BUSINESS
Overview
History of TrueYou.Com, Inc.
TrueYou was organized on September 9, 1998 under the laws of the State of
Delaware by its former parent, United Network Technologies Corp. In January
1999, United Network Technologies transferred all 100 shares of its Common Stock
in the Company to United Network Marketing Services, Inc., a wholly-owned
subsidiary of United Network Technologies. In April 1999, TrueYou effected a
33,300-to-1 stock split and amended its certificate of incorporation to increase
its authorized capital stock to 21,000,000 shares consisting of 20,000,000
common shares and 1,000,000 preferred shares. Immediately thereafter, United
Network Marketing distributed all 3,330,000 shares of its Common Stock in
TrueYou to its stockholders rendering TrueYou a stand alone business.
Until December 20, 2005 TrueYou was a developer of Web-based,
direct-to-direct personal potential and professional development programs
designed for businesses. TrueYou's product offerings, which consisted of sales
productivity, work-life balance and employee retention programs were designed to
be delivered via the Internet or corporate intranet in the form of three to five
minute Best Steps Learning Modules. Such products were intended for sale
principally to large and middle market companies. TrueYou's Web site went "live"
on the internet in October 1999.
On December 20, 2005, TrueYou signed a Share Exchange Agreement with KAAI
and the security holders of KAAI. As a result of this transaction, KAAI became a
subsidiary of TrueYou.
On December 22, 2005, affiliates of North Sound Capital LLC and Valesco
Capital Management LP invested $15.3 million in exchange for 1,530 newly issued
shares of our Series D Preferred Stock, each of which is convertible into
approximately 52,175 shares of Common Stock, and Warrants to purchase 2,394.8407
shares of Series B Preferred Stock.
History of Klinger Advanced Aesthetics, Inc.
Principals of Kidd & Company LLC, a Greenwich, Connecticut based principal
investment firm ("KCO"), founded KAAI. KCO invested approximately $4.0 million
in research prior to forming KAAI to address what it believed are the unmet
needs in the aesthetics market.
KAAI commenced business operations on June 29, 2003 as Advanced Aesthetics,
Inc. when it purchased the capital stock of the Dischino Corporation for cash,
shares of its series A convertible preferred stock and a secured subordinated
promissory note. Dischino operated an established, well-known, beauty salon and
spa in West Palm Beach, Florida. In connection with and as part of the financing
of the Dischino acquisition, KAAI issued shares of its common stock and series B
preferred stock to investors.
In November 2003, KAAI acquired three additional facilities. The first was
the acquisition of a Palm Beach Gardens spa and clinic facility for cash, shares
of its series A convertible preferred stock and a subordinated promissory note.
The second acquisition was of a similar facility in Boca Raton, Florida for
cash, shares of KAAI's series A convertible preferred stock and assumption of
indebtedness and a third facility located at Boca Pointe in Boca Raton, Florida
was acquired for cash and shares of KAAI's series A convertible preferred stock.
Concurrent with the three acquisitions, KAAI entered into an agreement with L
Capital, a private equity fund, whereby L Capital acquired a subordinated
convertible promissory note in the amount of $13,300,000 convertible into KAAI's
common stock. Subsequently, L Capital also acquired $8,200,000 in KAAI's series
D preferred stock.
In April 2004, KAAI expanded its operations by acquiring nine locations of
Georgette Klinger, Inc. for cash, assumption of indebtedness, the issuance of a
promissory note and the issuance of series A preferred stock. Georgette Klinger
is a well-established chain of high-end beauty salons and clinics. In
conjunction with the transaction, KAAI borrowed $10 million from TICC and used a
portion of such borrowings to help finance the acquisition of the Klinger
operations.
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On July 7, 2005 KAAI closed a $5,000,000 financing with affiliates of
Pequot Capital Management, Inc. through the issuance of its series F preferred
stock and warrants to purchase KAAI's common stock. On September 1, 2005, the
affiliates of Pequot Capital Management, Inc. exchanged their shares of series F
preferred stock for new shares of KAAI's series H preferred stock.
On September 1, 2005, KAAI closed a $10,775,000 private placement financing
through the issuance of its series G preferred stock and warrants to purchase
KAAI's common stock.
As described above, on December 20, 2005, KAAI became a subsidiary of
TrueYou.
On January 9, 2006, KAAI changed its name from Advanced Aesthetics, Inc. to
Klinger Advanced Aesthetics, Inc.
The Company's Mission
We are a business platform that offers fully integrated
appearance-enhancement services and scientifically tested beauty products that
deliver measurable results. We bring medical aesthetics (cosmetic dermatology,
cosmetic surgery and cosmetic dentistry) and non-medical aesthetics services
(salon and spa care) and products together in an upscale environment. We
currently have 12 locations in top markets across the United States, including
two fully integrated facilities and 10 spa/salons that are awaiting conversion
to our model.
Prior to forming KAAI, KCO invested approximately $4.0 million in research
to analyze and determine what it believed are the unmet needs in the aesthetics
market - a market which, according to a study conducted by The Monitor Group,
generated $97 billion in domestic revenue in 2004. Based on this research, KAAI
was formed to respond to the key findings that consumers desire an aesthetics
platform that delivers the following:
o Results - measurable benefits from a brand;
o Convenience - an end-to-end delivery system for aesthetic procedures;
o Products - medical grade skin care products;
o Confidence - peace of mind about the quality and safety of services
and products; and
o Quality - a facility that combines high quality procedures,
professionals and client service and care.
Until the launch of our first fully integrated center in early 2004, this
combination was, to our knowledge, not available in the marketplace. We believe
that consumers, while highly intrigued by aesthetic services and products,
remain confused due to the highly fragmented nature of delivery platforms,
conflicting information and absence of standardized metrics.
We try to fill this market gap, offering consumers a single, trusted brand
and delivery system for accessing services and products that deliver predictable
and measurable benefits.
Strategic Differentiation
Our market positioning and strategy aim to provide strategic
differentiation. In almost all areas of the aesthetics market, for both services
and products, there is consumer confusion around basic questions such as: what
works? what's safe? who's good? Our concept is to differentiate ourselves by
providing high quality integrated services and products that address clients'
needs. We bring together five strategic assets and relationships that elevate
our brand and enable strategic differentiation from our competitors. These
assets and relationships include:
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Johns Hopkins
Johns Hopkins, one of the nation's most respected medical institutions, has
allied with us to review and assess our process for verifying the safety and
clinical quality of our practitioners, protocols and facilities. Johns Hopkins
is also providing oversight of the scientific testing of Cosmedicine, a new
product line which we are developing, for safety and efficacy.
Sephora USA, Inc.
Sephora is a fast growing upscale beauty retailer with 95 locations in the
U.S. and over 400 locations abroad. We have embarked on a three-pronged
strategic partnership with Sephora that includes:
o development of our Cosmedicine skin care line for distribution in
Sephora stores (for which Johns Hopkins is providing oversight of
safety and efficacy testing);
o a store-within-a-store concept, whereby we will have mini-stores
within Sephora that feature Cosmedicine as well as the SkinState, our
proprietary skin care diagnostic system; and
o the development of smaller-scale KAAI stores that are situated
adjacent to select Sephora locations and accessible via an adjoining
door.
Sephora paid us a performance deposit of $5 million in December 2004 for certain
exclusive distribution rights. We are required to return 50% of the deposit to
Sephora when the Net Revenues of Sephora relating to the sale of Cosmedicine
products, plus certain Sephora capital expenditures, equal $30 million. We are
required to return the remaining 50% when such revenues and capital expenditures
equal $60 million. See "Certain Relationships and Related Party Transactions -
Sephona."
Georgette Klinger
KAAI acquired the locations of Georgette Klinger ("GK"), a 62-year old
venerable brand, which was an early innovator of "facials" that measurably
improve the quality and health of facial skin. Georgette Klinger's thousands of
clients and nine prestige locations in Beverly Hills, Manhattan, Chicago, Short
Hills, Manhasset, Washington D.C., Costa Mesa, Palm Beach and Dallas represent
an ideal client and real estate platform for our aesthetic service and product
offerings.
Strategic Pharma Partner
We are currently negotiating a business partnership with a leading
pharmaceutical company, which is more than 150 years old and specializes in the
dermatology market. We are in discussions with this company to participate in a
strategic alliance whereby:
o the pharma partner will distribute specially formulated Cosmedicine
products both in the U.S. and globally through its existing
distribution channels;
o both companies will jointly share data and technology;
o both companies will jointly develop a medical aesthetics media
information center; and
o both companies will consider jointly forming an "Aesthetics
University," which will serve as a training facility where clinicians
can learn the latest KAAI techniques.
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Medical Advisory Board
Our Medical Advisory Board includes leaders from several professional
associations in the field of aesthetic medicine, including the American Society
of Plastic Surgeons, the American Society of Aesthetic Plastic Surgeons and the
American Society of Cosmetic Dermatology and Aesthetic Surgery. Johns Hopkins
oversees our Medical Advisory Board.
Our Medical Advisory Board meets quarterly and attendance by a Johns
Hopkins representative is mandatory. During Medical Advisory Board meetings,
members review and discuss our clinical policies to ensure practices are in
accordance with approved Johns Hopkins reviewed protocols. The Medical Advisory
Board recommends changes where necessary.
Johns Hopkins also reviews the process by which we approve clinical
practitioners. Often this review is conducted between quarterly Medical Advisory
Board sessions on an as needed basis.
Business Strategy
There are four key pillars to our long-term business plan:
Integrated Flagships - Integrated Flagships feature a full suite of
cosmetic surgery, dermatology, dentistry, spa care, salon services, and retail
products and establish our brand. Integrated Flagships will range from
6,000-15,000 square feet in size. We currently have two existing Integrated
Flagships in the Palm Beaches. We intend to convert the majority of our
remaining facilities to this fully integrated model.
Stand-Alone Boutiques - Stand-Alone Boutiques will feature "KAAI Signature
Services," a select menu of spa/salon services and non-invasive medical
modalities and will be approximately 5,000 square feet in size. Our Stand-Alone
Boutiques will be able to capture the full retail mark-up of Cosmedicine
products. We are currently developing two Stand-Alone Boutiques, one as a
refurbishment of our Beverly Hills facility and the second is a relocation of
our DC facility to a new location. Our plan is to open several Stand-Alone
Boutiques by fiscal year 2009.
Sephora-Adjacent Boutiques - We plan to begin construction on
Sephora-Adjacent Boutiques next to certain Sephora store locations during the
latter part of fiscal year 2006 and the early part of fiscal year 2007. The
stores will feature an adjoining common door to facilitate the free pass-through
of customers and maximize the "store extension" feel. These facilities will
feature the same "KAAI Signature Services" available at the Stand-Alone
Boutique. The Cosmedicine product line will be available at Sephora's adjoining
retail locations and in our boutiques. (Sephora will realize a commission on
Cosmedicine product that is sold in our boutiques.) The Sephora-Adjacent
Boutiques will be approximately 5,000 square feet in size.
Cosmedicine Product Line - We plan to produce and distribute Cosmedicine, a
medical grade private label skin care line, using what we believe are the most
sophisticated, effective ingredients available. Johns Hopkins is providing
oversight of the scientific testing of Cosmedicine for safety and efficacy. We
expect that Johns Hopkins will authorize us to use the the Johns Hopkins name on
our Cosmedicine packaging.
The first 18 Cosmedicine products to be introduced will encompass skin
cleansing, fortifying, hydrating, sun protection and eye care. The line will be
sold at all Sephora and our store locations as well as online at
www.klinger.com, www.sephora.com, www.aai.com and www.cosmedicine.com.
Cosmedicine products will be differentiated across several levels:
o All products will contain medical grade, hypoallergenic ingredients
formulated to be appropriate for even the most highly sensitive skin
types.
o Certain Cosmedicine products will be of "over-the-counter" versus
cosmetic quality.
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o Many Cosmedicine products contain a proprietary ingredient,
cross-linked sodium hyaluronate, a topical that is proven to be four
to five times more effective at binding and attracting moisture to the
skin than hyaluronic acid.
o Johns Hopkins has reviewed and assessed our clinical processes and the
testing results of Cosmedicine products for safety.
We believe that the Cosmedicine line's brand status will be enhanced by its
exclusive channels of distribution. The line is expected to be available
exclusively in more than 95 of Sephora's retail stores, KAAI-owned and
franchised locations and, when final agreements have been reached, more than
15,000 aesthetic physicians' offices nationwide (via the planned Pharma Partner
distribution alliance). Sephora's agreement to distribute our products through
its exclusive retail license, coupled with its commitment to launch
Sephora-Adjacent Boutiques, will, we believe, enhance the products' credentials
in the retail channel.
The first products are scheduled to ship in February 2006 for in-store
launch at Sephora and our locations. The next suite of Cosmedicine launch
products currently under development are expected to be over-the-counter drugs
that will target the skin conditions acne and rosacea.
All Cosmedicine products are being developed and formulated for the Company
by Atlantis Labs pursuant to an agreement we have with them.
Following the launch of Cosmedicine, we will continue to sell the private
labels Georgette Klinger and Anushka brands in the Georgette Klinger and Anushka
facilities, respectively, and on our website.
Current Operations
Overview
Our locations include two fully integrated properties and ten other stores
that are currently in planning stages for conversion to the KAAI model. Taken
together, our operating presence is national in scope, with locations in key
markets such as New York, Beverly Hills, Boca Raton, Palm Beach Gardens, West
Palm Beach, Dallas, Chicago and Short Hills, among others.
Our flagship facilities in West Palm Beach and Palm Beach Gardens feature
cosmetic dermatology, spa services, salon care and retail products on-site, and
cosmetic surgery and dentistry via off-site, affiliated providers. Our
credentialing process for providers (both on and off-site) is conducted by our
Medical Advisory Board, which is overseen by Johns Hopkins. Clients are able to
use our SkinState diagnostic tools which objectively record facial aesthetic
metrics such as hydration (moisture) level, sebum (oil) level, pore size, UB
damage, etc. In addition, we help clients navigate through the confusing array
of beauty enhancement options through our Aesthetics Concierge function. The
Aesthetics Concierge guides interested clients through the patent-pending
Personal Aesthetics Blueprint, a comprehensive analysis of the client's current
aesthetic characteristics and goals. The Aesthetics Concierge also provides
information and decision support on all our treatments, services and products.
We have found the Aesthetics Concierge function is integral in educating
consumers about aesthetic services and products and that it translates into
client interest in additional products and services.
Our Business Model
Core Model Components
We employ a series of components to answer market/consumer needs. These
components are present across all of our various delivery vehicles:
High-Profile Strategic Partners - Strategic alliances with Johns Hopkins,
Sephora and leading aesthetic physicians who constitute our Medical Advisory
Board as well as a pending partnership with a leading
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pharmaceutical company specializing in the dermatology market, provide us with
credibility across aesthetic services and products that we believe will
translate into a built-in platform for rapid distribution and growth.
Rigorous Credentialing - We use a methodology developed by our Medical
Advisory Board and overseen by Johns Hopkins to assure the competency and safety
of our medical practitioners.
Protocol-Driven Signature Service Strategy - For every aesthetic offering
on our menu, we designed protocols to deliver Signature Service highly
differentiated processes that, we believe, deliver consistent quality, superior
results and a higher level of client experience. Successful execution of these
protocols requires investment in both our operator training and marketing to
consumers to communicate the differentiated nature of the offering.
The Aesthetics Concierge - We rigorously train these aesthetics
decision-support professionals to educate and assist clients with all service,
product and information needs.
Diagnostics - This suite of existing and evolving technologies measures
skin quality, skin issues, tooth color and facial/body symmetry. The goal of
this capability in the short term is to allow clients to better understand their
aesthetic issues and in the long term to allow us to measure and report on
detailed clinical outcomes.
Cosmetic Medical Products (Cosmedicine) - These medical grade skin care
products are being developed with the goal of measurably improving skin health
and appearance. Johns Hopkins is providing oversight of the scientific testing
of Cosmedicine for safety and efficacy. We expect Johns Hopkins will authorize
us to use the Johns Hopkins Medicine name as part of the marketing of our
Cosmedicine packaging.
A Comfortable Environment - Our facilities are designed to provide client
comfort and privacy.
Key Growth Metrics
Cross Selling Services
A large portion of growth at our Palm Beach facilities has been achieved
through the migration of loyal clients to additional services, including
higher-end medical procedures. Prior to being acquired by us, both Palm Beach
facilities enjoyed a combined loyal, customer base of approximately 25,000
clients who we believe to be naturally interested in additional aesthetic
services. We have been able to realize financial value primarily by facilitating
the migration of this large base of clients to skin care, hair care and
accessory products as well as a higher level of medical services and related
products.
Retail Growth
We believe the following four factors are critical to generating retail
momentum as we roll out our proprietary Cosmedicine line:
o retail products must be well-integrated into the services performed on
clients;
o merchandise should feature a blend of branded and private label
products;
o adequate floor space must be devoted to retail sales; and
o operators must be trained on product benefits and selling techniques.
Market Access Vehicles
We have focused our roll-out strategy on utilizing the following four
market access vehicles:
o Integrated Flagships;
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o Stand-Alone Boutiques;
o Sephora-Adjacent Boutiques; and
o The Cosmedicine Product Line.
For the specifics of each vehicle's strategy and economics, see, "Description of
Business -- Business Strategy."
The Market
According to a study conducted by The Monitor Group, the highly fragmented
aesthetics market generated over $80 billion in domestic revenue in 2002. The
study futher projected the market would reach $120 billion by 2007. Prior to
formation, over $4 million was expended by KAAI for proprietary research about
the market, which revealed that clients are eager for a "total appearance
improvement solution" both in terms of services and products.
The aesthetics market enjoys many favorable characteristics. The market,
particularly the more "medically oriented" segments, is enjoying high growth.
According to The Monitor Group study, nationally, cosmetic surgery, cosmetic
dentistry and cosmetic dermatology were expected to grow at a combined five year
CAGR of 11% from 2002 to 2007; management believes that in key vanity markets
this CAGR is 15%. According to a study by the Kline Group, professional grade
skin-care products (i.e., non-prescription, but with potent levels of actives)
accounted for an additional $1.6 billion in U.S. retail sales in 2004. This
segment is expected to grow at an average of 7% per annum through 2009. Here
too, management believes sales in vanity markets far outpace the national
average.
We believe this organic market growth is being driven by (i) aging
demographics, (ii) increasing public acceptance of aesthetic interventions,
(iii) the emergence of new, less invasive modalities, such as Botox, wrinkle
fillers (e.g., Restylane) and lasers, (iv) the introduction of new
over-the-counter active product ingredients (e.g., alphahydroxy acid) and (iv)
heavy media interest and coverage of the industry. The category's relative
recession-resistance represents another one of the market's attractive features.
According to The Monitor Group, personal care services and products did not
suffer price erosion in the previous recession during the early 1990s, and our
target customers (primarily females, ages 35-50 with household income of more
than $50,000) exhibited the most resiliency in spending and the strongest growth
trajectory.
Despite the market's considerable advantages, however, key market gaps
remain. While time-pressured consumers find themselves increasingly curious
about engaging in appearance improvement, they remain confused and concerned
about which procedures to undergo, which products to use, what the results will
be and which providers to trust. In large measure, we believe, and our business
model assumes, that this is because the aesthetic market is profoundly
fragmented and not configured to meet consumer needs.
The American Dental Association estimates that as of 2002, over 75% of
dental practitioners were sole proprietorships. The Monitor Group determined
that approximately 90% of salons and spas are solo-operations. Furthermore,
aesthetic service providers usually limit their services to their designated
discipline (e.g. spa care, dentistry, dermatology). Thus, the consumer in search
of holistic appearance improvement must research and maintain complex
relationships with multiple providers, a dynamic which we believe has created
dissatisfaction, inefficiency and confusion. While some providers have
endeavored to deepen relationships with clients by supplementing their
offerings, they have done so on a limited basis (e.g., dentists are offering
manicures and pedicures, surgeons are offering facials and makeup). With
insufficient business training/acumen, the quality of these medical
practitioners' ancillary services is usually sub-par, which we believe has only
magnified consumer frustration.
Moreover, we believe most medical practitioners are not specifically
trained to deliver aesthetic treatments. For example, dermatologists are
schooled in how to remove pre-cancerous moles, not artfully inject wrinkle
fillers and dentists are trained to make good crown impressions, not mold for a
natural-looking veneer. In addition, most providers make very limited use of
diagnostics and outcomes tools and measurements, so at best, consumers may be
left with only subjective assurances about the quality of the results for the
treatments they undergo. These dynamics
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drive a wide variety in aesthetic outcomes (even from consumers visiting the
same physician), which only amplifies consumer anxiety.
Research we conducted suggests that providers appreciate such consumer
anxieties, and that they also wish to provide more objectively measurable
results and partake in a more comprehensive offering. We conducted over eighty
in-depth interviews with medical and dental practitioners and over 90% agreed
that their fields were changing and that they were ill-equipped to respond
effectively to meet consumers' broadening needs. Our integrated model aims to
address provider concerns about their clients' needs, as well as their own
desire for a long-term liquidity vehicle.
In a series of customer focus groups commissioned by us as well as hundreds
of in-person interviews conducted in the Boca Raton, Palm Beach, Miami, and
Chicago markets, the vast majority of target consumers voiced a desire for a
trusted single resource they could depend on for all their appearance
improvement service and product needs. They expressed strong emotional
investment in the category, but said the time pressures they faced coupled with
the lack of trusted information and decision support deterred them from
participating more deeply and frequently in the category. In a Harris
Interactive national survey conducted on our behalf prior to launch, nine in ten
consumers said the most critical catalyst for participating more heavily in the
category was being able to trust the quality of the providers. Additionally, 70%
rated a "concierge" that could serve as a trusted information source about
aesthetic enhancement as extremely important. Nearly half noted that given the
brand promise, they would be predisposed to buy product from us although we
realize that the results of consumer focus groups or surveys do not ensure any
actual purchases or results from these or other customers.
On the retail side, despite a flurry of "physician-brand" over-the-counter
introductions (e.g., MD Skincare, N.V. Perricone M.D.), these products have not
captured significant market share. In other channels, skin care sales have grown
to over $4 billion, despite the fact that marketing promises made by prestige
and mass skin care brands alike are not fulfilled, which in our opinion, is
because precious few contain active ingredient concentration levels capable of
producing clinical efficacy. Consumers want to find a brand they can trust.
Pursuant to a Kline Group study 42% of consumers are still looking for the
best (i.e., most effective) product for their skin, and 42% also stated that
they would switch on the recommendation of a physician or aesthetician.
This data suggested to us that if an over-the-counter skin care product
were introduced for which Johns Hopkins provided oversight of testing for safety
and efficacy, it could enjoy significant success.
These gaps in integrated service, medical aesthetic training, diagnostic
and outcomes measurements, and product formulation create an opportunity for the
development of a service-oriented, outcomes-driven aesthetic improvement
positioning and capability - both in terms of services and products. We, along
with our Cosmedicine line, attempt to deliver this promise.
Competition
In each of our lines of services, (i) salons and spas, (ii) key cosmetic
dentists, (iii) dermatologists and (iv) surgeons, we are faced with competition.
Numerous competitors currently compete with some sub-section of our product and
services offerings and might pose an increasing challenge if they were to expand
their menu of offerings.
Medispas. An increasing number of companies are offering a limited
combination of spa and dermatology services, as well as retail products. Some
multi-site and/or regionally oriented competitors such as SkinKlinic and Lumity
focus their offerings on a combination of invasive (e.g. Botox) and non-invasive
(e.g., laser) dermatological aesthetic treatments and products.
Spas. Elizabeth Arden's Red Door is our largest national competitor.
Regional and supra-regional players which may deepen their current offerings
include Bliss Spa and Spa Nordstrom. Bliss Spa is an indirect subsidiary of LVMH
and as a result is an affilate of L Capital.
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Salons. The Salon market is the most fragmented service line with over
250,000 businesses classifying themselves as beauty salons. The largest
competitor, Regis Corporation, has an approximate market share of 2%.
According to published reports, approximately 80% of salons have annual
revenue of $0.5 million or less. Chain salons growth is increasing and many are
attempting to offer spa oriented services.
Dental Chains. We belive that the most significant tooth whitening service
provider is BriteSmile. BriteSmile has retail locations in several major cities
in the United States and its whitening machines and products are offered by
affiliated dentists nationwide. Based on publicly available information, we
expect that BriteSmile will continue to remain focused on the dental segment of
the market.
Product Manufacturers. Several product manufacturers have entered, or have
announced that they are considering entry, into our niche. Avon has opened a spa
in New York City. Estee Lauder has pursued retail stores (e.g. Origins) and has
made a foray into the beauty service arena through its Aveda Spas.
Furthermore, several independent "physician brand" professional
over-the-counter skin care lines (e.g. MD Skincare, N.V. Perricone M.D. and
Cosmeceuticals) have achieved distribution on a national scale. Major consumer
product companies such as the Procter and Gamble Company and Unilever are
seeking to launch over-the-counter grade skin care products. Our planned new
product line, Cosmedicine, will compete directly with these brands. Further,
home whitening kits such as Crest's Whitestrips or GoSmile may also pose
competition to the dental component of our operations.
Regulatory Matters
The following is a summary of certain regulatory matters that may be
applicable to the Company.
Reimbursement
Government Reimbursement in General
Most individuals have insurance coverage through Medicare, Medicaid, a
federal or state healthcare program or a private insurance company. Medicare is
the commonly used name for the healthcare payment program governed by certain
provisions of the United States Social Security Act. Medicare is an exclusively
federal program that provides certain healthcare benefits to beneficiaries who
are 65 years of age or older, disabled or qualify for the End Stage Renal
Disease Program. Medicaid is a program that pays for medical assistance for
certain individuals and families with low incomes and resources. This program
became law in 1965 and is jointly funded by the Federal and State governments
(including the District of Columbia and the Territories) to assist states in
providing medical long-term care assistance to people who meet certain
eligibility criteria. Medicaid is the largest source of funding for medical and
health-related services for people with limited income.
Private Reimbursement in General
Most healthcare providers rely on third-party payers to reimburse for the
healthcare provider's services. Many private insurance companies contract with
healthcare providers on an "exclusive" or a "preferred" provider basis, and some
insurers have introduced plans known as preferred provider organizations
("PPOs"). Under preferred provider plans, patients who use the services of
contracted providers are subject to more favorable co-payments and deductibles
than apply when they use non-contracted providers. Under an exclusive provider
plan, which includes most health maintenance organizations ("HMOs"), private
payers limit coverage to those services provided by selected hospitals. With
this contracting authority, private payers direct patients away from nonselected
providers by denying coverage for services provided by them.
Increased sensitivity to the cost of health care and the desire to reduce
healthcare costs have led to substantial growth among HMOs, PPOs, and other
alternative delivery systems. Most PPOs and HMOs currently pay healthcare
providers on a fee-for-service basis or on a fixed rate basis. Some HMOs are now
offering or mandating a "capitation" payment method under which healthcare
providers are paid a predetermined periodic rate
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for each enrollee in the HMO. In a capitated payment system, the healthcare
providers assume a financial risk for the cost and scope of care given to such
HMO enrollees for the term of the contract.
Our Anticipated Reimbursement for Healthcare Services
Currently, we do not intend to submit claims for reimbursement to Medicare,
Medicaid, any state or federal healthcare payor, or any private insurance
company. We will bill our clients directly for healthcare services and clients
will be responsible for paying for those services.
Since we do not plan to submit claims to any federal healthcare program,
the federal laws and regulations described above are not currently applicable to
our operations. If at some future time we begin seeking payment for our services
from any federal payor, these federal laws may apply to our operations.
Federal Anti-kickback and Self-Referral Regulations
Federal Anti-kickback Statute
Section 1128B(b) of the Social Security Act; the Anti-kickback Statute,
prohibits the offer, payment, solicitation or receipt of remuneration (including
any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in
cash or in kind, for (a) the referral of patients or arranging for the referral
of patients to receive services for which payment may be made in whole or in
part under a federal healthcare program, which includes Medicare and Medicaid,
or (b) the purchase, lease, order, or arranging for the purchase, lease or order
of any good, facility, service or item for which payment may be made under a
federal healthcare program.
Federal and state law enforcement authorities may scrutinize arrangements
between healthcare providers and potential referral sources to ensure that the
arrangements are not designed as a mechanism to exchange remuneration for
patient care referrals. Courts have generally adopted a broad interpretation of
the scope of the Anti-kickback Statute and have held, for example, that the
Statute may be violated if merely one purpose of a payment arrangement is to
induce referrals. Violations of the Anti-kickback Statute can result in both
criminal and civil sanctions.
Federal Physician Self-Referral Law
Provisions of the Social Security Act commonly referred to as the "Stark
Law" prohibit referrals by a physician of Medicare patients to providers for
certain "designated health services" if the physician (or his or her immediate
family member) has an ownership interest in, or other financial relationship
with, the provider, unless an exception applies. This law also prohibits the
physician or the person receiving the referral from submitting a claim to
Medicare or Medicaid for payment for the services rendered pursuant to the
prohibited referral.
We may have arrangements under which we compensate various physicians and
other healthcare providers for services, which arrangements could constitute
financial arrangements under the Stark Law definition. If we begin seeking
Medicare reimbursement in the future, the Stark Law may apply to these
arrangements to the extent that we or our allied professionals offer "designated
health services" to our clients.
"Corporate Practice" Prohibitions
Many states, including California, Illinois, New Jersey, New York and
Texas, have statutes that either expressly prohibit or have been interpreted to
prohibit what is known as the "corporate practice of medicine." These laws are
designed to prevent interference in the medical decision-making process from
anyone who is not a licensed physician. Most states that prohibit the corporate
practice of medicine also have similar restrictions in connection with the
practice of dentistry, nursing, and other health professions. Application of
these prohibitions varies from state to state. Some states may allow a business
to exercise significant management responsibilities over the day-to-day
operation of a professional practice, while other states restrict or prohibit
such activities.
39
In states with "corporate practice" prohibitions, we will be unable to
provide through the Company any services that may only be performed by licensed
persons, or to assert financial control of our allied professionals' practices.
Furthermore, in those states, we may be unable to bill our clients directly for
services performed by such professionals, and will be unable to include revenues
from the performance of such services in our own revenues.
State Anti-kickback and Fee-Splitting Laws
Many states, including California, Illinois, New Jersey, New York and
Texas, have laws which are similar to the federal anti-kickback laws. These
state laws apply to healthcare services performed in the state even when not
reimbursed by Medicare, Medicaid, or other federal health benefit programs. In
order to avoid violating a particular state's anti-kickback law, we will need to
structure our arrangements with other parties such that management is not viewed
as a mechanism to exchange remuneration for referrals of their patients to us or
our allied professionals for healthcare services.
Many states have statutes and regulations that either expressly prohibit or
have been interpreted to prohibit physicians and other healthcare providers from
sharing or splitting fees with unlicensed entities, such as us. Other states
have fee-splitting prohibitions that apply when professional fees are shared
with a referral source or even an unaffiliated licensed professional.
Violations of any of these state laws may result in censure, fines, loss of
a healthcare provider's license, or even criminal penalties. These statutes and
regulations vary from state to state and are often vague and subject to
differing interpretations.
We have not yet opened any Integrated Flagship facilities in California,
Illinois, New Jersey, New York or Texas, but intend to do so. Because of the
corporate practice of medicine, fee-splitting and self-referral prohibitions in
those states, the Company intends to enter into management or facility fee
arrangements with physicians (or professional entities owned by physicians) in
which we will provide office space and management services in exchange for an
upfront negotiated fee. The physician or entity will be responsible for
employing or contracting with physicians, nurse practitioners and other
healthcare professionals and will be solely responsible for all aspects of
diagnostic, clinical and other healthcare services, including the selection,
training, direction and supervision of licensed professionals. We intend to make
clear to the public that our facilities do not provide medical services and that
any medical service provided at our facilities is performed solely by or under
the supervision of the medical professional.
In Florida, where we currently operate several facilities, there is no
corporate practice of medicine prohibition and, accordingly, we are able to
employ or contract with physicians, nurse practitioners and other medical
professionals and to hold ourselves out to the public as providing medical
services. Under the current model, a portion of the total fees paid by the
patient is retained by us as compensation for the management services and office
space that we provide. We do not receive a portion of the fees from patients
relating to the medical professional's rendering of medical services. We are
considering opening a facility in Maryland which, like Florida, does not have a
corporate practice of medicine prohibition. Accordingly, we may operate any
Maryland facility in a manner similar to the manner in which it operates in
Florida.
Licensing
We will be required to obtain licenses from various federal, state, and
local agencies to provide our services. In addition, every state imposes
licensing requirements on the individual medical, dental, and other healthcare
providers with whom we intend to enter into arrangements. Finally, states impose
licensing and other requirements on many of the spa and salon services we
propose to offer.
FDA Regulations
Our Cosmedicine skin care product line will be regulated by the United
States, Department of Health and Human Services, Food and Drug Administration,
the FDA. The Cosmedicine skin care product line consists of products that are
regulated by the FDA as cosmetics and may also be regulated as over-the-counter
drugs. The Food, Drug, and Cosmetic Act, the FD&C Act, the federal law that
governs cosmetics and drugs, defines cosmetics
40
by their intended use, as articles intended to be rubbed, poured, sprinkled, or
sprayed on, introduced into, or otherwise applied to the human body for
cleansing, beautifying, promoting attractiveness, or altering the appearance
(i.e., skin moisturizers). Drugs are defined by their intended use, as articles
intended for use in the diagnosis, cure, mitigation, treatment, or prevention of
disease and articles (other than food) intended to affect the structure or any
function of the body of man or other animals.
Intended use may be established in a number of ways. Among them are:
o Claims stated on the product labeling, in advertising, on the
Internet, or in other promotional materials.
o Consumer perception, which may be established through the product's
reputation.
o Ingredients that may cause a product to be considered a drug because
they have a well known (to the public and industry) therapeutic use.
Some of the Cosmedicine skin care products may meet the definition of both
cosmetics and drugs. This may happen when a product has two intended uses, for
example, moisturizers and makeup marketed with sun-protection claims. Such
products must comply with the requirements for both cosmetics and drugs.
Although not exhaustive, the following is a summary of cosmetic laws and
regulations that may be applicable to the Cosmedicine skin product line.
FDA Cosmetic Requirements
The two most important FDA laws pertaining to cosmetics marketed in the
United States are the FD&C Act and the Fair Packaging and Labeling Act, the
FPLA. FDA's legal authority over cosmetics is different from other products
regulated by the agency, such as drugs, biologics, and medical devices. With the
exception of color additives, cosmetic products and ingredients are not subject
to FDA pre-market approval authority. The FD&C Act prohibits the marketing of
adulterated or misbranded cosmetics in interstate commerce. Violations of the
Act involving product composition - whether they result from ingredients,
contaminants, processing, packaging, or shipping and handling - cause cosmetics
to be adulterated and subject to regulatory action. Improperly labeled or
deceptively packaged products are considered misbranded and subject to
regulatory action. In addition, regulations prohibit or restrict the use of
several ingredients in cosmetic products and may require warning statements on
the labels of certain types of cosmetics. Under the authority of the FPLA, the
Federal Trade Commission, FTC, requires an ingredient declaration to enable
consumers to make informed purchasing decisions. Cosmetics that fail to comply
with the FPLA are considered misbranded under the FD&C Act.
Cosmetic firms are responsible for substantiating the safety of their
products and ingredients before marketing. FDA may take regulatory action if it
has information showing that a cosmetic is adulterated or misbranded. FDA can
and does inspect cosmetic manufacturing facilities to assure cosmetic product
safety and determine whether cosmetics are adulterated or misbranded under the
FD&C Act or FPLA. The agency can pursue action through the Department of Justice
to remove adulterated and misbranded cosmetics from the market. To prevent
further shipment of an adulterated or misbranded product, the agency may request
a federal district court to issue a restraining order against the manufacturer
or distributor of the violative cosmetic. Violative cosmetics may be subject to
seizure. FDA also may initiate criminal action against a person violating the
law.
The FD&C Act does not set forth any regulations that require specific Good
Manufacturing Practices (GMP) or registration requirements for cosmetics but
does so for drug products. The FDA, however, does maintain the Voluntary
Cosmetic Registration Program for cosmetic establishments and formulations that
choose to register.
FTC Regulations
As described elsewhere in this prospectus, the packaging, labeling,
marketing and promotion of our products are subject to regulation by the Federal
Trade commission as well as various state governmental agencies.
41
These regulations will apply directly to our Cosmedicine line of products and
could also be applied to other products and services we offer.
Other Regulation
In addition to government regulation described above, The National
Advertising Division of the Better Business Bureau (NAD) and Network Ad
Clearance Divisions closely monitor product claims. These self-regulatory bodies
require scientific substantiation of claims and can refuse to run non-complying
ads.
Material Agreements
Agreements with Johns Hopkins
On November 21, 2003 we entered into a Consulting Services Agreement with
Johns Hopkins Medicine, acting through Johns Hopkins Health System Corporation,
and the Johns Hopkins University. Under the Agreement, Johns Hopkins agreed to
provide consulting services to us consisting of: (i) review and assessment of
our medical delivery protocol document and (ii) consultation on the development
of outcomes studies methodologies. The agreement also sets forth the conditions
for the use of the Johns Hopkins mark. The term of the agreement is until
November 21, 2008. The agreement may be terminated by either party at any time.
The consideration for the review and assessment services provided by Johns
Hopkins was $5,000 per day. The consideration for the limited use of the Johns
Hopkins mark was $300,000 per year, payable in quarterly installments, and 500
shares of KAAI's series E preferred stock.
We agreed with Johns Hopkins to explore a broader relationship, which we
are currently negotiating. If we agree on the terms of such relationship, we
will be required to make additional payments to Johns Hopkins.
In December 2004 we entered into a Services and Licensing Agreement with
Johns Hopkins Medicine, acting through Johns Hopkins Health System Corporation,
and the Johns Hopkins University. This agreement was subject to the satisfaction
of certain conditions precedent, which we had to satisfy by October 31, 2005. On
November 10, 2005, the period by which we are required to satisfy the conditions
precedent was extended to December 31, 2005. On January 3, 2006, the parties
extended such period until March 31, 2006. Under the Agreement, Johns Hopkins
agreed to provide the following services to us: (i) investigate current methods
for skin care parameter testing at the point of sale; (ii) develop acceptable
methods to measure the condition of clients' skin, (iii) create a new testing
methodology to validate skin care product efficacy, (iv) oversee the ongoing
testing of skin care products using the Johns Hopkins testing standards and (v)
oversee the testing of 15 of our skin care products using the agreed upon
testing standards. The term of the agreement is 5 years after the satisfaction
of the conditions precedent.
Johns Hopkins also agreed that the Company and Sephora may make a factual
statement that (i) certain skin care parameter testing methodologies have been
developed by Johns Hopkins or found by Johns Hopkins to be effective and (ii)
certain skin care products have been found to be effective based on the Johns
Hopkins testing standards.
Under the agreement, we will pay a fee of $5,000 per day to perform the
services and we will provide Johns Hopkins with substantial additional
compensation to be negotiated.
Agreement with Sephora
In December 2004 we entered into a Retail Alliance Agreement with Sephora
USA, LLC. Pursuant to the agreement we granted Sephora the rights to: (i) sell
our Cosmedicine products in the Sephora retails stores, through its website and
any other retail channel, (ii) utilize certain of our intellectual property and
methods in order to operate the KAAI stores within the Sephora stores, (iii)
develop with us the adjacent KAAI facilities and (iv) sublease retails space
from us for the purpose of constructing and operating a Sephora store within our
centers. The term of the agreement is until December 31, 2010.
42
Upon execution of the agreement, Sephora deposited a performance deposit in
an amount of $5 million with an escrow agent, which was subsequently paid to
KAAI. If Sephora, pursuant to the terms of the agreement, terminates the
agreement with us it may have the right to recoup a portion of the $5 million
performance deposit. Sephora will also have the right to earn back its
performance deposit if the arrangement is successful. We will be required to
return to Sephora 50% of the performance deposit at such time that the "Net
Revenues" of Sephora relating to the sale of Cosmedicine products plus Sephora
"Capital Expenditures" (each as defined in the agreement) equals $30 million and
the remaining performance deposit at such time that such "Net Revenues" plus
"Capital Expenditures" equals $60 million. See "Certain Relationships and
Related Pary Transactions - Sephora."
Intellectual Property
We consider trademark protection to be important to our business and we are
the owners of numerous U.S. and foreign trademark applications/registrations.
Significant trademarks include; KAAI, the KAAI logo, KAAI Signature Services,
Klinger Advanced Aesthetics, Cosmedicine, Georgette Klinger, SkinState, Personal
Aesthetics Blueprint, Aesthetic Concierge, Truth is Beauty and the Place of
Possibilities.
We also consider patent protection to be important to our business and we
are the owners of a pending U.S. patent application and related foreign
applications covering systems and methods relating to aesthetic improvement.
Employees
On December 31, 2005, we had 525 employees. We consider our relations with
our employees to be satisfactory. We believe our future will depend in large
part on our ability to attract and retain highly skilled employees.
PROPERTIES
Corporate Headquarters
Our corporate headquarters are located in leased premises at Building No
501, Fifth Floor, 7 Corporate Park, Norwalk, CT 06851.
Integrated Flagships
Our two Integrated Flagships in West Palm Beach and Palm Beach Gardens were
formed by acquiring two leading spa/salons in 2003, and integrating SkinState
diagnostics, medical and Aesthetic Concierge capabilities into the physical
footprint and business flow.
Upon KAAI's formation, we focused significant efforts on re-crafting our
retail space and operations, installing experienced management and overhauling
purchasing, training, merchandising and commission structure.
Other Locations
Our ten other facilities include one spa/salon in Boca Raton and nine
Georgette Klinger properties; these ten locations have not yet been re-launched
with our integrated offering.
Georgette Klinger
We acquired the Georgette Klinger properties in May 2004. To date, changes
since their acquisition have been limited to installing experienced
unit-managers where needed and overhauling the retail training, merchandising
and commission structure. Management expects Georgette Klinger locations to form
the platform for the launch of future Integrated Flagships in New York, Beverly
Hills and Washington DC and Stand-Alone Boutiques in Beverly Hills and
Washington, D.C.
43
Boca Raton
We acquired the Boca Raton spa/salon in late 2003. Changes to date have
been limited to installing experienced unit-managers where needed and
overhauling the retail training, merchandising and commission structure. This
facility is expected to be converted into an Integrated Flagship by late 2006.
The following chart summarizes the relevant data regarding each of our
facilities:
---------------------------------------------------------------------------------------------------------------------------------
Facility Lease
City Address Size Expiration Annual
(sq/ft) Date Base Rent
---------------------------------------------------------------------------------------------------------------------------------
Costa Mesa Southcoast Plaza Retail Center 3,300 1/31/2007 $103,455
(Spa Facility) Suite 2600
Costa Mesa, CA
---------------------------------------------------------------------------------------------------------------------------------
Beverly Hills 131 South Rodeo Drive, 6,530 9/30/2015 $378,300
(Spa Facility) Beverly Hills, CA
---------------------------------------------------------------------------------------------------------------------------------
Dallas Inwood Village Shopping Center 6,856 5/30/2006 $150,832
(Spa Facility) 5560 West Lovers Lane
Suites 250 & 252,
Dallas, TX
---------------------------------------------------------------------------------------------------------------------------------
Millburn The Mall at Short Hills 3,475 1/31/2008 $225,875
(Spa Facility) Store # A139
Millburn, NJ
---------------------------------------------------------------------------------------------------------------------------------
Manhasset 1950 Northern Blvd. 6,313 2/27/2007 $473,475
(Spa Facility) Space A-2
Manhasset, NY
---------------------------------------------------------------------------------------------------------------------------------
Chicago Water Tower Place 4,779 12/31/2012 $215,055
(Spa Facility) Space No. 4035
845 North Michigan Avenue
Chicago, IL
---------------------------------------------------------------------------------------------------------------------------------
Washington Chevy Chase Pavillion 5,551 5/31/2007 $277,550
(Spa Facility) Space No. 4035
5335 Wisconsin Ave. N.W.
Washington, DC
---------------------------------------------------------------------------------------------------------------------------------
Palm Beach The Esplande 2,739 5/31/2010 $92,907
(Spa Facility) Store No. 211
150 Worth Ave.
Palm Beach, FL
---------------------------------------------------------------------------------------------------------------------------------
Hasbrouck Heights Hasbrouck Seventeen 2,260 2/28/2008 $44,070
(Office) 500 Route 17, Suite 307
Hasbrouck Heights, NJ
---------------------------------------------------------------------------------------------------------------------------------
Palm Beach Gardens 5530-5540 PGA Blvd. 8,498 3/7/2008 $186,956
(Spa Facility) Suite 200
Palm Beach Gardens, FL
---------------------------------------------------------------------------------------------------------------------------------
44
---------------------------------------------------------------------------------------------------------------------------------
Facility Lease
City Address Size Expiration Annual
(sq/ft) Date Base Rent
---------------------------------------------------------------------------------------------------------------------------------
West Palm Beach 2511 South Dixie Highway 10,732 6/30/2008 $236,104
(Spa Facility) West Palm Beach, FL
---------------------------------------------------------------------------------------------------------------------------------
Boca Raton Building H 3,889 1/31/2008 $78,868
(Spa Facility) 6853 S.W. 18th Street
Boca Raton, FL
---------------------------------------------------------------------------------------------------------------------------------
Boca Raton Building H 7,923 2/29/2008 $152,325
(Spa Facility) 6877 S.W. 18th Street
Boca Raton, FL
---------------------------------------------------------------------------------------------------------------------------------
New York (Spa) 501 Madison Ave. 13,800 4/30/2013 $800,000
New York, NY
---------------------------------------------------------------------------------------------------------------------------------
New York (Prior Corporate Headquarters) 501 Madison Ave. 3,800 4/30/2013 $152,000
New York, NY
---------------------------------------------------------------------------------------------------------------------------------
Connecticut Building 501 13,340 1/12/2006 $226,780
(Corporate Headquarters) Merritt 7 Corporate Park
Norwalk, CT
---------------------------------------------------------------------------------------------------------------------------------
LEGAL PROCEEDINGS
The Company is a party to legal proceedings in the ordinary course of its
business. Management of the Company does not believe that such legal proceedings
would, if adversely determined, materially adversely affect the business or
financial condition of the Company.
To the Company's knowledge, no director, officer or affiliate of the
Company, and no owner of record or beneficial owner of more than five percent
(5%) of the securities of the Company, or any associate of any such director,
officer or security holder is a party adverse to the Company or has a material
interest adverse to the Company in reference to pending litigation.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of each of our executive
officers and directors as of January 19, 2006.
Name Age Position
---- --- --------
Richard Rakowski 53 Chairman and Chief Executive Officer
John Higgins 45 President and Director
Jane Terker 53 Executive Vice President, Chief Marketing
Officer and Director
Susan Riley 47 Executive Vice President and Chief
Financial Officer
Carolyn Aversano 36 Executive Vice President of Marketing,
Merchandising and Education
Andrew D. Lipman 38 Director
Stephen H. Coltrin 60 Director
|
45
Name Age Position
---- --- --------
Daniel Piette 60 Director
Philippe Franchet 40 Director
|
Richard Rakowski - Chairman and Chief Executive Officer
Richard Rakowski has been Chairman and Chief Executive Officer of KAAI
since its formation in July 2003. He is also a Principal of KCO since March
2002. Prior to joining KCO as a Principal in March 2002, Richard Rakowski's
diverse 26-year career spanned manufacturing, consulting, business development,
marketing, entrepreneurship and the Presidency of American Healthways, Inc.
(NASDAQ: AMHC) from June 2001 to March 2002. From 1992 until 2001, Mr. Rakowski
was a founder of New Paradigm Ventures, a consulting and investment firm in the
health-care and food industry market. He was also a partner at Marketing
Corporation of America. Mr. Rakowski's background also includes process control
consulting work for Fortune 500 Companies in the U.S. and abroad. He holds a BA
from City University of New York.
John Higgins - President
John Higgins is a seasoned operating executive with over 20 years of
professional experience. Prior to joining KAAI in January 2005, Mr. Higgins was
from April 2001 to January 2005 first the Chief Operating Officer and then the
Chief Executive Officer of Spencer Trask & Co., a venture capital firm. At
Spencer Trask he was responsible for the operating performance of the firm, with
an emphasis on the due diligence process for potential investments as well as
the creation and implementation of strategic initiatives for the portfolio
companies. Additionally, Mr. Higgins has held several senior operating positions
including Chief Executive Officer of Priceline Perfect Yardsale from January
2000 to March 2001, Chief Operating Officer for the international division of
the Home Shopping Network, and Executive Vice President of Customer Services for
Victoria's Secret Catalogue. Earlier in his career, Mr. Higgins held various
sales and operating roles at Northwest Airlines, Chase Manhattan Bank, Dreyfus
Service Corporation, and the Bank of New York.
Jane Terker - Executive Vice President, Chief Marketing Officer and Director
Jane Terker has over 30 years experience as a management executive and
business builder. Immediately prior to joining KAAI, Ms. Terker co-founded and
served from December 2001 to July 2004 as President and Chief Operating Officer
of Cradle Holdings, Inc., a company created to acquire and reposition prestige
beauty brands for maximum growth and profitability. From May 1992 to March 1998
Ms. Terker also founded, developed and served as President of the Donna Karan
Beauty Company. Ms. Terker also founded and ran JTP Associates from March 1998
to November 2001, which was a product consulting company with clients including
J Crew, MD Skincare, Linda Cantello Beauty, CCSI inshop.com and Kiss My Face.
Earlier in her career, Ms. Terker held various marketing and retail executive
roles at Esmark, L'Oreal and Glemby International. She holds a BA, magna cum
laude, from New York University and also attended Columbia University's
Executive Education Program.
Susan Riley - Chief Financial Officer
Susan Riley joined KAAI in July 2005. She has over 20 years of experience
as a finance and management executive. Prior to joining KAAI, Ms. Riley was the
Chief Financial Officer and Senior Vice President of Abercrombie and Fitch from
February 2004 to April 2005. Prior thereto, Ms. Riley held the position of Chief
Financial Officer at The Mount Sinai Medical Center in New York from August 2002
to November 2003. She was Vice President and Treasurer of Colgate Palmolive from
January 2001 to August 2002 and Senior Vice President and Chief Financial
Officer of The Dial Corporation from August 1997 to August 2000. Ms. Riley holds
a BS from Rochester Institute of Technology and an MBA from Pace University and
is a Certified Public Accountant.
46
Carolyn Aversano - Executive Vice President of Marketing, Merchandising and
Education
Carolyn Aversano joined KAAI in June 2005. Prior to joining KAAI, Ms.
Aversano worked for Sephora as a Strategic Development Consultant from July 2004
to June 2005. From July 1999 to April 2003, Ms. Aversano was a member of the
startup team for beauty retailer Gloss.com, which was acquired by the Estee
Lauder Companies in 2000. At Estee Lauder Companies she oversaw the e-commerce
businesses of the various Estee Lauder Companies' brands including Estee Lauder,
Origins, Prescriptives, Stila, La Mer, Jo Malone and Kate Spade. Ms. Aversano
holds a BS degree in marketing from New York University.
Andrew D. Lipman - Director
Andrew Lipman was Vice President and one of the founding principals of KCO.
Prior to co-founding KCO in 1996, Mr. Lipman served as a Vice President of the
firm's predecessor, Kidd, Kamm & Company. Earlier in his career, Mr. Lipman was
a management and strategic consultant with The George Group and Andersen
Consulting. He holds a BS in Electrical Engineering from Union College.
Stephen H. Coltrin - Director
Stephen H. Coltrin founded Coltrin & Associates, Inc. in 1982. In addition
to serving as a member of our Board of Directors, Mr. Coltrin also currently
serves as a Vice Chairman on the Board of Directors for the International Radio
and Television Society Foundation, on the National Advisory Board of America's
Freedom Festival at Provo, and on the Advisory and Advancement Council of the
Utah State University Journalism & Communication Department. Mr. Coltrin
received a BS in psychology from Brigham Young University.
Daniel Piette - Director
Daniel Piette co-founded L Capital in June 2001 and serves both as the
President of L Capital Management and as a member of the Supervisory Committee
of the L Capital fund. Additionally, he is a member of Moet Hennessy Louis
Vuitton LVMH Group's Executive Committee. He is also co-founder, Chairman and
CEO of LV Capital. Mr. Piette joined LVMH in 1990 as Group Executive Vice
President. Mr. Piette started his career focus in the fashion luxury sector as
the Brand Operating Officer for the DMC Group. Earlier in his career, Mr. Piette
held the post of Executive Vice President of Manurhin. He was also a manager at
the Bosch Company and a consultant at Arthur D. Little. Mr. Piette graduated
from ESSEC in Paris and also holds an MBA from Columbia Business School.
Philippe Franchet - Director
Philippe Franchet joined L Capital in September 2001 as a director of L
Capital Management. Prior to L Capital, Mr. Franchet was from June 2000 until
June 2001 the Senior Vice President, leading investments for Europatweb, an
Internet investment group formed by Bernard Arnault. Prior to Europatweb, Mr.
Franchet was from January 1998 until June 2000 the Head of Private Equity
Investments for the Lazard Group's two public investment holding companies, Azeo
and Eurafrance (now Eurazeo). While at the Lazard Group, Mr. Franchet and his
team invested approximately FF 500 million in over 15 transactions across a
variety of sectors in countries including France, the UK, the US and Japan.
Earlier in his career, Mr. Franchet was a consultant with McKinsey & Co. and a
financial derivatives market trader with Credit Lyonnais. Mr. Franchet holds an
MSEE from ENST in Paris and an MBA from Harvard Business School.
Other Key Employees
The following employees who are not our executive officers are instrumental to
our business:
Bruce Alexander - Senior Vice President of Operations
Bruce Alexander, age 35, is responsible for the reporting and analysis of
all the Company's operating businesses, as well as the leadership of
reservations, fulfillment, inventory planning, and information technology.
47
Prior to joining KAAI in August 2005, Mr. Alexander served as Managing Director
of Strategy, Planning and Analysis at Spencer Trask & Company, a venture capital
firm, from January 2000 to August 2005. Mr. Alexander held operating and
strategic management positions at Andersen Consulting from September 1998 to
January 1999 and Playtex Products, Inc. from January 1999 to January 2000. Bruce
received his MBA from Duke University in May 1997 and his BA in Economics from
Vanderbilt University in May 1991.
Garry M. Chocky - Vice President of Finance and Controller
Garry M. Chocky, age 52, has been responsible for overseeing KAAI's
accounting function since April, 2004. He served as Vice President and Acting
Chief Financial Officer from January 2005 until July 2005 when he became Vice
President of Finance and Controller. Prior to joining KAAI, Mr. Chocky served as
the controller of Georgette Klinger from December 2000 until April 2004 when the
assets of Georgette Klinger were acquired by KAAI.
Wade Haddad - Senior Vice President of Real Estate and Legal
Wade Haddad, age 39, has been responsible for overseeing KAAI's legal
affairs and the site selection, lease negotiation, store design and construction
of KAAI's locations since July 2005. Prior to joining KAAI, Mr. Haddad worked
for Bieri Company, a specialty retail real estate consulting firm, as the
Director of Leasing, where he managed real estate strategies on behalf of
landlord and tenant clients for Bieri Company from March 2002 to July 2005. From
May 1999 to February 2002, Mr. Haddad worked with The Taubman Company, a
national developer of regional shopping centers, as a Leasing Agent, where he
represented the landlord in lease negotiations with retail tenants on behalf of
The Taubman Company. Mr. Haddad holds a BA in Political Economy from Princeton
University and a JD, magna cum laude, from the University of Detroit School of
Law.
Michael S. Rodriguez - Senior Vice President, Business Development
Michael Rodriguez, age 37, serves as the Senior Vice President of Business
Development of KAAI since September 2003. Prior to joining KAAI, Mr. Rodriquez
founded and ran three business consulting companies in the healthcare and
financial service sectors, Three Realms, LLC, Impact Partners, LLC, and
Broadband Digital, Inc. from April 2000 to September 2003. From May 1995 to
April 2000, Mr. Rodriquez worked with Visa USA where he was employed in senior
management roles in operations, marketing, and business development. From June
1991 to May 1995, Mr. Rodriquez worked with GE Capital. Mr. Rodriguez holds a BA
in Finance and Economics from Southern Methodist University and is also a
graduate of the GE Capital Management Development Program.
Medical Advisory Board
We have a Medical Advisory Board that includes leaders in the medical
aesthetics industry. In addition to Johns Hopkins oversight of medical
governance activities, the Medical Advisory Board includes the following:
Dr. Kaveh Alizadeh - Medical Director and Advisor to the Medical Advisory Board
Dr. Alizadeh is currently a partner and vice president of Long Island
Plastic Surgical Group, the largest and oldest continuously running practice in
North America. He is also the Vice Chairman of Plastic Surgery and Director of
Microsurgery at Winthrop University Hospital, and the curriculum director for
the Nassau University Plastic Surgery Residency Program. Prior to joining Long
Island Plastic Surgical Group, Dr. Alizadeh pursued a year of training in cancer
reconstruction and cosmetic surgery at the Memorial Sloan Kettering Cancer
Center in 1999. Between 1993 and 1999, he carried out specialty training in
surgery and subspecialty training in Plastic and Reconstructive Surgery at the
University of Chicago Hospitals. Dr. Alizadeh earned his medical degree from
Cornell University Medical College.
Dr. Rod Rohrich - Chairman of Medical Advisory Board
Dr. Rod Rohrich is Professor and Chairman, Department of Plastic Surgery,
Crystal Charity Ball Distinguished Chair in Plastic Surgery and Warren and Betty
Woodward Chair in Plastic and Reconstructive
48
Surgery at the University of Texas Southwestern Medical Center in Dallas, Texas.
Dr. Rohrich earned his medical degree from Baylor College of Medicine in
Houston, TX. He completed residencies in both General Surgery and Plastic and
Reconstructive Surgery at the University of Michigan Medical Center in Ann
Arbor, MI. Dr. Rohrich also completed a Fellowship in Hand and Microsurgery at
Massachusetts General Hospital in Boston, MA and a Pediatric Fellowship at
Oxford University in Oxford, England. Dr. Rohrich is board certified in plastic
surgery. He has served as President of the American Society of Plastic Surgery
and has served on the Board of Directors of the American Society of Plastic
Surgery, the Plastic Surgery Educational Foundation, and the American society
for Aesthetic Plastic Surgery. He serves on the Board of the Aesthetic Society
Education and Research Foundation. He is a member of numerous other professional
societies. Dr. Rohrich is the editor-in-chief of Plastic and Reconstructive
Surgery, the most prestigious scientific journal in the world in plastic
surgery. He is the author or co-author of more than 400 articles and book
chapters, five books and has made more than 1500 presentations nationally and
internationally.
Dr. Steven Fagien
Dr. Steven Fagien is our acting Florida Medical Director and has a private
surgical practice in Ophthalmic Plastic and Reconstructive Surgery/Aesthetic
Eyelid Plastic Surgery in Boca Raton, Florida. Dr. Fagien grew up in Florida and
attended college and medical school at the University of Florida, where he also
completed his internship and residency training. He then completed a fellowship
in Ophthalmic Plastic and Reconstructive Surgery at the University of Illinois
in Chicago. Dr. Fagien has earned the reputation as one of the foremost experts
in his field. "W" and "More" magazines and the New York Times have rated him as
one of the best eyelid plastic surgeons in the world. He serves on the medical
advisory boards of many of the largest aesthetic-related companies in the
industry. He also co-chairs the International Plastic Surgery Education
Initiative and the National Education Faculty that instructs surgeons worldwide
on the latest advances in injectable treatments for facial rejuvenation,
including Botox and a host of facial soft tissue augmentation agents.
Dr. Peter Fodor
Dr. Peter Fodor is Associate Clinical Professor of Plastic Surgery at UCLA
Medical Center in Los Angeles. Dr. Fodor graduated from the University of
Wisconsin Medical School and completed his residency training at Columbia
University in New York before obtaining Board Certification in general surgery,
as well as plastic surgery. Dr. Fodor served as President of the Lipoplasty
Society of North America and is on the Board of Directors of the American
Society of Plastic Surgeons and the Plastic Surgery Educational Foundation.
Currently, he is Immediate Past President and Chairman of the Board of Trustees
of The American Society for Aesthetic Plastic Surgery. He has been distinguished
by "W" Magazine as "Best in the World" in body sculpting, as well as named to
the "Best Physicians" list in "Town & Country," and "Los Angeles" magazines and
many other publications.
Dr. Victor Martel
Dr. Victor Martel has a private cosmetic dental practice in Palm Beach,
Florida. He lectures nationally on the topics of Aesthetic Dentistryand
Occlusion. Dr. Martel received his dental degree at the University of Medicine
and Dentistry of New Jersey. Dr. Martel serves on the Board of Directors for the
Atlantic Coast Dental Research Clinic, the Florida Academy of Cosmetic
Dentistry, and is a faculty member of The Dawson Center for Advanced Dental
Studies.
Dr. Mark Rubin
Dr. Mark Rubin is a board certified dermatologist. He is an assistant
clinical professor of dermatology at the University of California, San Diego. In
addition, he has a cosmetic dermatology practice at the Lasky Skin Center in
Beverly Hills, California. Dr. Rubin is the author of textbooks on chemical
peeling, and has written numerous book chapters and articles on skin
rejuvenation, chemical peeling and laser therapy. He has trained physicians in
over 10 countries in his techniques for skin rejuvenation. He is involved in
clinical trials of multiple new products and technologies. Dr. Rubin also serves
on the advisory boards of several skin care, pharmaceutical and medical device
companies.
49
Board of Directors
Our directors are elected annually by our stockholders. They serve until
the next annual meeting of our stockholders or until their successors have been
duly elected and qualified or until their earlier resignation or removal.
We have adopted a code of conduct that applies to all of our directors,
officers (including our Chief Executive Officer and Chief Financial Officer) and
employees.
We presently do not have an audit committee, compensation committee or
nominating committee. We do not have an audit committee charter or a charter
governing the nominating process as our management believes that until this
point it has been premature at the early stage of our management and business
development to form an audit, compensation or nominating committee. However, a
new management plans to form an audit, compensation and nominating committee in
the near future. Until these committees are established, these decisions will
continue to be made by the Board of Directors. Although the Board of Directors
has not established any minimum qualifications for director candidates, when
considering potential director candidates, the Board considers the candidate's
character, judgment, skills and experience in the context of the needs of the
Company and the Board of Directors.