible. The strategy for the future will be to maintain a steady growth in the modeling business while developing the huge potential which exists to exploit the brand through licensing agreements with key partners. It is anticipated that this growth will come both through the development of new markets, particularly Asia and North America, and the extension of the brand into new product categories. An example of this extension was the launch in early 2006 of an Elite fragrance for both men and women. In 2004, the consolidated financial statements were not audited as the Group did not meet the criteria set by Luxembourg law. For 2005, the Board of Directors requested PKF Audit Conseil to audit the pro-forma financial statements. The accounts for 2004, although unaudited, are, nonetheless, shown with the 2005 financial statements for comparative purposes. In order to avoid the distortions caused by the preparation of accounts in US Dollars for a business whose revenues are generated principally in Euros, it was decided that for 2005 and subsequent years the financial statements should be prepared in Euros (see Note 12). On behalf of the Board of Directors, March 24, 2006 Alain Kittler Director

5

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ KEY FINANCIAL DATA AT DECEMBER 31, (In €) BALANCE SHEET

2 005 EUR

2004 EUR (unaudited)

CURRENT ASSETS

11 449 313

12 710 838

FIXED ASSETS

3 599 543

2 686 101

TOTAL ASSETS

15 048 856

15 396 939

9 019 007

11 933 267

238 592

340 372

TOTAL LIABILITIES

9 257 599

12 273 639

SHAREHOLDER FUNDS

5 639 933

2 969 644

151 324

153 656

15 048 856

15 396 939

TOTAL REVENUES

29 829 913

26 940 241

MODEL FEES AND COMMISSIONS

-18 678 709

-18 020 286

GROSS MARGINS

11 151 204

8 919 955

OVERHEAD EXPENSES

-8 322 583

-7 815 758

EBITDA

2 828 621

1 104 197

-696 022

-730 217

EBIT BEFORE EXCEPTIONAL ITEMS

2 132 599

373 980

EXCEPTIONAL CHARGES

-1 028 925

-1 405 661

EBIT AFTER EXCEPTIONAL ITEMS

1 103 674

-1 031 681

22 439

28 274

TAXES

126 070

250 631

NET PROFIT / (LOSS)

955 165

-1 310 586

MINORITY SHARE

-23 510

-36 395

NET PROFIT / (LOSS) - GROUP

931 655

-1 346 981

CURRENT LIABILITIES LONG TERM LIABILITIES

MINORITY INTERESTS TOTAL LIABILITIES & SHAREHOLDERS FUNDS

INCOM E STATEM ENT

DEPRECIATION

INTEREST

The accompanying notes are an integral part of these financial statements.

6

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________

7

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ CONSOLIDATED BALANCE SHEET AT DECEMBER 31, (In €) Note

2 005 EUR

2 004 EUR (unaudited)

A. SUBSCRIBED CAPITAL UNPAID

0

0

B. FORMATION EXPENSES

0

0

C. FIXED ASSETS I.

Intangible assets 1. Concessions, patents, licenses, trademarks and similar rights and assets a) acquired b) created by the company 2. Goodwill acquired

7

597 845

767 365

7

336 266

358 903

II. Tangible assets 1. Land 2. Buildings 3. Leasehold Improvements 4. Equipment

6 6 6 6

243 918 840 706 205 438 205 171

243 954 890 780 85 529 239 567

III. Financial assets 1. Shares in affiliated undertakings 2. Loans to affiliated undertakings

9 9

323 336 846 863

100 003

3 599 543

2 686 101

TOTAL FIXED ASSETS D. CURRENT ASSETS I. Debtors 1. Trade debtors a) - Maturity < b) - Maturity > 2. Other debtors a) - Maturity < b) - Maturity >

1 year 1 year

4

5 689 798

6 858 620

1 year 1 year

5 8

845 132 136 040

1 154 113 100 263

3

192 376

257 895

3

3 850 981

3 556 064

10 714 327

11 926 955

734 986 15 048 856

783 883 15 396 939

II. Transferable securities 1. Other transferable securities III. Cash at bank, cash in postal cheque accounts, cheques and cash in hand TOTAL CURRENT ASSETS E. PREPAYMENTS AND ACCRUED INCOME TOTAL ASSETS

The accompanying notes are an integral part of these financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31, (In €) Note

A.CAPITAL AND RESERVES I. Subscribed capital II. Additional paid in capital

2 005 EUR

8 12 12

24 851 250 -7 748 050

2004 EUR (unaudited) 24 851 250 -7 748 050

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, (In €) CHARGES Note 2005 EUR

1. a) Model Fees b) Commission Expense including Mother Agencies

2004 EUR (unaudited)

16 108 997 2 569 712

15 670 694 2 349 592

2 893 494 1 074 187 37 974

2 384 353 891 189 59 903

696 022

730 217

17

4 447 520

4 480 311

9

-130 592

0

6. Interest payable and similar charges a) affiliated undertakings b) other interest charges

23

22 439

28 274

7. Extraordinary charges

22

1 028 925

1 405 661

8. Income tax

65 688

167 687

9. Other taxes not shown under the above items

60 382

82 944

2. Staff costs a) Wages and salaries b) Social security costs c) Other staff costs

20 20 20

3. Value adjustments a) in respect of formation expenses and tangible and intangible assets b) in respect of current assets 4. Other operating charges 5. Value adjustment on financial assets and on investments held as current assets

10. Profit for the financial year

931 655

TOTAL CHARGES

29 806 403

The accompanying notes are an integral part of these financial statements

9

28 250 825

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, (In €) INCOME

Note

2005

2004

EUR

EUR (unaudited)

1. Net revenues

19

2. Other operating income

29 655 426

26 962 670

0

-22 429

174 487

0

3. Other interest receivable and similar income a)

from affiliated undertakings

b)

other interest and similar income

4. Other income - Exchange Gains 5. Extraordinary income 6. Loss for the financial year

1 346 981

7. Minority Share of Profit of Subsidiaries

12

TOTAL INCOME

The accompanying notes are an integral part of these financial statements.

10

-23 510

-36 395

29 806 403

28 250 827

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ FOR THE YEAR ENDED DECEMBER 31, 2004 ( In US$ and Euros) and 2005 (In Euros) Addit io nal

Cum ulat iv e

Com p an y

p aid in

Ret ained

Legal

t ran slat ion

capit al

cap it al

earn in gs

Reserves

adjust m en t

T o t al

As at Decem ber 31, 20 04 (unaudit ed) In US$ (rest at ed)

2 9 30 0 00 0

- 10 5 69 8 90

- 17 424 160

2 77 4 56

2 46 7 78 3

As at Decem ber 31, 20 04 (unaudit ed) In EUR (rest at ed)

2 1 47 7 78 9

-

7 7 48 0 50

- 12 772 438

2 03 3 83

1 80 8 96 0

2 9 69 6 44

-

-

-

1 70 9 55 4

1 7 09 5 54

Change in cum ulat ive t ranslat ion accoun t n ot recogn ized in P & L Ent ry of n ew co m pan ies in con so lidat ed account s Adjust m en t for capit al according t o Shareh older M eet ing : M arch 200 6

-

3 37 3 46 1

-

Net p ro fit for t he y ear As at Decem ber 31, 20 05 (audit ed) In EUR

2 4 85 1 25 0

-

7 7 48 0 50

4 05 1 18 9

2 9 08 0

29 0 80

3 373 461

-

93 1 65 5

9 31 6 55

- 15 185 164

2 03 3 83

3 51 8 51 4

5 63 9 93 3

The accompanying notes are an integral part of these financial statements. The Company was incorporated in December 1999 as part of a legal reorganization of an existing Group under common control at that time. Elite Model Management SA (EMMSA) the previous holding company of the Group and its subsidiaries are considered the historic entities of the Group and have been maintained at historic cost. The initial Company capital of USD 29 300 000 was established at the approximate fair value of the net assets of EMMSA at the date of the reorganization, which was higher than the historic cost. To reflect historic cost in these financial statements, the difference between the company capital (approximate fair value of the assets at the date of the reorganization) and the historic cost of the net assets at that date, a negative additional paid in capital has been recorded for USD 10 569 890. Since December 31, 2000 the cumulative translation adjustment is included in retained earnings. While controlling the consolidated statement of changes in Partners’ Equity for the year ended December 31, 2005, the company identified a discrepancy of USD 1 855 728 on the opening balance at January 1st 2005. PKF Audit Conseil recommended restating the consolidated Partners’ Equity as of December 31, 2004. This has been done and we are satisfied that the initial Partners’ Equity was over-valuated partly due to translation adjustments between currencies. Accordingly, Partners’ Equity has been reduced by USD 1 855 728 (1 360 305 Euros) and a specific provision recorded for an equivalent amount. This adjustment has no impact on the results for the financial year 2005

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ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – BUSINESS Elite Model Management Luxembourg was incorporated on December 14 th, 1999 and organized under the laws of Luxembourg as an SARL, limited liability company for an unlimited period. The registered office of the company is at 54, Boulevard Napoleon Premier – 2210 – Luxembourg. The company’s register number is B.73 844. The official publication was made on April 12 th, 2000. The financial year starts on January 1 and ends on December 31 of each year. The main activity of the company is to carry out all transactions pertaining directly or indirectly to the acquiring of participating interests in any enterprise in whatever form and the administration, management, control and development of these participating interests. In particular, Elite Model Management Group is one of the world’s leading model agencies. The Group’s principal activity is as a model booking agent for some of the leading and most promising models worldwide. The Group also provides agency and management services to independently owned agencies; licenses trademarks to distributors of consumer products and promotes model look competitions. Based on the criteria defined by the Article 313 of the August 10, 1915 Luxembourg law, the Company is exempted from the obligation to draw up consolidated accounts and a consolidated management report for the period ending December 31. This article specifies that the company heading a small group which does not exceed the limits of two of the three criteria below, is exempted from consolidation:

-

Balance sheet total < 12.5 M€ Net turnover < 25 M€ Average number of fulltime staff employed during the financial year < 250 people

However, the company prepares voluntarily consolidated financial statements so called “pro forma accounts”. The Extraordinary Shareholder Meeting held in March 2006 decided to translate the capital of the Company in currency “Euro” instead of US Dollar. In order to facilitate the comparison of financial information, the comparative figures for the year 2004 have also been translated into currency Euros at the exchange rate of 1 Euro = 1.3642 USD and are integrated as pro forma data. On the same date, the company which was an SARL (Société à Responsabilité Limitée) was converted into an SA (Société Anonyme). The company remains a limited liability company, the main differences are: shares freely exchangeable, board of directors and the appointment of a statutory auditor. Companies incorporated under Luxembourg law must have their annual accounts audited by one authorized auditor (“réviseur d’entreprises”) appointed by the general meeting of shareholders amongst the members of the Institut des réviseurs d’entreprises (IRE). This réviseur d’entreprise is appointed for a period laid down by a contract. PFK Luxembourg 6, Place de Nancy, L-2212 Luxembourg has been appointed in March 2006.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of presentation The consolidated financial statements have been prepared in accordance with the generally accepted accounting principles and Luxembourg legal and regulatory requirements, under the historical cost convention and the most significant accounting policies are summarized below. These financial statements present the consolidated balance sheet and the consolidated statements of income and changes in partners’ equity for the year ended December 31, 2005. The comparative numbers for the year ended December 31, 2004 are shown but were not audited.

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ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 2.2 Formation Expenses The formation expenses have been directly charged to the profit and loss account in the year of incorporation. 2.3 Consolidation The consolidated financial statements of the Group include all the assets, liabilities, income and expenses of Elite Model Management Luxembourg SARL and the companies in which it directly or indirectly owns more than 50% of the voting capital or holds another form of controlling interest (except for Elite Model Look SA which is in liquidation and the Elite Model Management Corporation and its subsidiaries which filed for bankruptcy in 2004). Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The equity and net income or losses attributable to minority interests are shown separately in the consolidated balance sheet and statement of income, respectively. All intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. 2.4

Associated undertakings : not applicable

If any, investments in associated undertakings are accounted for by the equity method of accounting. These are undertakings over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains and losses on transactions between the Group and its associated undertakings are eliminated to the extent of the Group’s interest in the associated undertakings; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the group does not to recognise further losses, unless the group has incurred obligations or made payments on behalf of the associates. 2.5

Other Significant investments

Investments in other companies where the Group has less than 20% of the voting rights, but is nonetheless in a position to exercise influence, are accounted for under the Equity Method. This method replaces the book value of the investment with the Group’s share of net equity including the current year’s results. 2.6

Foreign currency translation

All assets and liabilities of subsidiary companies, considered to be foreign entities and reporting in currencies other than Euros, are translated into Euros at the approximate exchange rates ruling at the yearend. The income statement is translated into Euros at the average exchange rate ruling during the year. The resulting translation exchange gains and losses are charged or credited to cumulative translation adjustment in partners’ equity (included in retained earnings). 2.7

Foreign currency transactions

Transactions (cash at bank, short terms debtors or creditors) during the year incurred in foreign currencies are translated into respective local currencies at the approximate exchange rate ruling at the date of the transaction, gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognized in the income statement.

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ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 2.8

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits with banks with original maturities of three months or less and other short-term highly liquid investments. 2.9 Trade and other receivables Trade receivables are carried at the original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts at the year-end. Unbilled receivables represent amounts due to the Group for services performed but not invoiced prior to close of the year. 2.10 Advances to models Advances to models represent resources advanced to models or costs incurred by the Group on behalf of the models, primarily to cover personal expenses related to modeling activities. An allowance for potential unrecoverable advances is established annually for inactive models or models with limited model bookings. 2.11 Property and equipment Property and equipment are carried at cost less accumulated depreciation. Normal maintenance and repairs are charged against income as incurred. Gains and losses on disposal of property, plant and equipment are included in the statement of income. Provision for depreciation is made on a systematic basis at rates calculated to reduce the cost of the assets to their estimated residual values over their expected useful lives. Generally, depreciation rates applied on a straight-line basis are:

Assets

Years

Buildings Leasehold improvements Equipment Cars and vehicles Computers and software

Rate of Amortization

50 years shorter of life or over the lease term 5 to 8 years 4 years 3 to 5 years

2% 12.5% to 20% 25% 20% to 33.33%

Where the Company considers that a tangible asset has suffered a durable depreciation in value, an additional write-down is recorded in order to reflect this loss. These value adjustments are not continued if the reasons for which the value adjustments were made have ceased to apply. 2.12

Intangible assets

Acquired goodwill and intangible assets are valued at cost including the expenses incidental thereto or at production cost; less accumulated amortization written off and value adjustments. These value adjustments are not continued if the reasons for which the value adjustments were made have ceased to apply. Indeed, goodwill is the excess of the purchase cost over the fair value of the identifiable assets and liabilities acquired. Goodwill arising from the acquisition of a foreign entity and any fair value adjustments to the carrying amounts of the assets and liabilities of that foreign entity are treated as assets of the reporting entity and are translated at exchange rates prevailing at the date of initial consolidation.

14

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Amortization is calculated on straight-line basis with the following useful lives:

Assets

Years

Goodwill Acquired trademarks Acquired licenses

Rate of Amortization

10 years 10 years 10 years or over the remaining period of the contract Acquired model contracts 2 years Expenditures for internally generated intangible assets are expensed as incurred.

10% 10% 10% or less 50%

2.13 Financial assets Shares in affiliated undertakings, participating interests, loans to these undertakings or securities held as fixed assets or other loans are valued at purchase price or nominal value (loans and claims) including the expenses incidental thereto. In case of a durable depreciation in value according to the opinion of the Board of Directors based on the actual and expected profitability, value adjustments are made in respect of fixed assets, so that they are valued at the lower figure to be attributed to them at the balance sheet date. These value adjustments are not continued if the reasons for which the value adjustments were made have ceased to apply. 2.14 Provision for taxation Income tax payable on profits, based on the applicable tax laws in each jurisdiction, is recognized as an expense in the period in which profits arise. Income tax losses available for carry-forward are not recognized as an asset even if it is probable that future taxable profit will be available against which these losses could be utilized. Deferred tax liabilities are recognized for temporary differences relative to the carrying amounts of assets and liabilities in the Group balance sheet, which would result in taxable amounts in future periods. Furthermore, deferred tax liabilities are recognized for irrecoverable withholding taxes payable on the undistributed earnings of certain subsidiaries. 2.15 Provisions for Liabilities and Charges Provisions for liabilities and charges are intended to cover losses or debts the nature of which is clearly defined and which, at the date of the balance sheet are either likely to be incurred or certain to be incurred but uncertain as to their amount or as to the date on which they will arise. 2.16 Deferred income Deferred income represent advances collected from customers for which the Group’s services have not yet been performed. 2.17

Pension obligations

With the exception of Italy, the Group does not operate defined contribution plans in its affiliates. Accordingly, the Group’s contributions to defined contribution pension plans are not charged to the income statement in the period to which the contributions relate except in Italy. 2.18 Minority interests

15

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ Minority interests represent the interests of third parties in the shareholders’ equity of subsidiaries. Such minority interests are typically held by local management.

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 2.19 Revenue recognition Model fees primarily consist of revenues from model services, such as catwalk presentations, and from the sale of rights, such as the ongoing use of a models image. Model services are recognized when the services are rendered. Earnings from the sale of rights are recognized on the first date from when the images can be used by a customer as no further services are rendered or obligations undertaken. The Group records the gross amounts of its invoiced model fees and direct cost of model services whenever the Group acts as a principal in the transaction and bears the entire contractual risk (such as the liability for the cost with models and the risk of loss for collections). Under agreements where the Group acts as an agent, only the agency and management fees are recorded as revenues and neither the cost of model services nor the equivalent revenue invoiced are recognized. The Group acts as principal or agent depending on the legislation in effect in the countries in which it operates. Agency and management fees consist primarily of franchise revenues from independently owned model agencies that use the Elite trademark name and various services provided to them by the Group. Agency and management fees are recognized on a straight line basis over the period of the contract or as the services are provided as ongoing services are provided and contractual obligations undertaken. License product income consists of revenues from the license of the Group’s trademarks primarily to distributors of consumer products. License product income is recognized over the period of the contract as ongoing services are rendered and the Group has contractual obligations over the life of the contract. Revenues are normally earned on the basis of a fixed percentage of the turnover realized by the licensee under the license or at a fixed minimum amount if higher. Elite Model Look income consists primarily of license fees from independent organizers of the model look competition as well as competition sponsorship. Such fees are recognized over the period from the signing of the contract to the date the competition takes place on a straight-line basis as ongoing services are provided by the Group. Sponsorship fees and television fees are recognized when the competition takes place and all sponsorship conditions have been met. Agency commissions consist of revenues when the Group is the legal representative on certain models and earns commissions when such models are engaged by third parties. These revenues or commissions are represented in the annual accounts in other accrued liabilities and deferred income. 2.20 Financial instruments and risk management Credit risk Financial instruments that potentially subject the Group to credit risk are cash and cash equivalents, trade receivables and advances to models. The Group places its cash and cash equivalents with a variety of high credit quality financial institutions and has not experienced any material losses related to such instruments. The Group controls its credit risks associated with trade receivables through credit approvals and credit limits. There are no significant concentrations of trade receivables or advances to models. The Group monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The Group does not expect any non-performance by counterparties that could have a significant impact on its financial position or results of operations. Market Value

16

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ The carrying amounts of the following financial assets and financial liabilities approximate their fair value: cash and cash equivalents, short term receivables and payables, other current and long term assets and current bank overdrafts and borrowings.

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Exchange A large majority of revenues and expenditures are recorded by European based subsidiaries and the Group’s policy is to not hedge the impact of fluctuations in the Euro / US Dollar exchange rate on forecasted transactions. As a result significant fluctuations in this exchange rate can have an impact on the Groups results. The currencies within the Group other than the Euro are: CHF Swiss Francs, GBP Pounds Sterling, CZK Czech Crowns, and SKK Slovak Koruna. Interest The Group’s non-current borrowings incur interest at a fixed rate of 5%. As a result changes in interest rates will not impact the Groups operations in the near future or until such borrowings are renegotiated. The only non-current borrowings at December 31, 2005 relate to a mortgage on the former offices of the Group in Paris.

NOTE 3 – CASH AND CASH EQUIVALENTS (In €) 2005

2004

(audited) Cash at bank and in hand

3 850 981

Marketable Securities

192 376 4 043 357

(unaudited) 3 556 064 257 895 3 813 959

The short term bank deposits included in cash equivalents bear interest and are principally made on a 48 hours rolling basis. NOTE 4 – TRADE RECEIVABLES (In €) 2005 (audited) 6 415 570

Trade receivables Less: Provision for bad and doubtful debts Trade receivables - net

17

2004 (unaudited) 7 476 598

-725 772

-617 978

5 689 798

6 858 620

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ NOTE 5 – OTHER RECEIVABLES - CURRENT (In €) 2005 (audited)

2004 (unaudited)

VAT and other government taxes recoverable

629 992

Miscellaneous receivables

215 140

838 179 315 934

845 132

1 154 113

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 – PROPERTY AND EQUIPMENT In (€)

18

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ Land

Buildings

Leasehold improvements

Equipment including vehicles, computers and software

Total

Cost As at January 1, 2005 (unaudited) Additions Disposals Transfers

243 954

1 204 665

191 886

952 250

2 592 755

48 032

180 814

228 846

-

-

- 9 680

- 118 430

- 128 110 -

-36

-228 991

93 703

25 074

-110 250

243 918

975 674

323 941

1 039 708

2 583 241

-

-313 885

-106 357

-712 682

-1 132 925

-

-19 513 198 430

-24 466 103 231 -90 911

-90 249 7 724 -39329

-134 228 110 955 68 190

Net book value closing balance

243 918

840 706

205 438

205 171

1 495 233

Net book value opening balance (unaudited)

243 954

890 780

85 529

239 567

1 459 830

Exchange differences As at December 31, 2005 Accumulated depreciation As at January 1, 2005 (unaudited) Charged for the year Disposals Transfers Exchange Differences

Land and buildings for a net book value of 1 084 624 Euros have been pledged as security for bank borrowings.

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – INTANGIBLE ASSETS (In €)

19

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ Goodwill

Acquired trademarks and licensees

Total

Cost As at January 1, 2005 (unaudited)

970 935

3 391 877

4 362 812

External Additions

-

26 771

26 771

Addtions

-

-

-

Disposals

-

-

-

Exchange Differences

-

-5 698

-5 698

970 935

3 412 950

4 383 885

-612 033

- 2 624 512

-3 236 542

-78 980

- 482 814

-561 794

-

-

-

56 343

292 221

348 564

- 634 669

-2 815 105

-3 449 773

Net book value closing balance

336 266

597 845

934 112

Net book value opening balance

358 903

767 365

1 126 268

As at December 31, 2005 Amortization As at January 1, 2005 (unaudited) Amortization for the year Disposals Exchange Differences As at December 31, 2005

The goodwill resulted from the acquisition of agencies in Paris and Amsterdam. NOTE 8 – OTHER RECEIVABLES – LONG TERM (In €) 2005 audited Guarantee deposits Miscellaneous receivables

101 826 34 214 136 040

2004 unaudited 100 262 0 100 262

Guarantee deposits have been paid principally in relation to the rental of offices.

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – FINANCIAL ASSETS (In €)

20

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ Investments in

Long term loans to

Affiliated Companies

Affiliated Companies

Book Value As at January 1, 2005 (unaudited)

100 003

-

-

846 863

Additions Disposals Value Adjustments

-

-

223 333

-

-

-

323 336

846 863

Exchange differences As at December 31, 2005

Investments in affiliated companies are incorporated in the Group accounts using the Equity Method (see Note 2.5). The investment relates to the Group’s holding of 15% of the share capital of ABC Distribution SAS, the principal distributor of Elite branded products in France. The long term loans to affiliated companies concern loans to shareholders (708 179 Euros) and to ABC Distribution SAS (138 684 Euros).

NOTE 10 - BANK OVERDRAFTS AND BORROWINGS

2005 (audited)

2004 (unaudited)

Bank overdrafts

132 951

72 822

Bank borrowings less than year Total short term borrowings

101 716 234 667

97 566 170 388

Bank borrowings more than one year

238 592

340 372

The annual interest rate paid on bank borrowings was 5%. The bank borrowings are secured on the Group’s former offices in Paris (see Note 6).

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 – MINORITY INTERESTS (In €)

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ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ 2005 (audited) 153 656

At beginning of year Acquisitions

2004

(unaudited) 132 623

-3 944

Sales Share of net profit of subsidiaries Dividend paid Exchange differences At end of year

14 505 3 639 -3 691 6 580 153 656

23 510 -19 796 -2 102 151 324

Minority interests in subsidiary companies are typically held by the local management of the companies. NOTE 12 – COMPANY CAPITAL (In €) Number of company

Company

Additional

contribution

capital

paid-in capital

parts Subscribed capital as at January 1, 2005 US $

29 300

29 300 000

- 10 569 890

Subscribed capital as at January 1, 2005 EUR at EUR 1=USD 1.3642 Adjusted with retained earnings EUR

-

21 477 789

- 7 748 050

-

3 373 460

-

Multiplication of share numbers by 678.53

19 851 700

-

-

Subscribed capital as at December 31, 2005 EUR

19 881 000

24 851 250

-7 748 050

The total number of company contribution parts was 29,300 with a par value of US$ 1,000 per company contribution part. All issued company contribution parts are fully paid following the reorganization described in the consolidated statement of changes in partners’ equity. The movements of the year correspond to the conversion into Euro currency and Société Anonyme (Ltd) decided by Shareholder Meeting in March 2006. The capital is now composed of 19 881 000 shares with a par value of 1.25 Euros. No dividend was paid during the year 2005.

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – LEGAL RESERVE (In €)

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ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ In accordance with the Luxembourg law, the company has allocated 5% of the annual net income in legal reserve until this reserve equals 10% of the subscribed share capital.

NOTE 14 – MOVEMENTS FOR THE YEAR: -

ON THE RESERVES AND PROFIT/LOSS ITEMS – see Consolidated Statement of Changes in Partners’ Equity

-

ON PROVISIONS

2005 (audited) Provisions for pensions and similar obligations US settlement and miscellaneous Provision for Litigation with former employees Restatement of opening partners' equity – see Consolidated Statement of Changes in Partners’ Equity

2004 (unaudited)

19 377 791 568 65 040 0

18 831 891 232 0 1 360 305

875 985

2 270 368

NOTE 15 – ACCRUALS AND DEFFERED INCOME – (In €) Provisions for liabilities and charges are made up as follows: 2005 (audited) 1 293 429 110 532 25 787 1 418 1 431 166

Accrued liabilities Accrued retirement contributions Miscellaneous provisions Advance payments from customers

2004 (unaudited) 1 494 019 135 215 11 239 0 1 640 473

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 – CREDITORS (In €)

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ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ 2005 (audited) 3 823 590 730 446 540 119 5 094 155

Model fees Mother agency commissions Trade creditors

2004 (unaudited) 4 631 558 448 814 843 678 5 924 050

NOTE 17 – OTHER OPERATING EXPENSES (In €)

Elite Model Look expenses Consulting fees Professional services (lawyers, trademarks, tax & audit) Travel & entertainment expenses Office expenses Other operating expenses Bad debts Exchange losses

2005 (audited) 550 198 371 218 934 428 509 852 733 801 1 146 153 201 870 0 4 447 520

2004 (unaudited) 188 191 706 182 867 614 561 068 395 714 884 227 509 833 367 482 4 480 311

NOTE 18 - RECONCILIATION OF THE PROFIT/LOSS FROM OPERATIONS BEFORE DEPRECIATION AND AMORTIZATION (In €)

Profit / (loss) from operations Depreciation on property and equipment Amortization of goodwill Amortization of other intangible assets Profit / (loss) from operations before depreciation and amortization expenses

2005 (audited) 931 655 134 228 78 980 482 814

2004 (unaudited) -724 713 140 226 82 742 507 249

1 627 677

5 504

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Note 19 - NET REVENUES (In €) The net revenues are broken down by category of activity as follows:

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ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ 2005 (audited) 25 843 292 514 580 3 297 554 29 655 426

Model fees Mother agency commission income Licensing revenues

2004 (unaudited) 24 311 072 206 589 2 445 009 26 692 670

Geographical market data is not available within the Group.

Note 20 – STAFF The Company employed an average 77 full time employees during the financial year 2005 broken down by category as follows:

2005 (audited) Management Booking/Scouting Administration

11 39 28 78

2004 (unaudited) 11 38 27 76

Staff costs for the financial year are broken down as follows: (In €) 2005 (audited) 2 893 494 1 074 187 37 974 4 005 655

Wages and salaries Social security costs Other staff costs

2004 (unaudited) 2 384 353 891 189 59 903 3 335 445

Note 21 - EMOLUMENTS GRANTED TO THE MEMBERS OF THE ADMINISTRATIVE, MANAGERIAL BODIES Emoluments granted to the members of the administrative, managerial and supervisory bodies are omitted because it makes it possible to identify the position of a specific member of such bodies. Loans were granted to shareholders during 2005 for EUR 708 179 with an interest rate of 2.5 % per year. These loans are permitted under Swiss law.

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 –EXCEPTIONAL CHARGES

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ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ 2005 US Legal Settlement US Legal Costs Provision for accounts receivables over 2 years past due

2004

(audited) 360 654

(unaudited) 708 356

204 271 464 000 1 028 925

697 305 1 405 661

The details of the US litigation and settlement are described in Note 26. NOTE 23 – FINANCE COSTS – NET (In €)

2005 (audited) Interest expense Interest income Net interest expense

180 752 -158 313 22 439

2004 (unaudited) 113 380 -85 106 28 274

NOTE 24 – OFF BALANCE SHEET COMMITMENTS (In €)

The future aggregate minimum lease payments under non-cancelable operating leases represents an amount of EUR 522 639 as at December 31, 2005. Such lease agreements relate principally to the rental of office space. The commitments under such leases fall due as follows: Operating lease commitments (where a group company is the lessee)

2006         

325 923

2007         

188 196

2008         

8 520

2009 and thereafter

522 639

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The financial statements of EMSA (Fribourg) reflect a cancellation of liabilities for an amount of CHF 350 000 (226 055 K€) due to the low probability that a payment would be required. This amount could be considered as a potential liability.

26

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ NOTE 25 - LIST OF GROUP COMPANIES (owned directly and indirectly) The proportions of ownership interest and voting power are the same. Entity A. List of subsidiary entities: Elite Management S.A. Elite Model Management Amsterdam B.V. Elite Model Management Limited Elite Model Management Holding S.A. Elite Model Management S.A. Elite Model Management SARL Elite Model Management SARL Nathalie SARL Inmod AG Elite Licensing Company S.A. Elite Presse / Model Look France Elite Model Management Prague Sro Elite Model Management Bratislava Sro.

City

Country

Barcelona Amsterdam London Fribourg Fribourg Milan Paris Paris Fribourg Fribourg Paris Prague Bratislava

Spain Holland United Kingdom Switzerland Switzerland Italy France France Switzerland Switzerland France Czech Republic Slovakia

Paris

France

% owned

95.00 80.00 100.00 100.00 100.00 85.00 100.00 65.00 100.00 100.00 100.00 60% 60%

B. List of associated undertakings: ABC Distribution SAS

15%

C. List of non consolidated companies: Elite Model Management Corporation: New York USA, went into chapter 11 in 2004 (see Note 26). Elitemodel.com SA: Luxembourg, the Group owns 51% of shares. This company went into liquidation on November 21, 2003. Elite Model Look SA : In liquidation since December 14, 2005 with a net assets of 30 K€ as of December 2005. Elite Model Management GmbH: Hamburg Germany, dormant company with a net assets of 16 K€, the Group owns 100% of shares.

NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NOTE 26 – OTHER RELEVANT INFORMATION

27

ELITE MODEL MANAGEMENT GROUP __________________________________________________________________________________ In 2003 a number of models registered a complaint (class action) against several agencies located in the State of New York including Elite Model Management Corp NY (EMM Corp) a subsidiary of Elite Model Management SA Fribourg (EMMSA). Following the bankruptcy of EMM Corp in 2004 (Chapter 11), the plaintiffs took a legal action against the parent company of EMM Corp, namely EMMSA proposing the settlement of the dispute through the payment of a lump sum in order to terminate all legal procedures current or future against EMMSA and its directors. At the time of the preparation of the financial statements the final agreement has been signed by the parties and is waiting for approval by the American Court of Justice for an amount of 1.4 million USD (approximately 1, 2 million EUR). An initial payment of 466,000 USD was made during 2005 and a provision has been made for the balance of 933,332 USD which will become payable in 2006. Based on the information obtained from our lawyers, no further amounts will be payable in relation to this litigation.

NOTE 27 – POST BALANCE SHEET EVENTS There have no significant events since the end of the financial year.

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